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2023 (9) TMI 1221 - AT - Income TaxTP Adjustment - ALP of the ESOP Expenses Determined at NIL - reimbursement towards ESOP expenses - HELD THAT - AO and the TPO had failed to appreciate that the expenses for which deduction has been claimed by the Appellant pertain to RSUs granted in 2015 and exercised in the FY 2017-18. The ESOP expenses related to the RSUs granted and exercised were claimed as deduction by the Appellant over the vesting period. During the relevant previous year, the ESOP expenses were also remitted outside India on the basis of invoices raised upon the Appellant by its AE. Therefore, deduction for the ESOP expenses was claimed by the Appellant during the relevant previous year. Benefit accruing on account of ESOP plans - We find merit in the contention advanced on behalf of the Appellant that for the purpose of granting the RSUs to the employee of the Appellant was to retain and motivate him for continuing his employment with the Appellant. The cost incurred by AE on exercise of the RSUs by the employee of the Appellant is the cost reimbursed by the Appellant which was initially picked up by the AE. We hold that given the facts and circumstances of the present case discussed hereinabove, the ALP of the ESOP Expenses cannot be taken as Nil . The transfer pricing addition therefore, set aside and TPO/AO is directed to re-compute ALP and the transfer pricing adjustment, if any, by following the method adopted by the Appellant for determination of ALP of the international transaction of reimbursement of ESOP Expenses.
Issues involved:
The appeal against the Assessment Order under the Income Tax Act, 1961 for the Assessment Year 2018-19, focusing on jurisdictional grounds, transfer pricing adjustments related to Employee Stock Option Plan (ESOP) expenses, violation of Principles of Natural Justice, tax implications, and penalty under section 270A. Jurisdictional Ground: The Final Assessment order was challenged on the basis that it was passed by the Deputy Commissioner of Income Tax instead of the National Faceless Assessment Centre, which was claimed to have the valid jurisdiction. The argument was made that the order passed by the Deputy Commissioner was non-est and should be quashed. Grounds relating to Transfer Pricing - Reimbursement of ESOP: The dispute revolved around the adjustment of INR 2,497,737 to the income of the Appellant due to alleged differences in the arm's length price of the international transaction of reimbursement of ESOP expenses. The Appellant argued that the reimbursement was notional and provided evidence to substantiate the pricing of the ESOPs. The Transfer Pricing Officer determined the arm's length price as 'NIL' without adequate reasoning, leading to a violation of the Principles of Natural Justice. Other Grounds: The Appellant contested the disregard of the corresponding effect of adjustments on the overall income, leading to a lower tax incidence. Additionally, the initiation of a penalty under section 270A was challenged. The Appellant reserved the right to amend the grounds of appeal as necessary. Summary of Judgment: The Appellant's appeal challenged the Assessment Order under the Income Tax Act for the Assessment Year 2018-19. The dispute included jurisdictional issues, transfer pricing adjustments related to ESOP expenses, violation of Principles of Natural Justice, tax implications, and penalty considerations. The Tribunal partly allowed the appeal, setting aside the transfer pricing adjustment of INR 26,53,078 and directing the re-computation of the Arm's Length Price. The other grounds raised by the Appellant were dismissed or not pressed during the hearing.
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