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2016 (4) TMI 905 - AT - Income TaxDisallowance u/s 14A - Held that:- We find that the AO had not mentioned as to how much expenditure was incurred by the assessee for earning tax free income. We are of the opinion that, if the assessee had not incurred any expenditure to earn tax free income, then, the AO cannot invoke the provisions of section 14A r.w. Rule 8D of the Rules. First of all, the AO has to record his satisfaction about invoking the provisions and has to decide the issue after obtaining the explanation of the assessee . We also do not endorse the view of the FAA that investment out of the own funds has no relevance for making the disallowance. We find that in the case of Om Prakash Khaitan (2015 (7) TMI 785 - DELHI HIGH COURT ), the Hon’ble Delhi High Court has held that in order to disallow the expenditure there must be a nexus between the expenditure incurred and the income not forming the part of the total income. Considering the above, we reverse the order of the FAA. - Decided in favour of assessee Addition of the expenditure incurred under ESOP(Employee Stock Option Scheme) - Held that:- We find that stock options of the parent company were offered to the employees of the assessee company, that the assessee had made payment of ₹ 1.07 crores to the parent company, that during the year FBT was paid for sum of ₹ 50.65 lakhs. In our opinion, once a stock option is granted to and exercised by the employee of an assessee the liability in that behalf is ascertained and cost is allowable in the year in which stock options are granted. We find that in the case of Novo Nordisk India Pvt. Ltd.(2013 (11) TMI 218 - ITAT BANGALORE), it has been held that in terms of ESOP if an assessee offers shares of its parent company to its employees, the difference between the FMV of the shares of the parent company on date of issue of shares and the price at which those shares were issued by the assessee to its employees had to be regarded as expenditure incurred for business purposes allowable u/s. 37(1) of the Act. Respectfully following the above decision, we decide Ground in favour of the assessee
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