2023 (5) TMI 908 - AT - Income Tax

Addition of share premium receipt u/s 56(2)(viib) - valuation report submitted by the assessee company was not substantiated by the assessee company - CIT-A deleted the addition - HELD THAT - Assessee has used recognized discounted cash flow method. This is duly recognized method as per section 56(2)(viib) of the Act read with rule 11UA of the Income Tax Rules. AO has rejected this method by comparing the subsequent performance with the projections by claiming that this was not correct. CIT(A) noted that the AO s rejection of the DCA value on the basis of variation between the projections used for arriving at the DCF valuation and the subsequent performance is not correct. CIT(A) has passed a well reasoned order and rightly relied upon the order of Cinestaan Entertainment (P) Ltd. 2019 (6) TMI 1367 - ITAT DELHI . Accordingly, we do not find any infirmity in the order of the Ld. CIT(A), hence we uphold the same. Disallowance of ESOP expenses by relying on case of Biocon Ltd . 2013 (8) TMI 629 - ITAT BANGALORE - CIT-A deleted addition - HELD THAT - We find that this issue is squarely covered by the decision of Lemon Tree Hotels 2015 (11) TMI 404 - DELHI HIGH COURT and New Delhi Television Ltd. 2016 (7) TMI 1486 - DELHI HIGH COURT wherein it has been held that expenditure under ESOP is an allowable expense. Hence, we find that the Ld. CIT(A) has passed a correct order and we do not need to interference on our part. Accordingly, this appeal by the Revenue is dismissed.

Summary

Issues involved:
The issues involved in this judgment are:
1. Whether the addition of share premium receipt under section 56(2)(viib) of the Income Tax Act, 1961 was correctly deleted by the Ld. CIT(A).
2. Whether the disallowance of ESOP expenses was justified.

Issue 1: Share Premium
The assessee company, a software company, issued preference shares and received share premium during the year. The Assessing Officer questioned the valuation of the shares and asked for justification under Section 56(2)(vi) (b) of the Act. The assessee justified the fair market value based on the Discounted Cash Flow (DCF) method. The Assessing Officer made an addition of the share premium amount, which was later deleted by the Ld. CIT(A). The Ld. CIT(A) found that the shares were issued based on a valuation report prepared by Chartered Accountants using the DCF method, which is a recognized method under the Income Tax Rules. The Ld. CIT(A) upheld the deletion of the addition, noting that the Assessing Officer's rejection of the DCF valuation was incorrect. The ITAT upheld the Ld. CIT(A)'s order, citing the decision in the case of Cinestaan Entertainment (P) Ltd. vs Income Tax Officer.

Issue 2: ESOP Expenses
The Assessing Officer disallowed the claim of ESOP expenses made by the assessee company. The Ld. CIT(A) deleted the addition, relying on the jurisdictional Delhi High Court's decision in the case of Lemon Tree Hotels and New Delhi Television Ltd., which held that expenditure under ESOP is an allowable expense. The ITAT found that the issue was squarely covered by the Delhi High Court's decision and upheld the Ld. CIT(A)'s order, dismissing the Revenue's appeal.

In conclusion, the ITAT upheld the Ld. CIT(A)'s decision to delete the addition of share premium receipt and allowed the claim of ESOP expenses based on relevant legal precedents and reasoning.