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2015 (12) TMI 1666 - AT - Income TaxDeferred compensation expenses on account of ESOP - allowable business expenses - Held that:- The deductibility of expenses on account of ESOP being discount under the ESOP has been decided in Biocon Limited v. DCIT [ 2014 (12) TMI 838 - ITAT BANGALORE] held that discount under ESOP is in the nature of employees cost and is hence deductible during the vesting period w.r.t. the market price of share at the time of grant of options to the employees. The Hon’ble Special Bench has held that the amount of discount claimed as deduction during the vesting period is required to be reversed in relation to the un-vesting/lapsing options at the appropriate time, however, an adjustment to the income is called for at the time of exercise of option by the amount of difference in the amount of discount calculated with reference to the market price at the time of grant of option and the market price at the time of exercise of option. No contrary decision is brought to our notice by the Revenue to controvert the decision of the Special Bench of Bangalore ITAT with respect to this issue. Thus deduction being deferred employee compensation expense (ESOP) debited under the head employee cost as an allowable business expenditure under the head ‘profit and gains of business or profession’ incurred wholly and exclusively for the purposes of business of the assessee company. We further hold that the amount of discount claimed as deduction during the vesting period is required to be reversed in relation to the un-vesting/lapsing of options at the appropriate time. However, an adjustment to the income is called for at the time of exercise of option by the amount of difference in the amount of discount calculated with reference the market price at the time of grant of option and the market price at the time of exercise of option - Decided in favour of assessee Disallowance u/s 14A read with Rule 8D - Held that:- Since the relevant A.Y. is 2008-09, the Hon’ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) has already held that the Rule 8D is applicable for A.Y. 2008-09 and hence in our considered view, the investment of ₹ 4,61,37,00,000/- made by the assessee company in its subsidiary namely M/s India Infoline Investment Services Ltd. of ₹ 4,61,37,00,000/- will be included in the average investment for the purpose of computation of disallowance u/s 14A r.w.r 8D(2)(iii) of the Income Tax Rules, 1962 and hence to that extent, the contention of the Revenue is accepted while the assessee company has demonstrated that the investments in the share capital of India Infoline Investment Services Limited on 4th February 2008 has been made out of proceeds of fresh issue of shares of the assessee company in January 2008, thus no disallowance under Rule 8D(2)(ii) of Income Tax Rules, 1962 read with Section 14A of the Act is justified.
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