TMI Blog2023 (2) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to Assessment Year 2016-17. 2. Brief facts of the case as culled out from the material on record are as under :- 3. Assessee is a company stated to be engaged in the business of providing ITeS, Software, Development and Sales option and marketing services. Assessee filed its original return of income for A.Y. 2016-17 on 24.11.2016 declaring income of Rs.23,41,59,160/- which was modified as per APA on 26.05.2017 at an income of Rs.23,41,86,210/-. The case of the assessee was selected for scrutiny and, thereafter, assessment was framed u/s 143(3) of the Act vide order dated 30.12.2018 and the total income was determined at Rs.27,87,17,461/-. 4. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 08.11.2019 in Appeal No.10162/2019-20 granted substantial relief to the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal and has raised the following effective ground: 1. Whether on facts and circumstances of the case and in law, the Learned CIT(A) is legally justified in holding that the employees Stock Expenses (ESOP) is an allowable expense u/s 37(1) of the Act. 5. During the course of assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before me, the ARS of the appellant vehemently contended that the AO was wrong in concluding that the expenditure pertaining to the ESOP, claimed u/s 37(1,) had not crystallized and that it was in the nature of capital expenditure and hence not allowable u/s 37(1) of the Income Tax Act. The AR also submitted that the appellant's appeal on identical facts was allowed by the CIT(A)-2 for A.Y 2015-16. The claim of the appellant was examined vis- -vis the finding of the AO as also the principles enunciated by the jurisdictional High Court and the other courts of the land. A perusal of the assessment order shows that the AO has disallowed the expenditure u/s 37(1) of the Income Tax Act on two counts viz, expenditure had not crystallized and expenditure was not capital in nature. In regard to the former the appellant contended that the expenditure had been actually incurred by the appellant company and cross charges in this regard had been paid to the parent company. The appellant also filed a copy of Form 15CBS to authenticate payment so affected along with copy of bank statements of the appellant company. The AR also drew my attention to Note 32 of Audited financial S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid u/s 43(2) in juxtaposition to section 37(1), the position which emerges is that it is not only paying of expenditure but also incurring of the expenditure which entails deduction u/s 37(1) subject to the fulfilment of other conditions. At this juncture, it is imperative to note that the word 'expenditure' has not been defined in the Act. However, sec. 2(h) of the Expenditure Act, 1957 defines 'expenditure' as: 'Any sum of money or money's worth spent or disbursed or for the spending or disbursing of which a liability has been incurred by an assessee........ When section 43(2) of the Act is read in conjunction with section 37(1), the meaning of the term 'expenditure' turns out to be the same as is there in the aforequoted part of the definition under section 2(h) of the Expenditure Act, 1957, viz., not only 'paying out' but also 'incurring'. Coming back to our context, it is seen that by undertaking to issue shares at discounted premium, the company does not pay anything to its employees but incurs obligation of issuing shares at a discounted price on a future date in lieu of their services, which is nothing but an expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee Stock Ownership Plan (ESOP). The ESOP or restricted share unit (RSU) plan is a scheme of allotment of stocks of the companies at a discount to its employees. The option is given as per the job offer letter and the option is exercised when the vesting period starts or when the company actually allows the employee to exercise the option. Thereafter, the employee after giving a notice to the company, can exercise the option and get the stocks at a discount. The discount is borne by the company and the same is claimable as revenue expenditure. Moreover, such benefits granted to the employee are subject to TDS on allotment as this is an ingredient of salary package. According to the court decisions, the expenses are incurred when the right of option is vested in the employee. 6.3 The AO has raised many issues viz. the stocks are from the parent company Cvent Inc. USA and not from the appellant company Cvent India P. Ltd., these are notional expenses not allowable as business expenses. He has also relied on the decision of ITAT, Delhi in the case of Ranbaxy laboratories Ltd versus additional CIT (2010) 39 SOT 17. However, the AO has allowed Rs. 30,56,762/- out of Rs. 1,58,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse on account of ESOP is an incentive/compensation to the employees and has direct nexus with their employment and therefore such expenses can be said to have been incurred wholly for the purpose of business and are revenue in nature and, therefore, allowable u/s 37(1) of the Act. He also placed reliance on the decision cited before CIT(A) and which are reproduced by CIT(A) in his order. He, therefore, submitted that in view of the various decisions, CIT(A) has rightly allowed the claim of expenses. He thus supported the order of CIT(A). 10. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the allowability of expenses towards ESOP expenses. AO had disallowed the expenditure by holding it to be capital in nature and not allowable u/s 37(1) of the Act. We find that CIT(A) after considering the various High Court s and Tribunal s decisions cited in the order held the ESOP expenses to be allowable u/s 37(1) of the Act. Before us, Revenue has not placed any material on record to point out any fallacy in the findings of CIT(A) nor has placed any contrary binding decision in its support. In such a situ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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