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2017 (4) TMI 1138 - ITAT CHENNAIDisallowance of compensation paid on account of Employee Stock Option Plan (ESOP) - Business expenditure - CBDT circular - Held that:- In the instant case, the shares of Caterpillar Inc. U.S.A. has been allotted to the employees and the price differential is debited to the assessee company by way of a debit note and as stated supra, since the employees were under the control of the assessee company on deputation and more so the ESOP scheme also provided for allotment of shares under ESOP to deputed employees also, the assessee had debited the price differentials as ESOP expenditure in its profit and loss account. This in our considered opinion, is an allowable expenditure and is in tune with the reply given in the Frequently Asked Questions (FAQ) in the CBDT Circular No. 9/2007 dated 20.12.2007. The Circular issued by the CBDT is binding on the tax authorities and the same could be used by the assessee if proved beneficial to the assessee. We also find that the issue under dispute is squarely covered by the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs PVP Ventures LTd [2012 (7) TMI 696 - MADRAS HIGH COURT ] wherein it had been held categorically held that ESOP expenditure is in the nature of staff welfare expenses and is squarely allowable as deduction in computing the taxable income of an assessee. Thus we hold that the compensation paid in the form of ESOP expenditure is an allowable deduction as an expenditure incurred wholly and exclusively for the purpose of business. - Decided in favour of assessee Adding back the provision for wealth tax while computing the book profits u/s 115JB - Held that:- We find that Explanation 2 to Section 115JB of the Act provides the amounts that would constitute income tax for the purpose of section 115JB of the Act, which contemplates dividend distribution tax, interest, surcharge, primary and secondary education cess. In fact this amendment was introduced in the statute vide Finance Act 2008 with retrospective effect from 1.4.2001. Hence it was never the intention of the legislature to include wealth tax within the ambit of income tax so as to fall within the mischief of Explanation 1. We hold that the provision made towards wealth tax amounting to ₹ 66,600/- would be an ascertained liability. Provision for wealth tax need not be added back to the book profits u/s 115JB of the Act and accordingly the grounds raised by the assessee in this regard are allowed. See CIT vs Echjay Forgings (P) Ltd [2001 (2) TMI 56 - BOMBAY High Court ] - Decided in favour of assessee Non reducing the reversal of product support expenses from book profit - Held that:- In the instant case, admittedly, the ld AO had duly added back the sum of ₹ 35,43,000/- towards provision for product support expenses in Asst Year 2006-07 vide his order u/s 143(3) dated 29.12.2009 while computing book profits u/s 115JB of the Act. When a part of the said provision is reversed in the subsequent year and credited to the profit and loss account, that should not go to add to the book profits u/s 115JB of the Act. If it is so done, then the assessee would be unwarrantedly be invited with double taxation u/s 115JB of the Act for the same amount. In view of explicit provisions of the Act as reproduced supra, we have no hesitation in directing the ld AO to grant reduction of sum towards reversal of provision for product support expenses while computing book profits u/s 115JB of the Act for the Asst Year 2007-08. Accordingly the Grounds raised in this regard are allowed.
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