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2022 (1) TMI 1099 - AT - Income TaxRevision u/s 263 by CIT - allowability of ESOP expenditure - HELD THAT - Vesting period from the date of grant of each ESOP scheme is only one year and only the exercise period is four years from the date of vesting. We find that the decision of Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE says that the discount premium should be claimed evenly over the vesting period. In the instant case, from the aforesaid disclosures made in the audited financial statements, it is very much evident that the vesting period is only one year. Hence, the entire discount premium had to be claimed as expenditure in the year of vesting. We find that no ESOP expenses are debited by the assessee in A.Y. 2013-14 which is accepted by the ld. PCIT itself and which fact is also staring from the audited financial statements of the assessee. Hence, the additional compensation cost on account of ESOP has been debited as 'expenditure' by the assessee in the year of vesting i.e. A.Y. 2012-13 rightly, which is also in consonance with the decision of the Hon'ble Special Bench of Bangalore Tribunal in the case of Biocon Ltd., We find that the ld. PCIT had erroneously proceeded based on incorrect assumption of fact that the vesting period of the claim is four years. As stated earlier the vesting period is only one year and the same falls in A.Y. 2012-13. No hesitation in holding that assessee had rightly debited the ESOP compensation cost of ₹ 32.55 Crores in the year of vesting as an expenditure which is in accordance with Special Bench decision of Biocon Ltd., and that the ld. PCIT had invoked revisionary jurisdiction based on incorrect assumption of fact. Apart from this, we also hold that adequate enquiries were indeed made by the ld. AO in the course of assessment proceedings. The law is now very well settled that the revision jurisdiction u/s. 263 of the Act could be invoked only for 'lack of enquiry' and not for 'inadequate enquiry'. Hence, we have no hesitation in quashing the revision order passed by the ld. PCIT in this regard. Accordingly, the grounds raised by the assessee on account of ESOP expenditure are allowed. Allowability of provision of interest u/s. 234D of the Act, while computing the demand payable u/s. 115JB - From the initial paragraph of this order, it could be seen that the scrutiny assessment was ultimately completed by the ld. AO u/s. 143(3) of the Act dated 17/05/2016 and ultimately the income was determined under normal provisions of the Act. We also find from the said order, that the tax payable under normal provisions of the Act was much more than the prescribed percentage of tax payable u/s. 115JB - Hence, the income was finally determined only under normal provisions of the Act by the ld. AO. The ld. AR argued that even there is some error in the computation of book profits and consequently in the computation of tax and interest thereon, when the income is ultimately computed under normal provisions of the Act, the mistake in computation of book profits u/s. 115JB of the Act would not cause any prejudice to the interest of the Revenue. We are unable to accede to this argument advanced by the ld. AO, in view of the fact that the interest u/s. 234D of the Act indeed partakes the character of income tax and the income tax demand is supposed to be added back while computing book profits u/s. 115JB of the Act under Explanation 1(a) to Section 115JB(2) of the Act while computing the book profits. Hence, the action of the ld. PCIT in invoking revision jurisdiction is upheld in this regard. Decided partly in favour of assessee.
Issues Involved:
1. Justification of invoking revisionary jurisdiction under Section 263 of the Income Tax Act. 2. Allowability of Employee Stock Option Scheme (ESOP) expenses under Section 37(1) of the Income Tax Act. 3. Allowability of provision of interest under Section 234D of the Income Tax Act. 4. Direction to initiate penalty under Section 271(1)(c) of the Income Tax Act. Detailed Analysis: 1. Justification of Invoking Revisionary Jurisdiction under Section 263: The primary issue was whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revisionary jurisdiction under Section 263 of the Income Tax Act for the assessment years 2012-13 and 2013-14. The PCIT issued a show-cause notice on the grounds that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the Revenue. The PCIT specifically questioned the allowability of ESOP expenses and the provision of interest under Section 234D. The Tribunal found that the AO had made adequate inquiries during the assessment proceedings, particularly regarding the ESOP expenses, and had duly considered the assessee’s submissions. Therefore, the Tribunal held that the PCIT’s assumption of revisionary jurisdiction based on the claim that the AO had not made sufficient inquiries was incorrect. The Tribunal quashed the revision order passed by the PCIT on this ground. 2. Allowability of ESOP Expenses under Section 37(1): The Tribunal examined whether the ESOP expenses amounting to ?32.55 Crores were allowable under Section 37(1). The PCIT had relied on the Delhi Tribunal’s decision in Ranbaxy Laboratories Ltd. and the Special Bench decision in Biocon Ltd., arguing that the ESOP expenses should be spread over the vesting period. The assessee contended that the entire ESOP expense was debited in the year of vesting, in line with the Special Bench decision in Biocon Ltd., as the vesting period was one year. The Tribunal found that the assessee had adequately disclosed and explained the ESOP expenses in the audited financial statements and during the assessment proceedings. The Tribunal concluded that the assessee had correctly debited the ESOP expenses in the year of vesting, and the PCIT’s revisionary jurisdiction was based on an incorrect assumption of facts. Hence, the Tribunal allowed the assessee’s claim for ESOP expenses. 3. Allowability of Provision of Interest under Section 234D: The PCIT also assumed revisionary jurisdiction on the ground that the AO did not consider the provision of interest under Section 234D while computing the demand payable under Section 115JB. The Tribunal noted that the AO had ultimately determined the income under normal provisions, which was higher than the tax payable under Section 115JB. The Tribunal held that since the income was computed under normal provisions, any error in the computation of book profits under Section 115JB would not prejudice the Revenue’s interests. However, the Tribunal upheld the PCIT’s action in invoking revisionary jurisdiction for this issue, as interest under Section 234D partakes the character of income tax and should be added back while computing book profits under Section 115JB. 4. Direction to Initiate Penalty under Section 271(1)(c): The assessee challenged the PCIT’s direction to initiate penalty proceedings under Section 271(1)(c). The Tribunal deemed this issue premature for adjudication at this stage and did not provide a specific ruling on it. Conclusion: The Tribunal quashed the PCIT’s revision order regarding the allowability of ESOP expenses, holding that the AO had made adequate inquiries and the assessee had correctly debited the expenses in the year of vesting. The Tribunal upheld the PCIT’s revisionary jurisdiction concerning the provision of interest under Section 234D. The direction to initiate penalty proceedings under Section 271(1)(c) was considered premature. Consequently, the appeals for both assessment years were partly allowed.
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