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2018 (11) TMI 1108 - AT - Income TaxRevision u/s 263 - allowance of amortisation of ESOP expenses - rectification proceedings u/s 154 initiated - Held that - AO has not discussed the issue of ESOP at the time of original assessment proceedings, however, in the proceedings initiated under section 154 the assessing officer after examining the details of ESOP discount was satisfied and not disallowed it, being allowable expenses and the assessing officer has taken a possible view. Though, AO has not communicated his order, it should have been communicated to the assessee or the ld. PCIT ought to have confirmed from the assessing officer of his finding on proposed action initiated under section 154, before proceeding further in the matter. Hence, in our view the order passed by assessing officer is not erroneous and therefore the twin condition as enunciated under section 263 are not fulfilled. No revision under section 263 was warranted, on the facts of present case, when the assessing officer on the basis of the material available before him initiated action under section 154 and after examining the issue made no disallowance and taken a possible view in accordance with the law. It is settled law that every loss of revenue as a consequence of a view taken by the Assessing Officer cannot be treated as prejudicial to the interest of the revenue - where two views are possible and the Income-tax Officer has taken one view with which the Commissioner (PCIT) does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. - Decided in favour of assessee.
Issues Involved:
1. Whether the Principal Commissioner of Income Tax (PCIT) erred in holding the assessment order passed under section 143(3) as erroneous and prejudicial to the interest of revenue due to the allowance of amortisation of ESOP expenses. 2. Whether the amortisation of ESOP expenses is a notional loss and not allowable as expenses under section 37(1) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Erroneous and Prejudicial Assessment Order: The appeal by the assessee challenges the PCIT's order dated 8th February 2016, which revised the assessment order for the Assessment Year 2009-10. The PCIT held that the assessment order passed under section 143(3) on 15th January 2014 was erroneous and prejudicial to the interest of revenue due to the allowance of amortisation of ESOP expenses amounting to ?6,16,09,455/-. The PCIT argued that the assessing officer did not verify whether the ESOP expenses claimed by the assessee were allowable and how the claim was calculated. The PCIT directed the assessing officer to make a fresh assessment order after giving the assessee an opportunity to present their case. 2. Notional Loss and Allowability under Section 37(1): The assessee contended that the ESOP discount represents employee remuneration and is thus a revenue expenditure, allowable as a deduction under section 37(1) of the Income Tax Act. The assessee supported their claim by referencing several legal decisions, including the Supreme Court's ruling in Malabar Industrial Co Ltd vs. CIT and the Special Bench of Bangalore Tribunal in Biocon Ltd vs. DCIT, which held that the discount on ESOP is an allowable expense under section 37 during the year of vesting. Assessment and Rectification Proceedings: The assessing officer had initially passed the assessment order after considering the record and making various adjustments and disallowances. Subsequently, a notice under section 154 was issued, pointing out that the ESOP expenses claimed represented a notional loss. The assessee responded, explaining that the ESOP discount is an allowable expense under section 37 and requested that the disallowance be reconsidered. The assessing officer did not pass an order rectifying the proposed mistake, indicating acceptance of the assessee's contention. PCIT's Jurisdiction and Twin Conditions: The PCIT's contention that the assessment order was erroneous and prejudicial to the interest of revenue was based on the lack of verification by the assessing officer. However, the tribunal noted that the assessing officer had considered the details of the ESOP expenses during the rectification proceedings and had not disallowed them, indicating that a possible view was taken. The tribunal cited the Supreme Court's decision in Malabar Industrial Co Ltd, which stated that for an order to be revised under section 263, it must be both erroneous and prejudicial to the interest of revenue. The tribunal also referenced the jurisdictional High Court's ruling in CIT vs. Gabriel India Ltd, emphasizing that an order cannot be termed erroneous unless it is not in accordance with law. Conclusion: The tribunal concluded that the assessing officer had taken a possible view based on the material available and had not disallowed the ESOP expenses. Therefore, the assessment order was not erroneous, and the twin conditions under section 263 were not fulfilled. The tribunal allowed the appeal of the assessee, stating that no revision under section 263 was warranted in this case. The order pronounced in the open court on 19/09/2018 allowed the appeal of the assessee.
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