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TMI Blog2023 (8) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... cision rendered therein shall apply mutatis mutandis to other appeals. ITA No. 1795/Mum./2023 Revenue's Appeal - A.Y. 2017-18 3. In this appeal, the Revenue has raised the following grounds:- "i) Whether on facts and circumstance and in law CIT(A) was justified in deleting the disallowance made by the AO on ESOP expenses without appreciating the fact that Apex Court in its decision in the case of Punjab State Industrial Development Corp. Ltd. (1997) 225 ITR 792 (SC) and Brooke Bond India Ltd. (1997) 225 ITR 798 (SC) have held that expenditure resulting in increase in capital" is not allowable deduction even if such expenditure may incidentally help in business of the company. ii) Whether on facts and circumstance and in law CIT(A) was justified in deleting the disallowance made by the AO on ESOP expenses without appreciating the fact that the jurisdictional ITAT in the case of VIP Industries Ltd in ITA No.7242/Mum/2008 for the AY 2005-06 has squarely applied the decision rendered by ITAT Delhi in the case of Ranbaxy Laboratories Ltd and thereby confirmed the disallowance made by the AO on account of ESOP expenses claimed by the assessee. iii) Whether on facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 37(1) of the Act. The AO further held that the assessee has issued shares to the employees at a concessional rate which has increased the capital base of the company and therefore, such expenditure is to be considered as capital expenditure. It was also held that the assessee has claimed expenditure, which has not been crystalised in terms of quantum and therefore can be treated as contingent liability. Accordingly, the AO disallowed the ESOP expenditure of Rs. 65,81,90,485, under section 37(1) of the Act. 6. The learned CIT(A), vide impugned order, allowed the grounds raised by the assessee on this issue by following the decision of the Hon'ble Karnataka High Court in CIT v/s Biocon Ltd [2020] 121 taxmann.com 351 (Karn.). Being aggrieved, the Revenue is in appeal before us. 7. We have considered the submissions of both sides and perused the material available on record. As per the assessee, the ESOP is provided to the employees with the right to purchase a certain number of equity shares in the company at a predetermined price after a predetermined period. The stock options are granted for the purpose of motivating, retaining, and incentivising the employees. The stock opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession". 7. Thus, from perusal of section 37(1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or expended and does not contain a requirement that there has to be a pay out. If an expenditure has been incurred, provision of section 37(1) of the Act would be attracted. It is also pertinent to note that section 37 does not envisage incurrence of expenditure in cash. 8. Section 2(15A) of the Companies Act, 1956 defines 'employees stock option' to mean option given to the whole time directors, officers or the employees of the company, which gives such directors, officers or employees, the benefit or right to purchase or subscribe at a future rate the securities offered by a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitles him for deduction under section 37(1) of the Act subject to fulfilment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of account, which has been prepared in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 12. So far as reliance place by the revenue in the case of Infosys Technologies Ltd.(supra) is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under section 201 of the Act for non-deduction of tax at source and it was held that there was no cash inflow to the employees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Years in question was 1997-98 to 1999-2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPs. Section 17(2)(iiia) was inserted by Finance Act, 1999 with effect from 1-4-2000. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture incurred by the assessee under the provisions of the Companies Act, 2013, cannot be claimed as a donation under section 80G of the Act. The AO further held that the expenditure under the aforesaid provisions of the Companies Act, 2013 is a mandatory contribution and not a voluntary contribution and this expenditure has categorically been disallowed under section 37 of the Act. The AO further held that if the tax deduction is allowed on CSR expenses then this would result in subsidising the expenses by one-third amount. Accordingly, the AO disallowed the deduction of Rs. 1,10,70,947, claim under section 80G of the Act and added the same to the total income of the assessee. 11. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue following the judicial precedents rendered by the coordinate benches of the Tribunal. Being aggrieved, the Revenue is in appeal before us. 12. We have considered the submissions of both sides and perused the material available on record. We find that the coordinate benches of the Tribunal have consistently taken the view in favour of the assessee and held that the CSR expenses even though not allowed under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irections issued by the DRP. We hold that the Final Assessment Order, dated 27.07.2022 passed by the Assessing Officer was not in conformity with the directions issued by the DRP and is therefore, set aside, being contrary provisions of Section 144C(13) of the Act. The issue is remanded back to the file of Assessing Officer with the directions to pass the Final Assessment Order in conformity with the directions issued by the DRP. Accordingly, Ground No. 2 raised by the Appellant is allowed while all other grounds raised by the Appellant are disposed off as being infructuous. ii. In the case of FNF India (P.) Ltd. Vs. ACIT [2021] 133 taxmann.com 251 (Bangalore - Trib.). Hon'ble ITAT, Bangalore has held that Payment towards donation made by assessee-company on account of its corporate social responsibility to charitable institutions which was already disallowed under section 37(1) and added to total taxable income of assessee was to be allowed as deduction under section 80G iii. In the case of DCIT Vs. Peerless General Finance & Investment & Co. Ltd. [2019] 112 taxmann.com 410 (Kolkata - Trib.). Hon'ble ITAT, Kolkata has held that any expenditure incurred towards eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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