2019 (3) TMI 1862 - AT - Income Tax

Disallowance of stock appreciation right - Disallowance on account of the difference between purchase price of Stock Appreciation Right ( SAR ) and the sale price of such SAR at the time of its exercise by the employees of the appellant holding the same to be capital loss not allowable business deduction - HELD THAT - As decided in own case 2017 (10) TMI 589 - ITAT DELHI difference between the sale price of the share and the purchase price of the share was claimed by the assessee as deduction as employee compensation. In the identical circumstances. With respect to one of the group companies, Religare commodities Ltd for assessment year 2008-09 identical issue arose before the coordinate bench 2017 (1) TMI 783 - ITAT DELHI claim of the assessee with respect to both the above items were allowed. The above expenditure on account of employee stock option scheme is an ascertained liability for deduction - the expenses debited is cost of employee stock option plan in the profit and loss account is an allowable expenditure. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of Stock Appreciation Right (SAR) expenses.
2. Disallowance based on the order of the predecessor for AY 2008-09.

Issue 1: Disallowance of Stock Appreciation Right (SAR) expenses:

The appellant contested the disallowance of ?223,761 on the grounds that the differential amount between the purchase price of Stock Appreciation Right (SAR) and the sale price should be considered an employee benefit under section 37(1) of the Income Tax Act, 1961. The appellant argued that the SAR scheme was designed to motivate and retain key employees, with each SAR granted equivalent to one share of Religare Enterprises Ltd. The appellant also claimed that the differential amount represented a loan granted to the Trust for administering the SAR scheme, which was not recovered. The Commissioner of Income tax (Appeals) upheld the disallowance, citing capital loss not allowable as a business deduction. The Tribunal, however, referred to a previous decision in favor of the appellant for AY 2008-09, where the issue was decided in favor of the appellant. The Tribunal highlighted that the SAR expenses were revenue expenditure in nature, allowing the appeal of the assessee based on precedents and legal provisions.

Issue 2: Disallowance based on the order of the predecessor for AY 2008-09:

The appellant raised concerns regarding the sustaining of the disallowance by the Commissioner of Income tax (Appeals) based on the order passed by his predecessor for AY 2008-09. The appellant argued that the Tribunal had previously ruled in favor of the assessee for the same issue in AY 2008-09, a decision that was also upheld by the High Court. The Tribunal, in the current case, reiterated that the issue in dispute had already been decided in favor of the appellant for AY 2008-09, and hence, the appeal of the assessee should be allowed. The Departmental Representative could not challenge the fact that the appeal for AY 2008-09 was decided in favor of the assessee. The Tribunal, following the precedent and legal principles, allowed the appeal of the assessee based on the earlier favorable decision and upheld the findings of the High Court in a subsequent case.

In conclusion, the ITAT Delhi allowed the appeal of the assessee, emphasizing the precedential value of previous decisions and legal provisions in determining the disallowance of Stock Appreciation Right expenses and overturning the decision of the Commissioner of Income tax (Appeals). The judgment highlighted the importance of consistent application of legal principles and adherence to precedents in tax matters.