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2010 (12) TMI 1263 - AT - Income TaxDisallowance of expenditure incurred towards Employees Stock Option Scheme - The assessee claimed expenditure on allotment of equity shares for the AY 2003- 04. and allotment of shares under the employment scheme for the AY 2004-05, claimed under the head ‘Staff Welfare Expenses’ and u/s 37(1). AO disallowed the expenditure. On account of the same lapse penalty was levied in the AY 2004-05 and the same was confirmed by the CIT(A). Against the quantum addition confirmed by the CIT(A), the assessee is in appeal before us. The penalty levied by the AO was deleted by the CIT(A). Against this the revenue is in appeal before us. HELD THAT:- The decision of Delhi Bench of ITAT in the case of Ranbaxy Laboratories Ltd. [2009 (6) TMI 126 - ITAT DELHI-I] cited by the DR is directly applicable in the present case and the same squarely covers the issue under consideration against the assessee and in favour of the Revenue. In the case of Ranbaxy Laboratories Ltd. (supra) shares were allotted by the assessee company to its employees under ESOP at price less than the market price and the resultant difference was claimed as expenditure relying, inter alia, on SEBI guidelines. The Tribunal, however, confirmed the disallowance made by the authorities below on account of the said expenditure after examining all the relevant aspects and after giving elaborate reasons as can be seen from the relevant portion of its order which is extracted from the held portion: ''The receipt of share premium is not taxable and hence any short receipt of such premium will only be a notional loss and not actual loss for which no liability is incurred. SEBI guidelines are relevant for the purpose of accounting but are not conclusive for the purpose of allowing the same as expenditure. Therefore, such notional losses are not allowable under the Act. Therefore, such pay any liability under the claim. Therefore, such notional loss cannot be held to be allowable under the scheme of the Act. It is now settled law that entry or absence thereof in books of account is not conclusive either for treating the amount as income or allowability or otherwise of the expenditure. Thus, only on the basis of entry in the books of account the claim of expenditure is not allowable. '' Respectfully following the decision of the coordinate Bench of this Tribunal in the case of Ranbaxy Laboratories Ltd. (supra) we uphold the impugned order of the CIT(A) confirming the disallowance made by the AO on account of ESOP expenses claimed by the assessee and dismiss the ground taken by the assessee. In the result, the assessees appeals in ITA Nos.1099/H/2006 & 1114/H/2008 are dismissed. levy of penalty u/s 271(1)(c) - HELD THAT:- In our opinion, the penalty proceedings stood on different footings. The disallowance of claim of expenditure by the assessee in respect of ESOPS cannot be construed as furnishing of inaccurate particulars of income or concealing of income. The claim of the assessee is based on judicial precedents in the case of SSI Limited cited [2004 (12) TMI 680 - ITAT CHENNAI] wherein it was held that; '' ESOP was a benefit conferred on the employee and a benefit, which could not be taken back by the company. So far as the company is concerned, once the option is given and exercised by the employee, the liability in this behalf is ascertained. The fact is recognized even by SEBI and the entire ESOP scheme are governed by the Guidelines issue by the SEBI. It is not the case of contingent liability depending upon various factors on which the assessee had no control. '' In view of this, there is a basis for claiming of deduction by the assessee and it cannot be said that the assessee furnished inaccurate particulars of income or concealed the income. As such, levy of penalty is not justified. Accordingly, we do not find any infirmity in the order of the CIT(A) in deletion of penalty and the same is confirmed. In the result, all the appeals filed by the assessee as well as revenue are dismissed.
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