2019 (12) TMI 963 - AT - Income Tax

Addition made on account of deferred income - method of accounting - HELD THAT - As per the consistently followed accounting method and revenue recognition policy, the assessee offers reasonably attributable time share income in the year in which the purchaser of time share units becomes a member and the balance amount of the membership fee, though, is recognized as time share income, however, it is offered as income in equal proportion over a period for which the holiday facilities are provided to the member commencing from the year in which the member is entitled to benefits of membership under the scheme. Accordingly, the assessee offers 45% as membership fee as income and defers the balance 55% to subsequent years. This method of revenue recognition is being followed by the assessee consistently from past several years. It is also evident, whether the deferred income is to be treated as income of the assessee in the year of receipt, is a subject matter of dispute in the past years and the Tribunal while deciding the issue in AYs. 2002-03, 2006-07, has deleted the addition made by the A.O. on account of time share income. A.O. has made the addition by not applying the decisions of the Tribunal simply on the plea that the department has not accepted the decision of the Tribunal. In our view, this cannot be a valid reason for not following the decision of the Tribunal rendered in the assessee s own case. In our considered opinion, the issue at hand stands fully covered by the decision of the Tribunal in assessee s own case as referred to above. - Decided in favour of assessee. Disallowance of Employee Stock Option Plan (ESOP) expense/cost - HELD THAT - ESOP expenditure debited to the profit and loss account represents the difference between the fair market value and the issue price of the stocks. It is also evident that the assessee has provided for such cost in terms with SEBI guidelines. The Hon ble Madras High Court in the case of PVP Ventures 2012 (7) TMI 696 - MADRAS HIGH COURT has allowed similar expenditure claimed by the assessee. In fact, in case of Biocon Limited vs. Dy. CIT 2014 (12) TMI 838 - ITAT BANGALORE has also allowed ESOP expenditure/cost.

Summary

Issues:
Deletion of addition made on account of deferred income.
Deletion of disallowance of Employee Stock Option Plan (ESOP) expense/cost.

Issue 1: Deletion of addition made on account of deferred income

The appeals by the Revenue arose from three separate orders of the Commissioner of Income Tax (Appeals) related to the assessment years 2011-12, 2012-13, and 2013-14. The primary issue was the deletion of an addition made on account of deferred income. The assessee, a resident company engaged in the business of running resorts and hotels, had a revenue recognition policy where a portion of the membership fee was recognized as income in the year of membership acquisition, and the remaining amount was deferred over the period of providing holiday facilities. The Assessing Officer treated the entire membership fee received during the year as income, contrary to the assessee's consistent method. The Commissioner, noting the Tribunal's decisions in favor of the assessee in previous years, deleted the additions made by the Assessing Officer. The ITAT upheld the Commissioner's decision, emphasizing that the issue was already settled in the assessee's favor by the Tribunal in previous years, and no contrary decision was presented by the department.

Issue 2: Deletion of disallowance of Employee Stock Option Plan (ESOP) expense/cost

The second common issue in the appeals related to the disallowance of ESOP expenses debited to the profit and loss account. The Assessing Officer disallowed the ESOP expenses, citing contravention to SEBI guidelines and previous Tribunal decisions. The assessee relied on the decision of the Madras High Court and argued that the ESOP expenses were justified. The Commissioner, finding the issue covered by the Madras High Court decision, deleted the disallowances made by the Assessing Officer. The ITAT upheld this decision, noting that the ESOP expenditure represented the difference between fair market value and issue price of stocks, and that similar expenditure had been allowed in previous judicial precedents. The ITAT dismissed the appeals, affirming the Commissioner's decision on this issue.

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