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TMI Blog2025 (1) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of Revenue for the reason that there is failure on the part of the Assessing Officer to enquire and verify before allowing Employees Stock Option Plan ('ESOP') expenses claimed by assessee. For this, the assessee has raised following three grounds: "1. That having regard to facts & circumstances of the case, Ld. Pr. CIT has erred in law and in facts in assuming jurisdiction u/s 263 of Income Tax Act, 1961 and passing the impugned order u/s 263 by holding the assessment order passed u/s 143(3)/92CA(3) dated 30.03.2015 as erroneous and prejudicial to the interest of revenue and that too by holding that there was failure on the part of the Assessing Officer by allowing Employee Stock Option Plan ('ESOP') cost paid by the Appellant to MakeMyTrip, Mauritius as deduction. 2. In any view of the matter and in any case, impugned order passed by. Ld. Pr. CIT u/s 263 is bad in law, against the facts and circumstances of the case and is in violation of principles of natural justice and has been passed by recording incorrect facts and findings and without appreciating/considering the submissions of Appellant during the course of proceedings before Ld. Pr. CIT and during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry or verification is erroneous as well as prejudicial to the interest of Revenue. He noted that the claim of the assessee that the AO has formed an opinion on this claim is not on facts and actual ESOP scheme as launched by Make My Trip Limited Mauritius namely, Make My Trip.com 2001 Equity Option Plan, MakeMy Trip.com 2010 Shares Incentive Plan and Share Based Compensation Cost-Recharge Agreement in Support of the claim of allowbility of reimbursement expenditure of Rs. 11,3,61,564/- on account of ESOP cost of another company in the computation of income of the assessee is incorrect claim. The PCIT finally rejected the assessee's claim on merits by observing as under: "A careful reading of the above extracted part of the self-serving agreement between two related parties namely assessee and its parent company proves beyond doubt that holding company of the assessee admittedly introduced and adopted ESOP scheme for its employees and employees of the subsidiary companies but the expenditure incurred on ESOP scheme launched by holding company was recovered by from the assessee way of this related party agreement. It is pertinent to mention here that under the unrelated party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of reimbursement of expenditure on account of ESOP costs incurred by the holding company amounting to Rs. 11,35,61,564/-. Aggrieved, assessee is in appeal before Tribunal. 5. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the assessee has filed information in regard to ESOP charges claimed as deduction while furnishing information before TPO i.e., copy of information and documents maintained in TP report u/s 92D(1) of the Act including Executive Summary of ESOP cross charges. Relevant details are enclosed in assessee's paper book at page 159. The assessee in its TP report has disclosed the ESOP cross charges which is part of assessment record and TP report and the relevant part read as under:- "During the year ended March 31, 2011, ESOP cross-charge amounting to INR 24,151,868 was recorded by the Company on account of share options granted and vested upon its employees by the holding company under the latter's Equity Option Plan (namely, MMT ESOP Plan). The cross- charge represents the value determined and certified by an independent evaluator. The benefits under the share options accrue exclusively to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MMT Mauritius. (xi) If the employees are getting ESOPs as a matter of achieving a particular target, then is the sübsidiary Company getting ant benefit from the same. (xii) Please furnish a valuation report for issuing such ESOP. (xiii) Whether the employees are serving the US entity also, if so then please tell whether the cost charges are divided? (xiv) What benefits you seem to derive from paying these cross charges. In any case benefit if any shall be derived by the employee. Why should you be paying cross charges and why not the ALP of these cross charges be treated as nil (xv) Whether the amount outstanding against the legal charges to be claimed from MMT Mauritius also regarding these expenses only. The assessee reply this question vide reply dated 23.01.2015, which is enclosed at assessee's paper book 259 to 263 detailing out the entire ESOP Scheme and the expenses claimed. The assessee also provide benefits derived from paying this cross charges and the benefit derived by the employees and consequent benefit derived by the assessee company is narrated vide Answer of Question No.(xiii) and the relevant part read as read under: "(xiii) What benefits you se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is evident from clause-13 of the scheme. The relevant Appendix-C (ii) of Form No.3CEB is enclosed at assessee's paper book page 328 to 333. It was explained that the above sum was added by the assessee suomotto under the head in admissible within the purview of the Act and, therefore, the same is not taxable in the hands of the assessee company. Learned Counsel for the assessee also rebutted the argument of PCIT regarding Notification No.323/2001/F.No.142/48/2001-TPL dated 11/10/2001 and argued that this relates to prerequisite to be claimed by assessee u/s 17 of the Act and not for the present assessee for claiming of expenses on ESOP. The assessee also replied to the AO vide letter dated 22/12/2014 that the entire amount pertains to compensation being awarded to be claimed by the eligible employees of the assessee company is in accordance with ESOP scheme. The said expenditure appears as a part of personnel expenses in the Profit and Loss Account and the assessee company has computed this stock price by using "Black Sholes" formula as per ESOP in the profit and loss account and the same was claimed as deduction in view of certificate issued by the Auditor of the assessee. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to ESOP in term of guidelines note provided by ICAI on accounting of employees shares based payments and assessee has carried out the accounting treatment skill in compliance with the same. Further the assessee has undertaken ESOP costs as part of the salary and compensation under personnel expenses in the profit and loss account. The assessee has provided complete list of employees, as subscribed to these shares and their current employment status and benefit provided to them and consequent benefit to the assessee company. The assessee also explained before the AO and now before us that the earning under ESOP accrues to eligible employees by virtue of their employment with the assessee company. The company benefits from the services of an enthused and motivated work force, who remain committed and loyal to the company in anticipation of potential benefits under ESOP. The assessee has also provided valuation report for issuing such ESOP scheme and as per schedule reflected in Annexure-5 of the scheme the grant price of ESOPs during the year sum up to US$ 5,27,28 as per graded vesting schedule and corresponding amount of Rs. 2,41,51,868 has been booked in the audited financial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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