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2022 (8) TMI 1309 - AT - Income TaxTP Adjustment - Comparable selection for SWD/IT Segment - HELD THAT:- Companies functionally dissimilar with that of assessee and failure of RPT filter of 25% applied by the learned TPO need to be deselected. Non-grant of working capital adjustment - We remit this issue for the file of AO/TPO to grant working capital adjustment on actual basis. Disallowance of ESOP expenses u/s 37 - TDS u/s 192/195 - HELD THAT:- SOP cross-charges represents the actual expenditure incurred by the Company in respect of its employees, who form part of the Company’s business and are involved in carrying on day-today business operations/management. The Company also submitted the documents such as cross charge invoices, employee listing and Form 16 issued to the employees. Hence, the expense is a genuine expense and the question of these expenses being a colourable device does not arise. The Learned AO has also not alleged that the expenses are not genuine expenses. The said expenses are incurred wholly and exclusively for the business of the Company and therefore, eligible for deduction under section 37 of the Act. ESOP expense is nothing, but compensation paid to employees of the Company and accordingly, taxed in the hands of employees as ‘Perquisites’ (Company submitted the sample Form 16’s of employees). Provision of section 37(1) of the Act inter alia provides that “any expenditure laid out or expended wholly and exclusively for the purposes of the business or profession, not being in the nature of capital expenditure or personal expenses, shall be eligible for deduction in computation of total income”. ESOP schemes for stock options enables in attracting and retaining the employees of the Company, resulting in better performance of the Company’s business operations. The scheme is designed primarily to incentivise and for retaining the employees and thereby, earn more revenue by securing consistent and concentrated efforts of dedicated employees. The share-based compensation under the ESOP scheme is construed both by the employees and the Company as a part of employment remuneration package, which is an expenditure inextricably linked to the business of the Company. Therefore, the same is deductible in nature. Applicability of TDS provisions on the remittance towards ESOP expenses - In view of the above judgement of Hon’ble Karnataka High Court in the case of Biocon Ltd [2020 (11) TMI 779 - KARNATAKA HIGH COURT] we are in agreement with the contention of assessee’s counsel in principle on this issue. However, we make it clear that the AO has to verify whether the said amount has been subject to TDS in the assessment year under consideration u/s 192/195 of the Act as argued by the Ld. A.R. before us. Accordingly, this issue is remitted to AO for fresh consideration in the light of above.
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