2023 (4) TMI 535 - AT - Income Tax

Disallowance of Employee Stock Option Plan (ESOP) cost claimed as expenditure - TDS credit for a lesser amount than was available - CIT(A) in sustaining the disallowance to the tune of 30% of the ESOP cost and not allowing the full TDS credit - Main plank of the argument of the AR is that the order of the learned CIT(A) does not address any of the contentions raised by the assessee in their written submissions filed before AO and also the CIT(A) nor to the material submitted by the assessee - HELD THAT - We are of the considered opinion that the exercise, if any, done by the learned CIT(A) in formulating the opinion that various contentions raised by the assessee to the effect that ESOP expenditure is a revenue expenditure allowable in the hands of the employer are not acceptable is not reflected on the face of the order. No reasons are forthcoming for invoking the provisions under section 17(2)(vi)(c) of the Act against the repeated contentions of the assessee that for the reasons stated in their written submissions, such an expenditure has to be allowed in the hands of the employer. Reasons are the life blood for any judicial/quasi-judicial order without which it would be difficult for the appellate authority to sustain or overrule the findings reached by the authorities. As rightly pointed out by the learned AR, the reasons are conspicuous by their absence and, therefore, we find it difficult to know the mind of the first appellate authority. We deem it just and proper to set aside the impugned order and restore the appeal to the file of the learned CIT(A) to dispose it of by way of speaking order, after affording an opportunity to both the parties - Appeals are treated as allowed for statistical purposes.

Summary

Issues involved:
The judgment involves the disallowance of Employee Stock Option Plan (ESOP) cost claimed by the assessee as expenditure and the allowance of TDS credit for a lesser amount than was available for the assessment year 2017-18.

Summary:

ESOP Cost Disallowance:
During the scrutiny of the return of income, the Assessing Officer disallowed the ESOP cost claimed by the assessee as expenditure and allowed a lesser TDS credit. The assessee contended that the ESOP scheme allowed deduction of the difference between market price and grant price of shares under section 37(1) of the Act. Citing case law, the assessee argued that incurring an expenditure through issuing shares at a price lower than Fair Market Value qualifies as an 'expenditure' under the Act. Additionally, the assessee referred to section 17(2)(vi) of the Act, stating that the discount enjoyed by employees under ESOP scheme constitutes a revenue expenditure for the business. The CIT(A) disallowed 30% of the ESOP cost under section 40(a)(ia) due to the assessee's failure to furnish employee details, and did not address the shortfall in TDS credit.

Judgment Analysis:
The Tribunal found the CIT(A)'s order lacking in addressing the contentions raised by the assessee and not providing reasons for disallowing the ESOP cost. It noted the absence of reasoning for invoking section 17(2)(vi)(c) against the assessee's arguments. Emphasizing the importance of reasons in judicial orders, the Tribunal set aside the order and directed the CIT(A) to pass a speaking order after affording both parties an opportunity. The Tribunal deemed it necessary for the CIT(A) to provide detailed reasons for the conclusions reached.

Conclusion:
The Tribunal allowed both appeals for statistical purposes and remanded the case back to the CIT(A) for a comprehensive and reasoned decision, highlighting the need for proper justification in tax matters.