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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 ..... t is not a case that the AO has not carried out verification or has not made in enquires in regard to this claim. We noted that the shares of MakeMy Trip, Mauritius got listed on NASDAQ Stock Exchange w.e.f., 17/08/2010 and since that date the market price of MakeMy Trip, Mauritius are readily available on the stock exchange. We noted that that the assessee has accounted for all the entries related 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. Assessee has undertaken ESOP costs as part of the salary and compensation under personnel expenses in the profit and loss account. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the course of assessment & the case laws relied upon. 3. That having regard to facts & circumstances of the case, Ld. Pr. CIT has erred in law and on facts in setting aside the assessment order for fresh examination and enquiry on the issue of deduction of expenditure amounting to Rs. 11,35,61,564/- on account of ESOP cost and that too by giving his conclusions." 3. The brief facts are that the assessee is a private limited company and is a travel agent and tour operator. The assessee company is wholly owned subsidiary of Make My Trip Limited (Formerly, In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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 scenario no numeration or reimbursement is charged by the holding company from the subsidiary company for the shareholder's activities carried on by the holding company to protect the interest of the holding company. It is evident from the above referred to documents that in this case the holding company had adopted and launched ESOP scheme for Its employees and employees of the subsidiary companies since year 2000 as a part of shareholder's activity in order to protect its business interests. Since the ESOP schemes were launched by Make My Trip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and applies equitably and consistently across the beneficiary employees of MMT India granted options under the scheme. The abovementioned grants are exclusively issued in consideration of fulfillment of contractual obligations defined under the employment contracts of beneficiary employees of MMT India. Further the options vest with the employees of MMT India upon completion of market and internal performance conditions and completion of a requisite service period, at stated annual intervals." The Assessing Officer/TPO issued notice u/s 92CA(2) and 92D(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese 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 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. Kindly refer to our responses above. ESOP forms integral part of employee incentive/ compensation structure. The Company derives exclusive benefits from the services of an enthused and motivated employee, whose eligibility to realize/ accumulate earnings under the ESOP is directly linked to her/his on-the-job performance. In return, the Company has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 details were filed by assessee in response to the queries raised by the Assessing Officer clearly reveals that the AO was conscious of the claim of assessee in regard to ESOP scheme at the time of original assessment and he has verified the claim duly. He has raised pertinent queries and after receiving replies on the same and satisfying himself allowed the claim of deduction. It means that the AO has rightly allowed after due verification and satisfaction. 7. From the above facts and circumstances, we are of also of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 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 statements and duly reflected in F. No.3CBE of assessee company for the Financial Year 2010-11 relevant to AY 2011-12. We noted from the above reproduced reply of the assessee vide letter dated 23/01/2015 vide question No.1 (xvi) and reply (xiii) read in above para No.5. The complete benefit, if any, share shall be derived by employee and consequent benefit to the company is described is entity. Hence, on merits also the PCIT could not find fault with the scheme. He has simply directed revision on the assessment order that no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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