2023 (5) TMI 1139 - AT - Income Tax

Rectification u/s 154 - Debatable issue - disallowance of deduction of employee share based payment reserve by treating it as contingent liability - whether the AO could disallow deduction of employee share based payment in proceedings u/s 154? - CIT(A) held that since the issue is debatable, therefore, could not have been disallowed in proceedings u/s 154 - As per the contention of the assessee, the cost accrued over the period of rendition of services by the employee was deductible in the year of its accrual that is over the vesting period - HELD THAT - CIT(A) after considering submissions of the assessee placed reliance on the decisions of Biocon Limited 2013 (8) TMI 629 - ITAT BANGALORE , PVP Ventures Limited 2012 (7) TMI 696 - MADRAS HIGH COURT and the decision of NDTV 2017 (2) TMI 1399 - DELHI HIGH COURT before the CIT(A) and held that such cost cannot be considered as contingent in nature Assessee before the CIT(A) brought on record that for AY 2011-12, the AO has allowed the claim of such expenses. The CIT(A) in these facts held that disallowance of employee share based payment was not permissible u/s 154 of the Act and deleted the addition. We find no infirmity in the impugned order, hence, the same is upheld and appeal of the Revenue is dismissed being devoid of any merit. Appeal of revenue dismissed.

Summary

Issues involved:
The appeal pertains to the order passed under section 154 of the Income Tax Act, 1961 for the assessment year 2009-10, involving the addition of Rs. 5,41,73,264 on account of employees' share-based payment.

Issue 1: Addition of employees' share-based payment under section 154 of the Act

The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) regarding the addition of Rs. 5,41,73,264 on account of employees' share-based payment for the assessment year 2009-10. The Assessing Officer added this amount to the total income assessed under section 143(3) r.w.s. 144C(3) of the Act, revising the taxable income. The assessee contended that the amount represents additional compensation/reward given to employees, qualifying as revenue expenditure. The CIT(A) held that the disallowance of the deduction in proceedings under section 154 of the Act was not permissible as the issue was debatable. The CIT(A) relied on precedents and held that the cost cannot be considered contingent in nature. The Special Bench decision in the case of Biocon Limited was cited, supporting the deduction of employee share-based payment as revenue expenditure. The CIT(A) also noted that for a subsequent assessment year, the AO had allowed the claim of such expenses. Consequently, the addition was deleted by the CIT(A), and the appeal of the Revenue was dismissed for lacking merit.

Conclusion:
The appeal of the Revenue and the Cross Objection of the assessee were both dismissed by the Appellate Tribunal, upholding the decision of the Commissioner of Income Tax (Appeals) regarding the addition of employees' share-based payment.