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2018 (1) TMI 320 - AT - Income TaxReopening of assessment - discount on shares allotted by the assessee to its employees under the ESOP scheme out of its share capital disallowed - Held that - We find that the A.O while framing the assessment had specifically observed that the claim of the assessee towards entitlement of discounted premium on ESOP s as an expenditure under sec. 37(1) was though found to be in accordance with the principle laid down by the Special Bench of the Tribunal in the case of Biocon Ltd. (2013 (8) TMI 629 - ITAT BANGALORE), however, as the order of the Special Bench of the Tribunal had not been accepted by the department and had been assailed before the Hon ble High Court of Karnataka, therefore, the claim of the assessee as regards allowability of discounts on ESOP s could not be accepted. We are unable to persuade ourselves to subscribe to the aforesaid view of the A.O that the order of the Special Bench of the Tribunal was not to be followed for the reason that an appeal had been filed by the department against the said order before the Hon ble High Court of Karnataka. We find that it is not the case of the department that either the order of the Special Bench of the Tribunal in the case of Biocon Ltd. (supra) had been set aside or the operation of the same had been stayed by the Hon ble High Court. We are unable to comprehend that as to how the A.O despite conceding that the claim of the assessee as regards allowability of the discount of ESOP s was in accordance with the principle laid down by the Special Bench of the Tribunal in the case of Biocon Ltd. (supra), could still decline to adjudicate the issue under consideration in terms with the order of the Special Bench . - Decided against revenue
Issues Involved:
1. Validity of the reopening of assessment under Section 147. 2. Allowability of the expenditure on Employee Stock Option Plans (ESOPs) under Section 37(1) of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of the Reopening of Assessment under Section 147: The assessee's case was reopened under Section 147, with one of the reasons being the disallowance of the discount on shares allotted under the ESOP scheme. The assessee contended that the reopening was based on a mere change of opinion on the same facts and records available during the original assessment. The assessee argued that it had made a full and true disclosure regarding the ESOP expenditure in its notes to accounts. However, the Assessing Officer (A.O.) upheld the reopening, stating that the reassessment was valid. 2. Allowability of the Expenditure on ESOPs under Section 37(1): The primary contention was whether the discount on ESOPs could be claimed as an expenditure under Section 37(1). The assessee cited the Special Bench decision in the case of Biocon Ltd., which allowed such a claim. The A.O. acknowledged the similarity of facts with Biocon Ltd. but disallowed the claim, stating that the decision of the Special Bench had not been accepted by the department and was under appeal before the Karnataka High Court. The CIT(A) upheld the validity of the reassessment but allowed the deduction, following the Special Bench decision in Biocon Ltd. and the jurisdictional ITAT Mumbai's decision in Mahindra and Mahindra Ltd. The CIT(A) concluded that the ESOP discount was a mode of compensating employees and thus allowable as an expenditure. Tribunal's Observations and Decision: The Tribunal noted that the Special Bench in Biocon Ltd. had comprehensively addressed the issue, concluding that the ESOP discount was an allowable business expenditure under Section 37(1). The Tribunal highlighted that the A.O.'s refusal to follow the Special Bench's decision, despite acknowledging its applicability, was unjustified, especially since there was no stay or reversal of the Special Bench's order by any higher court. The Tribunal emphasized the importance of judicial discipline and the obligation of the A.O. to follow the prevailing legal precedent. It found no infirmity in the CIT(A)'s order, which was based on established judicial principles. Conclusion: The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the ESOP discount as an expenditure under Section 37(1). The order underscored the necessity for tax authorities to adhere to judicial precedents unless specifically overturned or stayed by a higher judicial forum.
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