9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (7) TMI 165 - AT - Income TaxESOP expenses u/s 37 of the Act - Sum debited to P&L account under ESOP Reliance place on Circular No. 9 of 2007 dated 20.12.2007 - Chargeability of Fringe Benefit Tax on ESOP - Whether the assessees claim for deduction under the head Employees Stock Option Cost (ESOP) is an allowable expenditure u/s 37 of the Act - Held that - AO and CIT(A) has relied upon the circular issued by the CBDT NO. 9 of 2007, for refusal of the claim of the assessee - a perusal of the circular reveals that the subject it deals with is given as Explanatory circular on Fringe Benefit Tax Arising on allotment or transfer of specified securities or sweat equity shares Relying upon Biocon Ltd. Vs. DCIT 2013 (8) TMI 629 - ITAT BANGALORE - the discount on issue of Employee Stock Option is an allowable deduction in computing the income under the head Profit and gains of business or profession - the liability to pay the discounted premium is incurred during the vesting period and the amount of such deduction is to be found out as per the terms of the ESOP scheme by considering the period and percentage of vesting during such period - AO directed to allow the expenditure Decided in favour of Assessee.
Issues:
Confirmation of disallowance of ESOP expenses by Assessing Officer and CIT(A). Analysis: Issue 1: Disallowance of ESOP expenses The appellant appealed against the disallowance of Rs. 1,28,19,169 representing the sum debited to the Profit & Loss Account under the head "Employees Stock Option Cost (ESOP)." The Assessing Officer disallowed the claim after detailed scrutiny, which was upheld by the CIT(A). The appellant argued that the ESOP expenses were allowable as a deduction, citing judicial pronouncements and SEBI regulations. The appellant contended that the expenditure was an ascertained liability and not a contingent one. The Department, however, relied on Circular No. 9 of 2007 by CBDT, stating that ESOP expenditure is not allowable if shares are allotted from the company's own share capital. Issue 2: Interpretation of CBDT Circular and Legal Precedents The Tribunal analyzed the CBDT Circular No. 9 of 2007 and found it irrelevant to the issue at hand, as it pertained to Fringe Benefit Tax on specified securities. The Tribunal referred to the decision in Biocon Ltd. Vs. DCIT, where the Special Bench held that the discount on issue of Employee Stock Option is an allowable deduction under the Income Tax Act. The Tribunal emphasized that the discounted premium under ESOP is considered a fringe benefit provided by the employer to employees, constituting an allowable expenditure. The Tribunal also noted that in previous assessment years, the appellant's claim for ESOP expenses was allowed by the CIT(A). Judgment: The Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to allow the expenditure incurred by the appellant in respect of the ESOP claim, in accordance with the legal precedent established by the Special Bench in Biocon Ltd. The appeal of the assessee was allowed, emphasizing the deductibility of ESOP expenses as per the law laid down in the mentioned case. This detailed analysis of the judgment provides insights into the legal reasoning and application of precedents in resolving the issue of disallowance of ESOP expenses, ensuring a comprehensive understanding of the case.
|
