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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 ..... ITA No.8423/DEL/2019 - - - Dated:- 21-9-2022 - Shri Shamim Yahya, Accountant Member And Shri Anubhav Sharma, Judicial Member For the Assessee : Sh. Rohit Jain, Adv., Sh. Saurya Jain, CA, And Sh. Deepsh Jain, CA For the Revenue : Sh. Anuj Garg, Sr. DR ORDER PER SHAMIM YAHYA, AM, This appeal by the assessee is directed against the order of the Ld. CIT(A)-44, New Delhi, dated 30.08.2019 pertaining to Assessment Year 2016-17. 2. Grounds of appeal reads as under Ground No. 1: Deduction for ESOP Expenditure Rs. 2,58,48,144/- (a) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified in upholding the action of the Assessing Officer in rejecting the claim made by the appellant for deduction of Employees Stock Option Plan (ESOP) cost amounting to Rs. 2,58,48,144/-. (b) That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in not considering ESOP cost to be an expenditure , thereby disregarding the cost incurred by the appellant by way of payment to ITC Limited (ITC). (c) That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in ign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure incurred on share based payments to employees on account of providing an option to the employees to purchase shares of ITC Ltd. during the year under reference. The Assessing Officer pointed out that no such expenditure on account of ESOP expenses had been debited to the profit and loss account of the assessee during the year under reference. The Assessing Officer also pointed out that the invoice for the cost of stock option was raised during the next financial year i.e. FY 2016-17. The Assessing Officer also quoted extensively from the notes of account of ITC Ltd. for FY 2016-17 at paragraph 4.8 offer order and concluded that ITC had recognized that cost of incurred for share based payment was a capital contribution and not an expenditure incurred. The Assessing Officer also pointed out that the real cost of expenses on account of ESOP was that of ITC Ltd. and the only reason the assessee was debiting these expenses in its books of account was due to the reimbursement claimed by ITC Ltd. It was also pointed out that even as per the notes of account, the difference between cost of the stock and the reimbursement was considered as capital flow or investment for ITC Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than 61% shareholding. It is submitted that certain employees of ITC Ltd. which are working on deputation with the appellant Company are covered under the ITC Employee: Stock Options Scheme, whereby, the said employees are granted an option to purchase shares of ITC Ltd. in accordance with the terms and conditions of the scheme. The ESOPs are granted as per erstwhile Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and (Security and Exchange Board of India Share Based Employee Benefit) Regulations. 2014. The discount/ fair value of the ESOPs granted is determined using the well accepted Black Scholes model at the grant date. In respect of the employees working with the appellant, ITC Ltd. seeks reimbursement of the value of stock options from the appellant company. Accordingly, ITC Ltd. raises invoice/ debit note seeking to recover the value of the said ESOPs from the appellant. For the relevant year, i.e., for financial year 2015-16 an amount of Rs.2,58,48,144 was invoiced by ITC Ltd., which was duly paid by the appellant Company, albeit in immediately subsequent assessment year. The appellant cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT vs . New Delhi Television Ltd: 398 ITR 57 (Del HC) PVR Ltd. vs. CIT: ITA 564/2012 (Del. HC) dated 23.08.2022 CIT vs. PVP Ventures Ltd.: 211 Taxman 554 (Mad.) Biocon Ltd vs. DCIT: [2013] 35 taxmann.com 335 (Bang Trib) (SB)- affirmed in CIT vs. Biocon Ltd.: 430 ITR 151 (Kar. HC) Bharti Airtel Ltd. vs. DCIT: 161 TTJ 283 (Del) SSI Ltd: V. DCIT: 85 TTJ 1049 (Chennai) Aricent Technologies Holdings Ltd vs. ACIT: ITA No.5708/Del/2019 Ranbaxy Laboratories Ltd vs ACIT: 68 taxmann.com 322 (Del Trib.) 16. The sole contention of the CIT(A) is that the ESOP expenditure, in the present case, is not allowable since the shares/ ESOP are granted by the ultimate parent company (ITC Ltd.) and no: the appellant. 17. In this regard, it is respectfully submitted that irrespective of the fact that the ESOP scheme provides for grant of shares of the parent company, the value/ discount thereof is reimbursed/ recouped by the appellant inasmuch as the appellant has actually reimbursed the parent company for the said expense, the same cannot be stated to be an expenditure not belonging to the appellant (but the parent company). This is more so when - (i) the employees are sole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognized/ considered in the re-casted financial statements prepared for comparative disclosure in the financial statements for financial year 2016-17 (Refer pages 45 to 54 of the paper-book). Be that as it may, it is settled law that the entries in the books of accounts are not determinative of the ambit of taxation. If an item of income/expense is taxable/ deductible, the same has to be taken into account as per the provisions of the Act irrespective of the book entries [Refer: Kedarnath Jute Manufacturing Company v.v. CIT: 82 ITR 363 (SC), Sutlej Cotton Mills Ltd. vs. CIT: 116ITR 1 (SC), Bharat Carbon and Ribbon Mfg. Co. P. Ltd.: 239 ITR 505 (SC), CIT vs. U. P. Electronics Corporation Limited: 282 ITR 470 (All HC), Dabur India Ltd. v. ACIT: ITA 3241 6525/Del/2014 (Del Trib.)] (ii) The assessing officer has alleged that ITC Ltd recognizes the cost of ESOP as capital contribution and not an expenditure. The said observation is factually incorrect and is not borne out of the records. The accounting policy highlighted in the audited financial by ITC Ltd. (refer pages 55 of the paper-book) clearly provides that the value of options, net of reimbursement, to employees on deput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding jurisdictional High Court in CIT vs Lemon Tree Hotels Ltd.(Supra) and in ITAT special Bench in the case of Biocon Ltd. (Supra) and affirmed by the Hon ble Karnataka High Court in the same case. Further, as regards the lower authorities contentions that ESOP expenses is not allowable since the shares/ ESOP are granted by the ultimate parent company (ITC Ltd.) and not the assessee. In this regard, the assessee s submission is that actually the assessee has reimbursed the parent company for the said expenses. The employees are solely deputed to work for the assessee by the parent company. The actual payment in respect of value of ESOP has been paid by the assessee to the parent company i.e. ITC Ltd. Further, the admissibility of ESOP expenditure in respect of the ESOPs granted to acquire shares of group/holding/parent company has been consistently allowed in the various judicial precedents. In this regard, the assessee has referred the case laws as pointed out in the submission as above. 10. As regards the plea of the revenue authorities that the expenditure has not been debited from profit loss account for relevant year. Assessee s case is that the aforesaid expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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