2021 (4) TMI 104 - AT - Income Tax

Expenditure related to ESOP - HELD THAT - These expenses were incurred in the course of business of assessee and were let out as well as expanded wholly and exclusively for the business purpose only. Though in the original order of assessment, the Assessing Officer has not taken cognizance of this aspect and the assessee also has not made this claim it is not justifiable on the part of the CIT(A) in rejecting this additional claim. Therefore, we direct the Assessing Officer to examine this claim as per the law and allow these expenses/expenditure in respect of ESOP according to the provisions of law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. The appeal of the assessee is partly allowed for statistical purpose.

Summary

Issues:
Non-grant of additional claim for deduction of ESOP expenses amounting to ?55,09,865.

Analysis:
The appeal was filed against the order passed by CIT(A)-4 New Delhi for the assessment year 2013-14. The assessee, a wholly-owned subsidiary of a US company, engaged in manufacturing medical catheters, filed its return of income declaring total income at ?2,82,98,450. The assessment under section 143(3) of the Income Tax Act was completed assessing the total income as per the filed return. The assessee raised various grounds in the appeal, including the non-grant of an additional claim for the deduction of ESOP expenses amounting to ?55,09,865. The CIT(A) partly allowed the appeal, rejecting the additional claim of ESOP expenses. The assessee contended that the claim should not have been rejected, citing relevant Supreme Court decisions. The Revenue authorities relied on the assessment order and the CIT(A)'s decision.

The Tribunal noted that the claim for ESOP expenditure was submitted during the assessment proceedings but was not considered by the Assessing Officer in the final assessment order. The Tribunal observed that various Supreme Court decisions allowed such expenses as they were incurred wholly and exclusively for business purposes. The Tribunal directed the Assessing Officer to re-examine the claim and allow the expenses related to ESOP in accordance with the law. The Tribunal emphasized the importance of providing the assessee with a hearing opportunity following the principles of natural justice. Accordingly, the appeal of the assessee was partly allowed for statistical purposes.

In conclusion, the Tribunal directed the Assessing Officer to reconsider the claim for ESOP expenses, emphasizing that the expenses were incurred for business purposes and should be allowed in accordance with relevant legal provisions. The Tribunal highlighted the need for the assessee to be given a fair hearing in line with the principles of natural justice.