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TMI Blog2021 (12) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... he Special Bench in the case of Biocon Ltd. [ 2014 (12) TMI 838 - ITAT BANGALORE ] also approved by the Hon ble Karnataka High Court [ 2020 (11) TMI 779 - KARNATAKA HIGH COURT ] and held that employees discount represents consideration for services rendered by employees and hence it is a deductible business expenditure and it cannot be equated with share premium and it is to be intended towards profit by securing employees consistent services. As it is an ascertain liability since employees incurred obligation over the distinct period, notwithstanding the fact that exact amount as quantified at the time of exercising options - Decided against revenue. - ITA. No. 7539/Del/2017 - - - Dated:- 7-12-2021 - Shri Amit Shukla, Judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o its employees and recognized aforesaid cost in line with GN(A) 18: Guidance Note on Accounting for Employee Share-based Payments issued by the Institute of Chartered Accountants of India (ICAI). As ESOP cost has been incurred by the assessee for the purposes of the business, it do not fall in any category envisaged by the provisions of Section 37 of the Income Tax Act, 1961. The same treatment is also endorsed by Hon ble Madras High Court in the matter of CIT-III Chennai vs PVP Ventures Ltd. (Madras)/[2012] 211 Taxman 554 (Madras), which categorically allowed such expenditure considering various aspects of materially similar stock option scheme offered by the assessee company. The similar position has been upheld by the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scount and had no liability to make such payment accordingly, the artificial difference in face value of share as compared to so called fair market value of unquoted sharecannot be described as expenditure u/s 37(1) of the Act in view of abovereferred to judicial interpretation of the term expenditure u/s 37(1) of the Act. Thus, he disallowed the claim of ₹ 3,01,60,201/-. 5. The ld. CIT (Appeals) after quoting the judgement of Hon ble Special Bench in the case of Biocon Ltd. (supra) and Hon ble Delhi High Court in the case of CIT vs. Lemon Tree Hotels Ltd (supa) as also in assessment year 2013-14 decided the issue in favour of the assessee. The relevant observations read as under:- 3.2 I have carefully considered the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial placed on record, we find that it is now well settled proposition that the issue of allowability of ESOP discount being the difference between the market value of shares and the value at which employees had been given the shares is covered, not only by the decision of Hon ble jurisdictional High Court in CIT Vs. Lemon Tree Hotels Ltd., but also by the judgement of the Special Bench in the case of Biocon Ltd. (supra). This judgment of special bench has now been approved by the Hon ble Karnataka High Court vide order dated 11.11.2020 and held that employees discount represents consideration for services rendered by employees and hence it is a deductible business expenditure and it cannot be equated with share premium and it is to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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