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TMI Blog2022 (1) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon'ble Special Bench of Bangalore Tribunal in the case of Biocon Ltd., We find that the ld. PCIT had erroneously proceeded based on incorrect assumption of fact that the vesting period of the claim is four years. As stated earlier the vesting period is only one year and the same falls in A.Y. 2012-13. No hesitation in holding that assessee had rightly debited the ESOP compensation cost of ₹ 32.55 Crores in the year of vesting as an expenditure which is in accordance with Special Bench decision of Biocon Ltd., and that the ld. PCIT had invoked revisionary jurisdiction based on incorrect assumption of fact. Apart from this, we also hold that adequate enquiries were indeed made by the ld. AO in the course of assessment proceedings. The law is now very well settled that the revision jurisdiction u/s. 263 of the Act could be invoked only for 'lack of enquiry' and not for 'inadequate enquiry'. Hence, we have no hesitation in quashing the revision order passed by the ld. PCIT in this regard. Accordingly, the grounds raised by the assessee on account of ESOP expenditure are allowed. Allowability of provision of interest u/s. 234D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this appeal is as to whether the ld. PCIT was justified in invoking revisionary jurisdiction u/s. 263 of the Act in the facts and circumstances of the instant case for both the years under consideration. 2.1. With the consent of both the parties, the facts of A.Y. 2012-13 are taken up for consideration and the decision rendered thereon would apply with equal force for A.Y. 2013-14 also in view of identical facts except with variance in figures. 3. We have heard rival submissions and perused the materials available on record. We find that the return of income for the A.Y. 2012-13 was filed by the assessee company on 28/11/2012 declaring total income of ₹ 441,90,99,841/- under normal provisions of the Act and book profit of ₹ 1069,80,92,443/- u/s. 115JB of the Act. The assessment for the A.Y. 2012-13 was completed u/s. 115JB of the Act on 17/05/2016 determining total income of ₹ 1365,04,60,560/- under normal provisions of the Act and ₹ 1590,54,94,584/- u/s. 115JB of the Act. Since the tax payable under normal provisions of the Act was higher than the prescribed percentage of the tax payable u/s. 115JB of the Act, the income was assessed under normal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cifically pointed out before the ld. PCIT that very same expenditure of ₹ 32.55 Crores debited to profit and loss account was indeed subject matter of examination by the ld. AO during the course of assessment proceedings. This fact is also reflected in page 8 of the order of the ld. PCIT. We find that assessee had made the following disclosure of expenditure of ₹ 32.55 Crores debited to P L account under the head 'exceptional items'. We find that assessee had duly explained before the ld. PCIT that during the year under consideration, the assessee had accounted for ESOP expenditure on account of change in method of ESOP valuation, which fact is also reported in Schedule 'P' and Schedule 'O' of the audited financial statements. The assessee pointed out that a letter dated 11/03/2016 was specifically filed before the ld. AO in response to the queries raised by the ld. AO in the course of assessment proceedings wherein it was specifically mentioned that assessee is following intrinsic value method for accounting for ESOP and as per accounting standards assessee was required to give disclosure as per fair value method and accordingly, the managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on the allowability of ESOP expenses, ought not to have directed the ld. AO to make disallowance directly. When the grievance of the ld. PCIT seems to be that the ld. AO had not made any enquiry and the policy adopted by the assessee is not in accordance with the Special Bench decision of Biocon Ltd., referred to supra, then it would be fair that the ld. PCIT could have at best only set aside the assessment to the ld. AO with a direction to make proper enquiries and decide the matter in accordance with law. In the instant case, the ld. PCIT, as stated earlier, had directed the ld. AO to make disallowance and hence, the assessee is bound to argue the issue on merits also before us. 3.1. Let us primarily examine whether the allowability of ESOP expenditure was subject matter of examination by the ld. AO in the course of assessment proceedings or not? We find from pages 23-24 of the factual paper book filed before us that assessee has filed a letter dated 11/03/2016 in Tapal which has been duly acknowledged by the Income Tax department. This letter dated 11/03/2016 has been filed before the ld. AO during the course of assessment proceedings. In the said letter, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relating to employee stock options from intrinsic value method to fair value method. Relevant extracts of the guidance note issued by the ICAI is enclosed as Annexure - 2. 1.4 In view of the aforesaid, the assesses has accounted for employee compensation expenses as exceptional item in the audited accounts. 3.2. We also find from the audited financial statements that complete disclosure with detailed explanation has been made by the assessee company with regard to this ESOP compensation vide pages 113, 132, 133, 136 149 of the factual paper book containing the schedules of profit and loss account and notes to accounts thereon. We find that assessee in page 133 of the paper book in the notes to accounts in Schedule 'P' para 1(B) under heading 'change in accounting policy' has disclosed as under:- During the year, the Company has with retrospective effect changed its method of measurement of compensation cost relating to employee stock options from intrinsic value method to fair value method for all outstanding unvested employee stock options as the beginning of the year. Accordingly, the company has recognized an additional expense of ₹ 33.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 32.55 Crores on account of ESOP has been debited as 'expenditure' by the assessee in the year of vesting i.e. A.Y. 2012-13 rightly, which is also in consonance with the decision of the Hon'ble Special Bench of Bangalore Tribunal in the case of Biocon Ltd., We find that the ld. PCIT had erroneously proceeded based on incorrect assumption of fact that the vesting period of the claim is four years. As stated earlier the vesting period is only one year and the same falls in A.Y. 2012-13. 3.6. In view of the above observations, we have no hesitation in holding that assessee had rightly debited the ESOP compensation cost of ₹ 32.55 Crores in the year of vesting as an expenditure which is in accordance with Special Bench decision of Biocon Ltd., and that the ld. PCIT had invoked revisionary jurisdiction based on incorrect assumption of fact. Apart from this, we also hold that adequate enquiries were indeed made by the ld. AO in the course of assessment proceedings. The law is now very well settled that the revision jurisdiction u/s. 263 of the Act could be invoked only for 'lack of enquiry' and not for 'inadequate enquiry'. Hence, we have n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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