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TMI Blog2014 (7) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi has erred in confirming the disallowance of Rs. 1,28,19,169/- made by the ld Assessing Officer representing the sum debited to the Profit & Loss Account under the head "Employees Stock Option Cost (ESOP) on the grounds that no expenditure is involved in ESOP. (b) The hon'ble CIT(A)-VII, New Delhi has erred in confirming the disallowance without appreciating the fact that the ld Assessing Officer has made this disallowance by replying upon Circular No. 9 of 2007 dated 20.12.2007 issued by CBDT without appreciating the fact that the aforesaid circular is a clarification on chargeability of Fringe Benefit Tax on ESOP and relying on the same to examine whether the expenditure on ESOP is allowable or not allowable as a deductible expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The return of income for the assessment year under consideration was electronically filed by the appellant company on 30.09.2008 declaring a taxable income of Rs. 13,82,57,920/- which was processed u/s 143(1) of the Act, 1961. Subsequently, the case was picked up for scrutiny and notices u/s 143(2) and 142(1) of the IT Act, 1961 were issued as per records. In the course of assessment proceedings, the Assessing Officer subjected to detailed scrutiny the claim of ESOP expenses of Rs. 1,28,19,169/-. 5. The Assessing Officer after considering the explanation of the assessee, disallowed the claim of Rs. 1,28,19,169/- made by the appellant company in relation to ESOP 6. Aggrieved by the said order of the Assessing Officer the assessee/ appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal and the Hon'ble Madras High Court. Therefore it was prayed by the ld AR that disallowance of the claim made by the assessee may be set-aside and the claim of the assessee in respect of ESOP may be allowed. On the other hand the ld DR relied on the decision of the Assessing Officer and ld CIT(A) and contended that the CBDT Circular No. 9 of 2007 makes it amply clear that only in case where the employer purchases the shares at market price and then subsequently transfers such shares to its employees, then only the expenditure so incurred is allowable as deduction in computing the taxable income of the employer company. It was added by the ld AR that if the shares are allotted to the employees from its own share capital of the company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f charging of Fringe Benefit Tax (FBT) arising on sweat equity share and therefore the reliance of the authorities below on the circular for adjudication of the issue in hand is misplaced and is therefore erroneous. The question whether employee stock option cost incurred by the employer company is an allowable expenditure as per section 37 of the Act is no longer res-integra. The Special Bench of the Tribunal in Biocon Ltd. Vs. DCIT vide order dated 16th July 2013 (36 CCh 268, Bangalore Special Bench of the Tribunal) has held that the discount on issue of Employee Stock Option is an allowable deduction in computing the income under the head 'Profit and gains of business or profession'. The relevant "ratio-decidenti" of the Special Bench is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of this clause, -(i) "specified security" means the securities as defined in clause (h) of section 2 of the securities contracts (Regulation) Act, 1956 (42 of 1956) and, where employees' stock option has been granted under any plan or scheme thereof, includes the securities offered under such plan or scheme. Thus it is discernible from the above provisions of the Act that the legislature itself contemplates the discount on premium under ESOP as a benefit provides by the employer to its employees during the course of service. If the legislature considers such discounted premium to the employees as a fringe benefit or 'any consideration for employment'. It not open to argue contrary. Once it is held as a consideration for employment, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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