TMI Blog2016 (4) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance. 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the assessee had claimed dividend income of ₹ 18.33 lakhs, that it had offered no disallowance u/s. 14A on account of expenses relating to dividend income. The AO applied Rule 8D of the Income tax Rules, 1962(Rules) and made a disallowance of ₹ 2, 74, 489/-(0.5% of average value of investment). 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA). Before him, it was argued that the assessee had made investment in Mutual Funds only, that investment was made out of assessee s own funds, that no other expenditure was incurred regarding dividend income. After considering the submission of the assessee and the assessment order the FAA held that no disallowance had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Ground No.1 is decided in favour of the assessee. 6. Next Ground of appeal is about addition of ₹ 56.40 lakhs out of the expenditure incurred under ESOP(Employee Stock Option Scheme). During the assessment proceedings, the AO found that the assessee had debited an amount of ₹ 1.07 crores under the head cost of stock awarded to KF India Employees. Before the AO, the assessee stated that the expenditure was on account of ESOP. On perusal of the tax audit report, the AO found that the assessee had paid Fringe Benefit Tax (FBT) only on amount of ₹ 50.65 lakhs. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es accordingly the assessee had paid FBT during the year, that assessee had made full payment of ₹ 1.07 crores to its parent company, that it had claimed the cost of stock awarded to its employees entirely based on ESOP Scheme governed by the SEBI Guidelines, that the ESOP expenditure was a measure in the nature of compensation cost and was fully deductible in computing the taxable income. The FAA , in his order, held that the assessee itself had not treated the entire amount as liability, that ESOP would be effective only on the discretion of the employees to opt for stocks, that payment for shares was either a provision or an investment, that no liability in that regard had crystallised. 8. Before us, the AR reiterated the argume ..... X X X X Extracts X X X X X X X X Extracts X X X X
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