TMI Blog2023 (8) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order passed by the learned CIT(A) in allowing the claim of deduction of ESOP expenses under section 37(1) of the Act. Decided in favour of assessee. Corporate Social Responsibility ( CSR ) expenses - Deduction claimed u/s 80G when disallowed u/s 37(1) - HELD THAT:- 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 section 37 of the Act pursuant to insertion of Explanation-2 to section 37 vide Finance Act, 2014 with effect from 01/04/2015. However, the said expenditure is allowable u/s 80G - no infirmity in the impugned order passed by the learned CIT(A) in allowing the claim of deduction u/s 80G of the Act on CSR expenses incurred by the assessee. Appeal by the Revenue is dismissed. - Shri B.R. Baskaran, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Vijay Mehta For the Revenue : Smt. Mahita Nair ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeals have been filed by the Revenue challenging the separate impugned orders of even date 20/03/2023, passed under section 250 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby defeating the very intent of inserting CSR provisions in the Companies Act, 2013. v) The appellant craves leave to amend or alter any ground or add a new ground that may be necessary at the time of hearing. 4. The issue arising in grounds no. (i) to (iii), raised in Revenue s appeal, is pertaining to the deletion of disallowance made on account of Employee Stock Option Plan ( ESOP ) expenses. 5. The brief facts of the case pertaining to this, as emanating from the record, are: The assessee is a non-banking financial company registered with the RBI under section 45-IA of the RBI Act, 1934 and is primarily engaged in the lending money and related activities. During the year under consideration, the assessee filed its return of income on 06/11/2017, declaring a loss of Rs. 66,56,04,139. The assessee filed a revised return of income on 31/03/2019 returning the loss of Rs. 65,28,41,392. During the assessment proceedings, it was observed that the assessee has claimed, inter-alia, the ESOP expenses amounting to Rs. 65,81,90,485. Accordingly, the assessee was asked to show cause as to why the said expenses are allowable under section 37(1) of the Act. In response thereto, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns is reduced by the exercise price of options and since the exercise price of stock options is equal to the market price of equity shares of the assessee on the date of grant of the stock options, the assessee has not recorded any employee s compensation expenses pertaining to ESOP in its books of accounts over the grant/vesting period. The assessee claimed the deduction in respect of the aggregate amount of excess of the fair market value of equity shares over the exercise price amounting to Rs. 28,65,26,826, under section 37(1) of the Act. As evident from the record, the AO disallowed the deduction primarily on the basis that no expenditure has been incurred by the assessee so as to claim deduction under section 37(1) of the Act and the expenditure if any is in the nature of capital expenditure and the liability is a contingent liability. We find that similar contentions of the Revenue were rejected by the Hon ble Karnataka High Court in Biocon Ltd (supra), wherein the Hon ble High Court dismissed the appeal filed by the Revenue and upheld the decision of the Special Bench of the Tribunal in Biocon Ltd v/s DCIT, [2013] 144 ITD 21 (Bangalore-Trib.) (SB). The relevant findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the employees. 9. In the instant case, the ESOPs vest in an employee over a period of four years i.e., at the rate of 25%, which means at the end of first year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options. It is well settled in law that if a business liability has arisen in the accounting year, the same is permissible as deduction, even though, liability may have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a quantification of liability, which takes place at a future date. The tribunal has therefore, rightly placed reliance on decisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. 10. From perusal of section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . And Lemon Tree Hotels Ltd.'case (supra). 13. It is also pertinent to mention here that for Assessment Year 2009-10 onwards the Assessing Officer has permitted the deduction of ESOP expenses and in view of law laid down by Supreme Court in Radhasoami Satsang v. CIT, [1992] 60 Taxman 248/193 ITR 321, the revenue cannot be permitted to take a different stand with regard to the Assessment Year in question. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed. 8. Therefore, in view of the aforesaid findings of the Hon ble Karnataka High Court, we find no infirmity in the impugned order passed by the learned CIT(A) in allowing the claim of deduction of ESOP expenses under section 37(1) of the Act. Accordingly, grounds no. (i) to (iii) raised in Revenue s appeal are dismissed. 9. The issue arising in ground no. (iv), raised in Revenue s appeal, is pertaining to the deletion of disallowance of deduction claimed under section 80G of the Act on Corporate Social Responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80G (other than Swacch Bharat Kosh or Clean Ganga Fund) are allowable as deduction u/s 80G. These findings is conclusion is supported by various judgements as under- i. In the case of Marsh Mclennan Global Services India Private Limited Vs AU, ITD, NFAC [ITA No. 2452/MUM/2022] [A.Y. 2018-19] [Date of order 27.12.2022], Hon'ble ITAT, Mumabi has held that even though deduction for CSR Expenses was not allowable under Section 37 of the Act (in view of the Explanation 2 to Section 37 of the Act inserted by the Finance Act, 2014, with effect from 01.04.2015), there was no bar for allowance of the same under Section 80G of the Act (except for the donations made to the Swach Bharat Kosh and the Clean Ganga Fund), provided all the other conditions of Sec. 80G are fulfilled. Relevant para of the order is extracted below- 9. On perusal of above, it is clear that after considering the position taken by the Assessing Officer and the objections raised by the Appellant, the DRP concluded that even though deduction for CSR Expenses was not allowable under Section 37 of the Act (in view of the Explanation 2 to Section 37 of the Act inserted by the Finance Act, 2014, with effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue is dismissed. ITA No. 1796/Mum./2023 Revenue s Appeal A.Y. 2018 19 15. 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 circumstance and in law CIT(A) was jus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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