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2023 (10) TMI 34 - AT - Income TaxRevision u/s 263 - incorrect allowance of claim of ESOP expenses - HELD THAT - On careful consideration of all the above we hold that there was no error in the order of the AO allowing the assessee s claim of ESOP expenses; that the entire issue had been duly inquired into during the assessment proceedings; reply of the assessee duly considered by the AO and the AO had taken a plausible view on the issue based on the existing proposition of law with regard to the claim of ESOP expenses. Our reasoning follows. We find from the documents placed before us in PB that during the assessment proceedings the assessee was asked by the AO to justify its claim of ESOP expenses vide notice issued under section 142(1) of the Act dated 19.2.2021. The assessee was specifically asked to file copy of the ESOP proposal made by it to M/s.Edelweiss Financial Services Ltd., who had framed ESOP scheme for the benefit of employees of the group companies including the assessee s company. AO had also asked the assessee to file list of employees who had exercised this option under the scheme along with sample Form No.16, and also to furnish detailed working of the deduction claimed u/s 37. PCIT has not pointed out how and why the AO had erred in allowing assesses claim of ESOP expenses in accordance with the decision of the Special Bench of the ITAT and the Hon ble Karnataka High Court. Therefore, we do not find any merit in the Ld.Pr.CIT s finding of error in the assessment order on the allowance of claim of ESOP expenses. As noted by us above, the issue was thoroughly inquired during the assessment proceedings by the AO. His view in allowing the claim of ESOP expenses in accordance with judicial pronouncements has not been found to be at fault by the Ld.PCIT by pointing out in any way that the said decisions were not applicable to the facts of the case. Even before us Ld.DR was unable to point out how the allowance of claim of ESOP expenses in accordance with the authoritative judicial pronouncements on the issue was erroneous, or for that matter, how the case laws relied upon by the Ld.PCIT were applicable to the facts of the case overruling the Special Bench decision of the ITAT and the Hon ble Karnataka High Court decision. We hold therefore that the Ld.PCIT has failed to find any error in the order of the AO vis a vis the allowance of claim of ESOP expenses and his order on this issue is therefore directed to be set aside. Claim of loss in the return of income as reflected in the computation sheet attached to the assessment order - We have noted from the ld.Pr.CIT order that the assessee had explained that there was a mistake in the computation sheet, and the assessee had filed an application seeking rectification of the same. CIT taking note of the above facts, has directed verification of the said claim of the assessee. It is settled law that the power under section 263 of the Act cannot be exercised for verification of the issue. There has to be a finding of error causing prejudice to the Revenue, by the ld.Pr.CIT, for valid exercise of revisionary power under section 263 of the Act. Verification precedes finding of the error. Therefore, any direction for verification of the claim u/s. 263 of the Act is not in consonance with the requirement of law. Accordingly, the ld.Pr.CIT s order, directing verification of claim of carry forward of current year s business loss is also set aside. Order of the ld.Pr.CIT passed under section 263 of the Act, in entirety, is set aside - Assessee appeal allowed.
Issues involved:
The judgment addresses the issues of incorrect allowance of Employee Stock Option Plan (ESOP) expenses and the claim of carry forward of current loss in the return of income. Incorrect allowance of ESOP expenses: The ld.Pr.CIT found the assessment order erroneous due to incorrect allowance of ESOP expenses. The AO had duly inquired into the issue during assessment proceedings and the assessee had provided detailed justifications for the claim. The AO allowed the claim based on existing law. The ld.Pr.CIT, however, took a contrary view, considering ESOP expenses as capital and notional, disallowing the claim. The Tribunal held that the ld.Pr.CIT ignored authoritative decisions supporting the claim, failed to show why the AO's decision was wrong, and did not prove applicability of the case laws relied upon. Consequently, the Tribunal set aside the ld.Pr.CIT's order on this issue. Claim of loss in the return of income: Regarding the claim of loss in the return of income, the assessee explained a mistake in the computation sheet and sought rectification. The ld.Pr.CIT directed verification of this claim. The Tribunal noted that the power under section 263 cannot be used for verification; there must be a finding of error causing prejudice to the Revenue. As verification precedes error finding, any direction for verification under section 263 is not in line with the law. Therefore, the ld.Pr.CIT's order directing verification of the loss claim was also set aside. In conclusion, the Tribunal set aside the entire order of the ld.Pr.CIT under section 263 of the Act, allowing the appeal of the assessee.
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