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TMI Blog2022 (9) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to ITC Limited (ITC). (c) That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in ignoring the decision of Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd [TS-7-SC-1971] and affirming the view of the Assessing Officer that the deduction for ESOP expenditure is not allowable since, payments made by appellant to ITC were not debited in the Profit and Loss Account for AY 2016-17 and that the invoice was raised by ITC only in the next financial year. (d) That on the facts and in the circumstances of the case, the learned CIT(Appeals) was not justified in affirming the views of the Assessing Officer, considering the expenditure on ESOP to be of capital in nature, without appreciating the fact that the expense has been incurred to remunerate the employees for their services during their employment, which is an allowable expenditure under section 37(1) of the Act. (e) That on the facts and in the circumstances of the case, the learned CIT(Appeals) was not justified in affirming the real cost of expense on account of ESOP as those of ITC. The ESOP cost is in fact cost of the Appellant Company as ESOP benefits were granted to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cost of the stock and the reimbursement was considered as capital flow or investment for ITC Ltd. In view of the above the Assessing Officer concluded that the assessee had booked expenditure incurred on behalf of third parties in its books of account. 4. Upon assessee's appeal, the Ld. CIT(A) noted that a perusal of the profit & loss account shows that the assessee has not claimed any such expenditure in its profit & loss account. He further observed that in the instant case, Russel Credit Limited and Russel Investment Limited hold 58% of the shares of the appellant. Russel Credit Limited is a 100% subsidiary of ITC Limited. The assessee has stated that ESOPs have been granted to a few employees of the appellant to purchase the share of ITC Limited to provide incentive to the employees, award them for their hard work and to prevent attrition of employees. That the perusal of the notes to account of ITC Limited for FY 2016-17 shows that the employees eligible for ESOPs are employees of ITC itself or such employees of the subsidiaries companies of ITC including Managing Director / whole time Director of the subsidiary. It has also been stated in the above mentioned notes of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant Company, albeit in immediately subsequent assessment year. The appellant claimed deduction of the actual amount reimbursed to ITC Ltd in respect of the ESOP expenditure. It is undisputed that the aforesaid amount of Rs.2.58 crores was initially not debited to the Profit and Loss Account as the invoice was received by the appellant in the immediately succeeding year. Due to receipt of invoice in the immediately succeeding year, the appellant - (i) made a claim of deduction of said ESOP expenses in the revised return as per law and (ii) re-casted the financial statements of financial year 2015- 16 for the purposes of comparative representation with financial statements of financial year 2016-17 (immediately succeeding years)." 7. Thereafter the ld. counsel for the assessee has reiterated the findings of the Assessing Officer and the Ld. CIT(A). Thereafter following submission has been made. "14. It is at the outset submitted that the appellant had placed on record all the necessary evidence/ documents to substantiate that the aforesaid expense incurred on account of grant of ESOPs is a real/ actual expenses incurred in respect of employees working on deputation so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant (but the parent company). This is more so when - (i) the employees are solely deputed to work for the appellant; (ii) actual payment in respect of the value of ESOP has been paid by the appellant to the ultimate parent, i.e. ITC Ltd. 18. The admissibility of ESOP expenditure in respect of the ESOPs granted to acquire shares of a group/ holding/ parent company has consistently been allowed in the various judicial precedents. Few decisions are cited below for ready reference: * Goldman Sachs (I) Securities Pvt. Ltd. v. Addl. CIT: ITA No. 72 Taxmann.com 337 (Mum. Trib.) * ACIT v. IM Financial Institutional Securities Ltd.: ITA No.6479/Mum/2016 (Mum Trib.) * DCIT v. Accenture Services Pvt Ltd.: ITA No.4540/M/08 (Mum Trib.) * Novo Nordisk India (P.) Ltd. v. DCIT: 63 SOT 242 ((Bang.) * Caterpillar India (P.) Ltd. v. DCIT: 80 taxmann.com 325 (Chn Trib.) * Religare Commodities Ltd. vs. ACIT: ITA No. 2283/Del/2013 (Delhi Trib.) * Religare Macquarie Wealth Management Ltd. vs. ACIT: ITA No.2396/Del/2013 (Del. Trib.)- affirmed in PCIT vs. Religare Macquarie Wealth Management Ltd.: ITA 438/2018 (Del. HC) * Aricent Technologies Holdings Ltd. vs. Addl. CIT: ITA No. 570 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that the value of options, net of reimbursement, to employees on deputation are considered as capital contribution/ investment. In the case of the appellant, since the ESOP of expenditure is fully reimbursed to ITC Ltd., the same is not treated as any capital investment/ contribution by ITC Ltd. It is submitted that the ITC Ltd. has considered the amount receivable from the appellant towards ESOP expenses as business receivable, which is settled of payment is received from the Appellant. (iii) The assessing officer has alleged that the real cost of expense on or accounts of ESOP are those of ITC Ltd. In this regard, it is submitted that ESOP expenditure reimbursed by the appellant to ITC Ltd. are towards employees rendering services to the appellant and hence the same cannot be treated as expenditure of ITC Ltd. The said expenditure is basically remuneration in form of ESOP paid to employees in lieu of services rendered by the employees to the appellant; thus the expenditure is completely related with the business of the appellant. Being so, the allegation made by the assessing officer has not legs to stand. (iv) The assessing officer has alleged that the ESOP expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or relevant year. Assessee's case is that the aforesaid expenditure of Rs.2.5 crores was reimbursed by the assessee to ITC Ltd. on account of ESOP expenses related to FY 2015-16 It is only on account of receipt of invoice/ debit note from ITC Ltd. in the immediately succeeding year that the said expense could not be recorded in the original financial statements. However, it has been submitted that on receipt of the invoice, the aforesaid expenditure was duly recognized/ considered in the re-casted financial statements prepared for comparative disclosure in the financial statements for financial year 2016-17. Further, the Ld. Counsel for the assessee has reiterated that it has been duly claimed before the Assessing Officer and it is settled law that the entries in the books of account are not determinative of the ambit of taxation. Further, the assessee has disputed the Assessing Officer's observation that ITC Ltd. recognised as capital contribution and not expenditure for the purpose of accounting policy of audited and financial ITC Ltd have been referred and relied upon. Further, the Assessing Officer's view that real cost of ESOP of ITC Ltd. has been disputed by the submission th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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