Novo Nordisk India Private Limited, Bangalore V. CIT, Bangalore

ITA 1275/BANG/2011

• Counselvise Citation: 127521114 RSA 2011
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN JT
• Keywords: Business expenditure; Fair market value; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1275/BANG/2011 ASSESSMENT YEAR : 2006-07 NOVO NORDISK INDIA PVT. LTD., PLOT NO.32, 47-50, EXPORT PROMOTION INDUSTRIAL PARK AREA, WHITEFIELD, BANGALORE 560 066. PAN : AAACN 7425M VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI NAGESHWAR RAO, ADVOCATE RESPONDENT BY : SHRI A. SUNDARARAJAN, JT. CIT(DR) DATE OF HEARING : 24.09.2013 DATE OF PRONOUNCEMENT : 30.09.2013 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D ATED 03.10.2011 OF THE CIT(APPEALS)-III, BANGALORE RELATING TO ASSESSM ENT YEAR 2006-07. ITA NO.1275/BANG/2011 PAGE 2 OF 20 2. IN THIS APPEAL, THE ONLY GRIEVANCE OF THE ASSESS EE IS AGAINST THE ACTION OF THE REVENUE AUTHORITIES IN DISALLOWING TH E CLAIM OF THE ASSESSEE FOR DEDUCTION OF SUM OF RS.1,51,91,003 AS EXPENDITU RE INCURRED IN PROVIDING SHARES OF NOVO NORDISK A/S DENMARK UNDER THE NOV O NORDISK INDIA PRIVATE LIMITED EMPLOYEE STOCK PURCHASE SCHEME, 200 5. (HEREINAFTER REFERRED TO AS ESOP). THE FURTHER GRIEVANCE OF TH E ASSESSEE IS WITH REGARD TO CHARGING OF INTEREST U/S. 234D OF THE ACT . 3. WE SHALL FIRST TAKE UP THE GRIEVANCE OF THE ASSE SSEE WITH REGARD TO THE DISALLOWANCE OF EXPENDITURE INCURRED ON PROVIDI NG SHARES UNDER THE ESOP. THE FACTS NECESSARY FOR ADJUDICATION OF THE AFORESAID GROUND ARE AS FOLLOWS. 4. THE ASSESSEE (NNIPL) IS A WHOLLY OWNED SUBSIDIAR Y OF NOVO NORDISK A/S, DENMARK (NNAS) AND IS A PRIVATE LIMITED COMP ANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERE D OFFICE IN BANGALORE. IT IS PRIMARILY ENGAGED IN THE MARKETING AND DISTRIBUT ION OF HEALTHCARE PRODUCTS, SPECIFICALLY DIABETES CARE PRODUCTS SUCH AS INSULIN FORMULATIONS/OTHER INSULIN PRODUCTS. IN CARRYING ON ITS BUSINESS ACTIVITIES IN INDIA, THE ASSESSEE SOURCES THE PRODUCTS FROM INDIA N COMPANIES/NNAS AND MARKETS/ DISTRIBUTES SUCH PRODUCTS IN INDIA THR OUGH WHOLESALE DISTRIBUTOR(S). 5. NNAS THE PARENT COMPANY OF THE ASSESSEE HAS A SC HEME CALLED NNAS GLOBAL SHARE PROGRAMME, 2005 (THE PLAN). AS PER THE PLAN THE ITA NO.1275/BANG/2011 PAGE 3 OF 20 EMPLOYEES OF NNAS WERE ENTITLED TO PURCHASE SHARES OF NNAS AT A PRICE LESS THAN THE MARKET PRICE. THE SHARES OF NNAS ARE LISTED ON THE COPENHAGEN STOCK EXCHANGE. BY A BOARD RESOLUTION D ATED 10.8.2005, THE BOARD OF DIRECTORS OF NNAS RESOLVED THAT THE EMPLOY EES OF FOREIGN AFFILIATES OF NNAS WOULD ALSO BE ENTITLED TO OPT TO PURCHASE S HARES OF NNAS UNDER THE PLAN. A COPY OF THE INTERNATIONAL INFORMATION MEMORANDUM FOR PURCHASE OF EMPLOYEES SHARES IN NNAS AS GIVEN BY NN AS IS AT PAGE 32 TO 37 OF THE ASSESSEES PAPER BOOK. THE EMPLOYEES OF THE ASSESSEE WHO HAVE OPTED FOR ACQUIRING SHARES OF NNAS UNDER ESOP HAVE TO GIVE THEIR OPTION TO PURCHASE ON OR BEFORE 31.10.3005 AND PAY THE MONEY PAYABLE FOR ACQUIRING THE SHARES TO THE ASSESSEE. THE ASSESSEE WILL DEPOSIT THE PURCHASE PRICE SO COLLECTED FROM ITS EMPLOYEES AND MAKE A LUMP SUM PAYMENT TO NNAS ON BEHALF OF THE EMPLOYEES. NNAS W ILL ALLOT SHARES DURING JANUARY-FEBRUARY, 2006. THE EMPLOYEES WILL NOT BE ENTITLED TO SELL THE SHARES SO ALLOTTED TILL THE END OF 2008. THE M EMORANDUM FURTHER SETS OUT THE TAX AND ACCOUNTING TREATMENT IN THE AFFILIA TES AND IT READS THUS: TAX AND ACCOUNTING TREATMENT IN THE AFFILIATES THE TOTAL BENEFIT FOR THE EMPLOYEES WILL IF PERMI TTED BY LOCAL RULES BE RECHARGED FROM NOVO NORDISK A/S TO THE RELEVANT AFFILIATES USING THE AVERAGE MARKET PRICE FOR THE PERIOD 3 RD OCTOBER, - 17THE OCTOBER, 2005. THE RECHARGE WILL BE MADE IN LOCAL (CONVERTI BLE) CURRENCIES BEFORE THE 15 TH OF DECEMBER, 2005. THE RECHARGE IS NECESSARY IN MOST COUNTRIES TO OBTAIN A LOCAL DEDUCTION FOR TAX PURPOSES. IN SOME COUNTRIES IT MIGHT BE NECESSARY TO GET AN A PPROVAL FROM THE CENTRAL BANK, TO BE ABLE TO PAY THE RECHARGE. IN O THER COUNTRIES IT IS IMPOSSIBLE, DUE TO LEGAL RESTRICTIONS, TO ACCEPT A RECHARGE. ITA NO.1275/BANG/2011 PAGE 4 OF 20 6. THE ASSESSEE FRAMED NOVO NORDISK INDIA PRIVATE L IMITED EMPLOYEE STOCK PURCHASE SCHEME, 2005. (HEREINAFTER REFERRED TO AS ESOP) WHEREBY IT OFFERED SHARES OF MNAS TO ITS EMPLOYEES SUBJECT TO CERTAIN TERMS AND CONDITIONS SET OUT IN THE SCHEME. A COPY OF THE ESOP IS AT PAGE-28 TO 31 OF THE ASSESSEES PAPER BOOK. FOR TH E ASSESSMENT YEAR 2006-07, THE ASSESSEE FILED ITS RETURN OF INCOME ON NOVEMBER 29, 2006, REPORTING AN INCOME OF RS 58,399,200. DURING THE F Y 2005-06, ELIGIBLE EMPLOYEES OF ASSESSEE (NNIPL) WERE GIVEN THE OPTION OF PURCHASING SHARES OF ITS PARENT COMPANY NNAS UNDER THE NNAS GL OBAL SHARE PROGRAMME, 2005 (THE PLAN). IN THIS REGARD, 231 E MPLOYEES OF THE COMPANY HAD APPLIED FOR PURCHASE OF 12,931 SHARES A T THE PRICE OF DKK 150 PER SHARE. FURTHER, AS PER THE PLAN, THE DIFFER ENCE BETWEEN THE PURCHASE PRICE OF THE SHARES AND THE AVERAGE MARKET PRICE OF THE SHARES DURING THE PURCHASE OFFER PERIOD (I.E., DKK 313.39) AMOUNTING TO DKK 163.39 PER SHARE WAS RECHARGED BY NNAS TO NNIPL. THE PLAN WAS CONCEPTUALISED WITH A VIEW TO ENCOURAGING STOCK OWN ERSHIP AMONG NNIPLS EMPLOYEES, TO MOTIVATE AND ENCOURAGE EMPLOY EES TO RENDER SERVICES WHICH WOULD CONTRIBUTE TO THE CONTINUED GR OWTH AND SUCCESS OF THE COMPANY. ACCORDINGLY, SINCE NNIPL HAS ACTUALLY INC URRED THE EXPENSES DURING THE SUBJECT FINANCIAL YEAR, THE ENTIRE AMOUN T OF ESOP RECHARGE COST AMOUNTING TO DKK 2,112,796 (RS 15,191,003) WAS RECO GNISED AS EMPLOYEE COST, AND CLAIMED AS A DEDUCTIBLE EXPENDIT URE IN COMPUTING THE TAXABLE INCOME OF NNIPL FOR THE AY 2006-07. ITA NO.1275/BANG/2011 PAGE 5 OF 20 7. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE AF ORESAID EXPENDITURE WAS REVENUE EXPENDITURE WHOLLY AND EXCL USIVELY LAID OUT OR EXPENDED FOR THE PURPOSE OF BUSINESS OR PROFESSION OF THE ASSESSEE AND SHOULD BE ALLOWED AS DEDUCTION U/S. 37(1) OF THE AC T. THE ASSESSEE ALSO POINTED OUT THAT UNDER THE GUIDELINES PRESCRIBED BY SEBI (EMPLOYEES STOCK OPTION SCHEME OR EMPLOYEE STOCK PURCHASE SCHEME) GU IDELINES, 1999, EXPENDITURE ON STOCK OPTION HAS TO BE TREATED AS A FORM OF EMPLOYEE COMPENSATION INCURRED BY THE COMPANY. THE ASSESSEE POINTED OUT THAT IT HAD PAID NNAS THE DIFFERENCE BETWEEN THE PRICE PAID BY THE EMPLOYEES FOR ACQUIRING THE SHARES OF NNAS AND THE AVERAGE MARKET PRICE OF THE SHARES DURING THE PURCHASE OFFER PERIOD AND THUS THE ASSES SEE HAD ACTUALLY INCURRED THE EXPENDITURE AND THERE HAS BEEN AN ACTU AL CASH OUTFLOW FROM THE ASSESSEE TOWARDS SUCH EXPENSES AND THAT THE EXP ENDITURE WAS NOT OF NOTIONAL COST. THE ASSESSEE RELIED ON THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF SSI LTD. V. DCIT, 85 TTJ 1049 (CHN) , WHEREIN IT WAS HELD THAT THE DISCOUNT ON ESOP I.E., THE DIFFER ENCE BETWEEN THE MARKET VALUE OF THE SHARES AND THE PRICE AT WHICH THE SHAR ES HAVE BEEN GIVEN TO THE EMPLOYEES HAS TO BE ALLOWED AS AN EXPENDITURE. THE ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE AO, CBDT CIRCULAR NO.9 OF 2007 DATED 20.12.07 WHICH WAS ISSUED IN RELATION TO FRINGE BEN EFIT TAX IN WHICH IN ANSWER TO QUESTION NO.16, THE BOARD HAS CLARIFIED T HAT THE DIFFERENCE BETWEEN THE MARKET PRICE AND EXERCISE PRICE ARISING ON ACCOUNT OF SHARES ITA NO.1275/BANG/2011 PAGE 6 OF 20 ALLOTTED OR TRANSFERRED UNDER ESOP IS ALLOWABLE AS DEDUCTION IN CALCULATING THE TAXABLE INCOME OF THE EMPLOYER. 8. THE AO, HOWEVER, DID NOT AGREE WITH THE SUBMISS IONS MADE ON BEHALF OF THE ASSESSEE. IN THIS REGARD, THE AO CON SIDERED NNIPL EMPLOYEE STOCK PURCHASE SCHEME, 2005 IN WHICH UNDER CLAUSE (4) THERE WAS A LOCK-IN PERIOD PROVIDED DURING WHICH THE SHAR ES CANNOT BE SOLD OR TRANSFERRED BY THE EMPLOYEE. THE LOCK-IN PERIOD WA S THREE YEARS. THE AO WAS OF THE VIEW THAT BECAUSE OF THE LOCK-IN PERIOD, IT WAS A CAPITAL EXPENDITURE. THE SECOND REASON GIVEN BY THE AO FOR NOT ACCEPTING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE AFORESAI D EXPENDITURE WAS THAT THE EXPENDITURE RESULTED IN CAPITAL BUILDING OF THE PARENT COMPANY AND THEREFORE THERE WAS NO EXPENDITURE INCURRED BY THE ASSESSEE IN THE REGULAR COURSE OF ITS BUSINESS. ON THE RELIANCE PLACED BY THE ASSESSEE ON CBDT CIRCULAR NO.9 OF 2007, THE AO HELD THAT FBT WAS ONL Y TAXED FROM THE A.Y. 2007-08 AND THEREFORE THE CIRCULAR REFERRED TO BY T HE ASSESSEE WOULD BE IRRELEVANT FOR THE A.Y. 2006-07. THE AO ALSO OBSERV ED THAT THE SHARES OF NNAS WERE LISTED IN COPENHAGEN STOCK EXCHANGE, DENM ARK AND NOT IN ANY INDIAN STOCK EXCHANGE AND THEREFORE SEBI GUIDEL INES WERE NOT APPLICABLE TO THE TRANSACTIONS. THE AO DISTINGUISH ED THE DECISION RELIED ON BY THE ASSESSEE IN THE CASE OF SSI LTD. (SUPRA) BY OBSERVING THAT SSI WAS A LISTED COMPANY IN INDIAN STOCK EXCHANGE AND THERE FORE AS PER SEBI GUIDELINES, THE EXPENSES WERE DEBITED TO THE P&L AC COUNT. FURTHER, THE AO OBSERVED THAT THE EMPLOYEES WERE FREE TO TRANSFER T HEIR SHARES WHENEVER ITA NO.1275/BANG/2011 PAGE 7 OF 20 THEY LIKED WITHOUT ANY LOCK-IN PERIOD. THE AO THUS DISTINGUISHED THE DECISION RELIED UPON BY THE ASSESSEE. THE AO ACCOR DINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF E SOP EXPENSES. 9. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE CIT(A) AGREED WITH TH E SUBMISSIONS OF THE ASSESSEE THAT THE EXPENDITURE IN QUESTION WAS NOT A CAPITAL EXPENDITURE. THE CIT(A) ALSO HELD THAT LIABILITY WAS NOT CONTING ENT OR UNASCERTAINED. HE NOTICED THE FOLLOWING FACTS AS IT TRANSPIRED FROM T HE RECORDS:- 5.2 FROM AN EXAMINATION OF THE FACTS OF THE CASE, I FIND THAT THE FOLLOWING FACTS ARE RELEVANT T A PROPER APPRAIS AL OF THE ISSUE: A) THE ESOP IS ISSUED BY THE FOREIGN PARENT OF THE APPELLANT OUT OF ITS OWN SHARE-HOLDING B) THE APPELLANT IS ONLY A CONDUIT FOR THE ISSUE OF THE ESOPS BY THE PARENT WITH REGARD TO THE PAPERWORK, COLLECTION OF OPTIONS, PROVIDING DATA FOR ELIGIBILITY ETC. NO DIRECT LIABI LITY IN THE FORM OF SHAREHOLDING OBLIGATION IN COSTS ACCRUES TO THE APPELLANT IN THE SCHEME. C) IT IS THE FOREIGN PARENT WHICH HAS IMPOSED THE LIABILITY FOR RECHARGE OF THE DISCOUNTED PORTION OF THE ESOP UP ON THE APPELLANT D) THE DISCOUNTED AMOUNT IS AN EXPENDITURE NOT TO M EET ANY OUTSIDE LIABILITY BUT ONLY A REIMBURSEMENT TO THE PARENT COMPANY FOR THE AMOUNT OF SHORTFALL IN THE LATTERS BOOKS ON THE DISCOUNTED ISSUE OF ESOPS. 10. THE CIT(A) THEREAFTER FORMULATED A QUESTION AS TO WHETHER THE CLAIM OF THE ASSESSEE FOR DEDUCTION HAS TO BE CONSIDERED AS ALLOWABLE U/S. 37(1) OF THE ACT. THE CIT(A)S REASONS MAY BE SUMMED UP THUS: ITA NO.1275/BANG/2011 PAGE 8 OF 20 A) THE PARENT COMPANY AT DENMARK HAS HANDED OVER A BENEFIT OUT OF ITS OWN STOCK HOLDING (NO NEW SHARES ARE FLOATED FOR TH E ESOP), AND IN THE FITNESS OF NORMAL ACCOUNTING PRINCIPLES, IT SHOULD BEAR THE LIABILITY FOR THE DISCOUNT INSTEAD OF PASSING ON THIS LIABILITY TO TH E APPELLANT BY A PURELY ADMINISTRATIVE, INTERNAL ARRANGEMENT. THE PARENT CO MPANY PERHAPS WOULD NOT BE ENTITLED TO DEDUCTION OF SUCH DISCOUNT AS IT WOULD FALL CLEARLY IN THE REALM OF CAPITAL EXPENDITURE SINCE ITS OWN SHARE CA PITAL BASE IS INVOLVED. B) THE ARRANGEMENT BETWEEN THE ASSESSEE AND NNAS W AS A CLEVER- MECHANISM TO PASS ON THE LIABILITY OF NNAS TO THE A FFILIATE IN INDIA (THE ASSESSEE) WHO WOULD MAKE THE TAX DEDUCTION CLAIM AS AN EMPLOYEE EXPENSE. THE INTENTION FOR ROUTING THIS LIABILITY T O THE ASSESSEE IS TO FACILITATE THE TAX DEDUCTION CLAIM OF THE AFFILIATE. A CAPITAL EXPENDITURE OF THE PARENT COMPANY AT DENMARK IS BEING CLOAKED IN THE GARB OF THE REVENUE EXPENSE CLAIM OF THE AFFILIATE IN INDIA. C) THERE WAS NO BUSINESS EXPEDIENCY FOR THE ASSESS EE TO HAVE PAID THE DIFFERENCE IN PRICE OF THE SHARES BECAUSE A LEGITIM ATE LIABILITY OF THE PARENT COMPANY WOULD NOT BE EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. D) EVEN IF FOR ARGUMENTS SAKE THE EXPENDITURE IS CONSIDERED AS A BUSINESS EXPENDITURE, IT IS CLEARLY A RELATED-PARTY TRANSAC TION WHICH IS LIABLE TO BE HIT BY THE PROVISIONS OF SEC 40A(2)(B) SINCE THERE IS N O JUSTIFIABLE REASON WHY THIS PAYMENT SHOULD HAVE TO BE ABSORBED BY THE APPE LLANT IN INDIA WHEN THE LARGESSE AND SHARES INVOLVED ARE THOSE OF ITS P ARENT COMPANY AT DENMARK. E) SEBI GUIDELINES ARE NOT APPLICABLE BECAUSE THE SHARES WERE NOT ISSUED UNDER ANY ESOP RECOGNIZED BY SEBI. 11. FOR THE SAKE OF READY REFERENCE THE OBSERVATIO NS OF THE CIT(A) ARE ALSO REPRODUCED: 5.4. THUS, THE BASIC ISSUE THAT IS TO BE CONSIDER ED IN THIS APPEAL IS WITH REGARD TO THE BUSINESS EXPEDIENCY OF THE EX PENDITURE, IE. ITS ALLOWABILITY U/S 37(1) OF THE ACT. ON THIS COUN T, I FIND THAT THE FOLLOWING ARE THE RELEVANT FACTS OF THE MATTER: A) THE APPELLANT AND ITS FOREIGN PARENT (NNAS) CLA IM TO HAVE OFFERED THE ESOPS TO ENCOURAGE STOCK OWNERSHIP AMON G THE ITA NO.1275/BANG/2011 PAGE 9 OF 20 APPELLANTS EMPLOYEES AND TO MOTIVATE AND ENCOURAGE THEM IN THEIR PERFORMANCE. B) NNAS, THE FOREIGN PARENT COMPANY, ISSUED THE ES OP VOLUNTARILY AT A DISCOUNTED VALUE WITHOUT HOWEVER S HOULDERING THE LIABILITY FOR THE SAME, VIA THE MECHANISM OF A RECHARGE OF THE DISCOUNT OBTAINED FROM THE APPELLANT. C) THE APPELLANT HAS ABSORBED A LIABILITY NOT ARIS ING OUT OF ITS OWN REGULAR BUSINESS, BUT ONLY TO REIMBURSE ITS PAR ENT COMPANY IN DENMARK FOR THE DISCOUNT WHICH THE LATTER HAS OFFER ED ON ITS OWN VOLITION. D) IN THE INTERNATIONAL MEMORANDUM REFERRED TO A BOVE FROM THE PARENT COMPANY, IT IS STATED UNDER THE HEA DING TAX AND ACCOUNTING TREATMENT IN THE AFFILIATES AS FOLLOWS: THE TOTAL BENEFIT FOR THE EMPLOYEES WILL - IF PERMI TTED BY LOCAL RULES - BE RECHARGED FROM NOVO NORDISK A/S TO THE RELEVANT AFFILIATES USING THE AVERAGE MARKET PRICE FOR THE PERIOD 3 OCTOBER 17 OCTOBER 2005. THE RECHARGE WILL BE MADE IN LOCAL (CONVERTIBLE) CURREN CIES BEFORE THE 15 TH OF DECEMBER 2005. THE RECHARGE IS NECESSARY IN MOST COUNTRIES TO OBTAIN A LOCAL DEDUC TION FOR TAX PURPOSES . (EMPHASIS IS MINE). 5.5. FROM THE ABOVE IT CAN BE SEEN THAT THE ESOP A RRANGEMENT WAS MEANT TO ACHIEVE SEVERAL OBJECTIVES SIMULTANEOU SLY. NOT ONLY WERE THE EMPLOYEES TO BE MOTIVATED AND ENCOURAGED, THE FOREIGN PARENT COMPANY NNAS WAS SIMULTANEOUSLY COVERING THE LOSSES ARISING FROM ITS LARGESSE BY A MECHANISM OF A RECH ARGE FROM THE APPELLANT. AT THE SAME TIME, THIS WAS DONE WITH THE EXPRESS INTENTION OF USING THE RECHARGE AS A MEANS TO OBT AIN TAX DEDUCTION FOR THE APPELLANT IN ITS OWN COUNTRY OF L OCATION. 5.6. THERE COULD BE PROPPED AN ARGUMENT THAT THE E SOPS ARE ACTUALLY IN THE FORM OF AN ENHANCED EMPLOYEE COMPEN SATION AND WELFARE PLAN AND ARE INCURRED TO HELP THE APPELLANT CARRY ON HIS BUSINESS. TO THIS EXTENT, THE EXPENSES INCURRED BY THE APPELLANT COULD QUALIFY AS EXTENDED EXPENSES ON PAYROLL OR E MPLOYEE COSTS OR AS A STAFF WELFARE MEASURE. HOWEVER, IT IS THE I NTENTION BEHIND THE ARRANGEMENT, AND THE CONSEQUENTIAL MECHANISM AD OPTED TO WORK THAT INTENTION, THAT WEAKENS THE APPELLANTS C ASE DRASTICALLY. THE PARENT COMPANY AT DENMARK HAS HANDED OVER A BEN EFIT OUT OF ITA NO.1275/BANG/2011 PAGE 10 OF 20 ITS OWN STOCK HOLDING (NO NEW SHARES ARE FLOATED FO R THE ESOP), AND IN THE FITNESS OF NORMAL ACCOUNTING PRINCIPLES, IT SHOULD BEAR THE LIABILITY FOR THE DISCOUNT INSTEAD OF PASSING O N THIS LIABILITY TO THE APPELLANT BY A PURELY ADMINISTRATIVE, INTERNAL ARRANGEMENT. HOWEVER, THE PARENT COMPANY PERHAPS WOULD NOT BE EN TITLED TO DEDUCTION OF SUCH DISCOUNT AS IT WOULD FALL CLEARLY IN THE REALM OF CAPITAL EXPENDITURE SINCE ITS OWN SHARE CAPITAL BAS E IS INVOLVED. THIS BEING THE CASE, I AM CONSTRAINED TO VIEW THIS ARRANGEMENT AS A CLEVER-MECHANISM TO PASS ON THE LIABILITY TO THE AFFILIATE IN INDIA (THE APPELLANT) WHO WOULD MAKE THE TAX DEDUCTION CL AIM AS AN EMPLOYEE EXPENSE. THE INTERNATIONAL MEMORANDUM REVE ALS AS MUCH. THE INTENTION FOR ROUTING THIS LIABILITY TO T HE APPELLANT IS VERY CLEAR FROM THAT DOCUMENT TO BE TO FACILITATE T HE TAX DEDUCTION CLAIM OF THE AFFILIATE. IN THIS VIEW, WHAT IS ACTUA LLY HAPPENING IS THAT THE CAPITAL EXPENSE OF THE PARENT COMPANY AT D ENMARK IS BEING CLOAKED IN THE GARB OF THE REVENUE EXPENSE CL AIM OF THE AFFILIATE IN INDIA. IN THESE CIRCUMSTANCES, THE POI NT TO BE CONSIDERED IS WHETHER SUCH A REIMBURSEMENT MADE T O THE PARENT QUALIFIES TO BE TAKEN AS BUSINESS EXPENDITURE AT ALL FOR THE PURPOSE OF SEC 37(1) OF THE ACT. IN TERMS OF BUSINE SS EXPEDIENCY, I AM NOT CONVINCED THAT CUSHIONING A LEGITIMATE LIA BILITY OF THE PARENT COMPANY (A LIABILITY WHICH IT HAS VOLUNTARIL Y RAISED) DUE TO EITHER TAX CLAIM CONSIDERATIONS AS STATED, OR POSSI BLY TO THE DICTATES OF THE PARENT (OR DUE TO BOTH FACTORS) - Q UALIFIES THE CLAIM OF THE APPELLANT AS EXPENDITURE LAID OUT WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. MOREOVER, I FIND THAT EVEN IF FOR ARGUMENTS SAKE ALONE, THE SAME IS CONSIDERED AS A BUSINESS EXPENDITURE, EVEN SO IT IS CLEARLY A RELATED-PARTY TRANSACTION WHICH IS LIABLE TO BE HIT BY THE PROVISIONS OF SEC 40A(2) (B) SINCE THERE IS NO JUSTIFIABLE REASON WHY THIS PAYMENT SHOULD HAVE TO BE ABSORBED BY THE APPELLANT IN INDIA WHEN THE LARGESS E AND SHARES INVOLVED ARE THOSE OF ITS PARENT COMPANY AT DENMARK . THIS PARENT COMPANY IS ITSELF A SEPARATE TAXABLE ENTITY AND COU LD HAVE SET OFF THESE EXPENSES AGAINST ITS SHARE PREMIUM OR OTHER R ELEVANT CAPITAL ACCOUNT, AS PER NORMAL ACCOUNTING PRINCIPLES. IN T HIS CONNECTION, THE RELIANCE ON SEBI GUIDELINES BY THE APPELLANT AT PARA 2.2 OF HIS SUBMISSION DATED 22.11.2010 IS COMPLETELY MISPLACED SINCE THE INDIAN COMPANY HAD NOT ISSUED SHARES UNDER THE CONC ERNED ESOP AT ALL. 5.7. WITH REGARD TO THE CASE-LAWS CITED BY THE APP ELLANT, I FIND THAT IN THE ACCENTURE CASE BEFORE 1TAT MUMBAI [ITA NO. 4540/M/08], THERE ARE MATERIAL DIFFERENCES IN THE F ACTS OF THAT CASE ITA NO.1275/BANG/2011 PAGE 11 OF 20 AND THE ONE BEFORE US. IN THE ACCENTURE CASE, THE S HARES WERE CLEARLY STATED BY THE CIT(A) TO BE ALLOTTED TO THE EMPLOYEES OF THE AFFILIATE BY THE PARENT COMPANY AT THE BEHEST OF THE AFFILIATE. SO IN A WAY, THE LIABILITY HAS BEEN INVITED BY THE AFF ILIATE ONTO ITSELF. THERE IS NO SUCH INITIATIVE FROM THE PRESENT APPELL ANT WHICH IS RECORDED IN THE MEMORANDUM OF PURCHASE, RATHER IT O NLY MENTIONS THAT THE BOARD OF DIRECTORS OF THE PARENT COMPANY TOOK THIS DECISION TO ALLOT ESOPS OF B SHARES OUT OF I TS OWN STOCK HOLDING. HENCE, THE BASIC ANOMALY OF THE APPELLANT S INTENTION IN DONNING THIS LIABILITY WHICH BELONGS TO ITS PARENT PREVAILS. HOWEVER, THIS ISSUE IS IN ANY CASE DISTINCT IN THE APPELLANTS CIRCUMSTANCES SINCE WHATEVER BE THE ADMINISTRATIVE ARRANGEMENT, THE EXPENDITURE IS NOT JUSTIFIABLE AS IT DOES NOT P ERTAIN TO THE APPELLANT AND ANY PERCEIVED BENEFITS ARE ALSO NOT L IMITED TO IT ALONE, BUT ARE EXTENDABLE TO THE ENTIRE GROUP HEADE D BY THE PARENT COMPANY AT DENMARK, OF WHICH THE APPELLANT IS ONLY A CONTRIBUTING PART. 12. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR. 13. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE FACTS OF THE ASSESSEES CASE WERE IDENTICAL TO THE FACTS AS IT PREVAILED IN THE CASE OF DCIT V. ACCENTURE SERVICES PVT. LTD. ,ITA 4540/MUM/ 2008 FOR THE A.Y. 2002-03 , ORDER DATED 23.3.2010 . IN THE AFORESAID CASE, THE TRIBUNAL CONSIDERED AN IDENTICAL ESOP WHEREBY THE I NDIAN COMPANY ISSUED SHARES OF ITS FOREIGN PARENT COMPANY AND CLAIMED TH E DIFFERENCE OF THE ISSUE PRICE AND THE FAIR MARKET VALUE AS AN ESOP CO ST. THE TRIBUNAL UPHELD THE CLAIM OF THE ASSESSEE. THE LD. COUNSEL FURTHER BROUGHT TO OUR NOTICE THAT THE CIT(APPEALS) IN PARA 5.7 OF HIS ORD ER AFTER MAKING A ITA NO.1275/BANG/2011 PAGE 12 OF 20 REFERENCE TO THE DECISION OF THE TRIBUNAL IN THE CA SE OF ACCENTURE (SUPRA) , HELD THAT IN THAT CASE, THE SHARES IN THAT CASE WER E ISSUED TO THE EMPLOYEES AT THE BEHEST OF THE INDIAN AFFILIATE, WHEREAS IN T HE INSTANT CASE OF THE ASSESSEE, THERE IS NOTHING TO SHOW THAT THE ASSESSE E TOOK INITIATIVE TO REWARD ITS EMPLOYEES WITH AN ESOP RATHER IT WAS THE FOREIGN PARENT COMPANY WHO TOOK THE INITIATIVE TO ISSUE SHARES TO EMPLOYEES OF ITS AFFILIATES IN INDIA. IT WAS POINTED OUT THAT THIS OBSERVATION OF THE CIT(A) IS FACTUALLY INCORRECT, BECAUSE IN THE CASE OF ACCENTURE (SUPRA) , THE SHARES WERE ISSUED AT THE BEHEST OF THE INDIAN COMPANY AND NOT AT THE INSTANCE OF THE FOREIGN PARENT COMPANY, AS HAS BEEN WRONGLY UND ERSTOOD BY THE CIT(A) IN PARA 5.7 OF HIS ORDER. 14. IT WAS FURTHER SUBMITTED THAT THE OBSERVATIONS OF THE CIT(A) THAT BY ISSUE OF ESOP, THE FOREIGN PARENT COMPANY AT DENMAR K WAS BENEFITED WILL BE NO GROUND TO DISALLOW A LEGITIMATE BUSINESS EXPE NDITURE OF THE ASSESSEE WHICH WAS EMPLOYEE COST OF THE ASSESSEE. THE LD. C OUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SASSOON J. DAVID & CO. (P) LTD. V. CIT, 118 ITR 261 (SC) , WHEREIN THE HONBLE APEX COURT TOOK THE VIEW THAT IF THE ASSESSEE INCURRED ANY EXPENDITURE IN THE COURSE OF ITS BUSIN ESS, EVEN VOLUNTARILY AND EVEN WITHOUT NECESSITY, BUT IF IT IS INCURRED FOR P ROMOTING THE BUSINESS AND TO EARN PROFIT, DEDUCTION U/S. 37(1) OF THE ACT HAS TO BE ALLOWED. THE HONBLE COURT FURTHER HELD THAT THE FACT THAT SOMEB ODY OTHER THAN THE ITA NO.1275/BANG/2011 PAGE 13 OF 20 ASSESSEE IS ALSO BENEFITED BY THE EXPENDITURE, SHOU LD NOT COME IN THE WAY OF EXPENDITURE BEING ALLOWED AS DEDUCTION. 15. OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MYSORE KIRLOSKAR LTD., 166 ITR 836 (KAR) , WHEREIN FOLLOWING THE HONBLE SUPREME COURT DECISI ON IN THE CASE OF SASSOON J. DAVID & CO. (P) LTD. (SUPRA) , THE HONBLE KARNATAKA HIGH COURT HELD THAT THE FACT THAT SOMEBO DY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EXPENDITURE SHOUL D NOT COME IN THE WAY OF AN EXPENDITURE BEING ALLOWED AS DEDUCTION U/S. 3 7(1) OF THE ACT. 16. OUR ATTENTION WAS ALSO DRAWN TO THE DIRECT TAX NOTIFICATION NO.323 DATED 11.10.2011, WHICH WAS A NOTIFICATION ISSUED I N EXERCISE OF POWERS CONFERRED U/S. 17(2) OF THE ACT. THE CENTRAL GOVER NMENT IN THE AFORESAID NOTIFICATION HAS SPECIFIED THE GUIDELINES WHICH NEE D TO BE FOLLOWED WHEN SHARES ARE ALLOTTED UNDER AN ESOP SCHEME. IN CLAUS E (6) OF THE AFORESAID GUIDELINES, THE CENTRAL GOVT. HAS LAID DOWN THAT WH ERE SHARES OF A PARENT COMPANY ARE ISSUED UNDER AN ESOP, THE COMPANY ISSUI NG ESOP HAS TO GIVE THE REQUIRED PARTICULARS TO THE CHIEF COMMISSI ONER OF INCOME-TAX (CCIT) WITH AN ENGLISH TRANSLATION OF THE PLAN OR SCHEME, IF THE SAME IS IN A LANGUAGE OTHER THAN ENGLISH. IT WAS POINTED OUT THAT THE ASSESSEE HAD DULY COMPLIED WITH THE AFORESAID GUIDELINES AND FIL ED THE ESOP SCHEME WITH THE CCIT AS EARLY AS 05.12.2005. THE LD. COUN SEL DREW OUR ATTENTION TO THE OBSERVATIONS OF THE CIT(APPEALS) IN PARA 5.6 OF HIS ORDER, WHEREBY ITA NO.1275/BANG/2011 PAGE 14 OF 20 THE CIT(A) HAS OBSERVED THAT THE ARRANGEMENT BY WHI CH THE ASSESSEE ISSUED THE SHARES AT A DISCOUNT TO ITS EMPLOYEES OF THE PARENT COMPANY UNDER AN ESOP AND PAID THE DIFFERENCE BETWEEN THE I SSUE PRICE AND THE FAIR MARKET VALUE OF THE SHARES AS REIMBURSEMENT TO THE PARENT COMPANY WAS A MECHANISM TO PASS ON THE LIABILITY TO THE IND IAN COMPANY ONLY TO ENABLE THE INDIAN COMPANY TO AVAIL OF THE TAX DEDUC TION UNDER THE ACT. IT WAS HIS SUBMISSION THAT NO SUCH INFERENCE WHATSOEVE R HAD BEEN DRAWN BY THE CCIT, PURSUANT TO THE ASSESSEE FILING THE REQUI RED DETAILS OF ESOP. WITH REGARD TO THE OBSERVATIONS OF THE CIT(APPEALS) THAT CAPITAL EXPENDITURE OF THE PARENT COMPANY WAS BEING CLOAKED IN THE GARB OF REVENUE EXPENDITURE OF THE AFFILIATE IN INDIA, IT W AS POINTED OUT THAT THERE WAS AN ACTUAL CASH OUTFLOW FROM THE ASSESSEE TO THE PARENT COMPANY AND THAT THERE WAS NO ARRANGEMENT TO PASS ON THE CAPITA L EXPENSES OF THE PARENT COMPANY AS REVENUE EXPENSES OF THE AFFILIATE IN INDIA. THE OBSERVATIONS OF THE CIT(A) IN THIS REGARD ARE BASED ON SURMISES AND SUSPICION. 17. THE LD. DR RELIED UPON THE ORDERS OF THE REVENU E AUTHORITIES. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS CLEAR FROM THE FACTS ON RECORD THAT THERE WAS AN ACTUAL ISSUE OF SHARES OF THE PARENT COMPANY BY THE ASSESSEE TO ITS EMPLOYEES. THE DIFFERENCE, BETWEEN THE FAIR MARKET VALUE OF THE SHARES OF THE PARENT COMPANY ON THE DA TE OF ISSUE OF SHARES AND THE PRICE AT WHICH THOSE SHARES WERE ISSUED BY THE ASSESSEE TO ITS ITA NO.1275/BANG/2011 PAGE 15 OF 20 EMPLOYEES, WAS REIMBURSED BY THE ASSESSEE TO ITS PA RENT COMPANY. THIS SUM SO REIMBURSED WAS CLAIMED AS EXPENDITURE IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE AS AN EMPLOYEE COST. THE LAW BY NO W IS WELL SETTLED BY THE DECISION OF THE SPECIAL BENCH OF THE ITAT BANGALORE IN THE CASE OF BIOCON LTD. IN ITA NO.248/BANG/2010, A.Y. 2004-05 AND OTHER CONNECTED APPEALS, BY ORDER DATED 16.07.2013 , WHEREIN IT WAS HELD THAT EXPENDITURE ON ACCOUNT OF ESOP IS A REVENUE EXPENDI TURE AND HAD TO BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME. THE S PECIAL BENCH HELD THAT THE SOLE OBJECT OF ISSUING SHARES TO EMPLOYEES AT A DISCOUNTED PREMIUM IS TO COMPENSATE THEM FOR THE CONTINUITY OF THEIR SERVICES TO THE COMPANY. BY NO STRETCH OF IMAGINATION, WE CAN DESCR IBE SUCH DISCOUNT AS EITHER A SHORT CAPITAL RECEIPT OR A CAPITAL EXPENDI TURE. IT IS NOTHING BUT THE EMPLOYEES COST INCURRED BY THE COMPANY. THE SUBSTAN CE OF THIS TRANSACTION IS DISBURSING COMPENSATION TO THE EMPLOYEES FOR THE IR SERVICES, FOR WHICH THE FORM OF ISSUING SHARES AT A DISCOUNTED PREMIUM IS ADOPTED. 19. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT T HE LIABILITY HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR. THE ONLY QUESTION TO BE DECIDED IS AS TO WHETHER IT IS THE EXPENDITURE OF THE ASSES SEE OR THAT OF THE PARENT COMPANY. WE ARE OF THE VIEW THAT THE OBSERVATIONS OF THE CIT(A) IN PARA 5.6 OF HIS ORDER THAT THESE EXPENSES ARE THE EXPENS ES OF THE FOREIGN PARENT COMPANY IS WITHOUT ANY BASIS AND LIE IN THE REALM O F SURMISES. THE FOREIGN PARENT COMPANY HAS A POLICY OF OFFERING ESOP TO ITS EMPLOYEES TO ATTRACT ITA NO.1275/BANG/2011 PAGE 16 OF 20 THE BEST TALENT AS ITS WORK FORCE. IN PURSUANCE OF THIS POLICY OF THE FOREIGN PARENT COMPANY, ALLOWED ITS SUBSIDIARIES/AFFILIATES ACROSS THE WORLD TO ISSUE ITS SHARES TO THE EMPLOYEES. AS FAR AS THE ASSESSE E IN THE PRESENT CASE WHICH IS AN AFFILIATE OF THE FOREIGN PARENT COMPANY IS CONCERNED, THE SHARES WERE IN FACT ACQUIRED BY THE ASSESSEE FROM THE PARE NT COMPANY AND THERE WAS AN ACTUAL OUTFLOW OF CASH FROM THE ASSESSEE TO THE FOREIGN PARENT COMPANY. THE PRICE AT WHICH SHARES WERE ISSUED TO THE EMPLOYEES WAS PAID BY THE EMPLOYEE TO THE ASSESSEE WHO IN TURN PA ID IT TO THE PARENT COMPANY. THE DIFFERENCE BETWEEN THE FAIR MARKET VA LUE OF THE SHARES OF THE PRICE AT WHICH SHARES WERE ISSUED TO THE EMPLOY EES WAS MET BY THE ASSESSEE. THIS FACTUAL POSITION IS NOT DISPUTED AT ANY STAGE BY THE REVENUE. IN SUCH CIRCUMSTANCES, WE DO NOT SEE ANY BASIS ON WHICH IT COULD BE SAID THAT THE EXPENDITURE IN QUESTION WAS A CAPI TAL EXPENDITURE OF THE FOREIGN PARENT COMPANY. AS FAR AS THE ASSESSEE IS CONCERNED, THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF THE SHA RES OF THE PARENT COMPANY AND THE PRICE AT WHICH THOSE SHARES WERE IS SUED TO ITS EMPLOYEES IN INDIA WAS PAID TO THE EMPLOYEE AND WAS AN EMPLOY EE COST WHICH IS A REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY AND HAD TO BE ALLOWED AS DEDUCTION. THERE IS NO REASON WHY THIS EXPENDITURE SHOULD NOT BE CONSIDERED AS EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 20. WE FAIL TO SEE ANY BASIS FOR THE OBSERVATION OF THE CIT(A) THAT THE OBLIGATION TO ISSUE SHARES AT A DISCOUNTED PRICE TO THE EMPLOYEES OF THE ITA NO.1275/BANG/2011 PAGE 17 OF 20 ASSESSEE WAS THAT OF THE FOREIGN PARENT COMPANY AND NOT THAT OF THE ASSESSEE. ADMITTEDLY, THE SHARES WERE ISSUED TO EM PLOYEES OF THE ASSESSEE AND IT IS THE ASSESSEE WHO HAS TO BEAR THE DIFFERENCE IN COST OF THE SHARES. THE EXPENDITURE IS NECESSARY FOR THE A SSESSEE TO RETAIN A HEALTH WORK FORCE. BUSINESS EXPEDIENCY REQUIRED TH AT THE ASSESSEE INCUR SUCH COSTS. THE PARENT COMPANY WILL BE BENEFITTED INDIRECTLY BY SUCH A MOTIVATED WORK FORCE. THIS WILL BE NO GROUND TO DE NY THE DEDUCTION OF A LEGITIMATE BUSINESS EXPENDITURE TO THE ASSESSEE AS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SASSOON J.DAVID ( SUPRA ). 21. THE REFERENCE BY THE CIT(A) TO THE PROVISIONS O F SEC.40A(2)(B) OF THE ACT IS AGAIN WITHOUT ANY BASIS. THE PRICE OF THE S HARES OF NNAS IS ARRIVED AT BY APPLYING THE AVERAGE MARKET PRICE FOR THE PER IOD 3 RD OCTOBER, - 17THE OCTOBER, 2005 IN THE COPENHAGEN STOCK EXCHANGE. TH E PRICE SO ARRIVED AT AND THE PRICE AT WHICH SHARES ARE ISSUED TO THE EMP LOYEES OF THE ASSESSEE IS THE BENEFIT WHICH THE EMPLOYEES GET UNDER THE ES OP. THE ASSESSEE OR ITS PARENT COMPANY CAN NEVER INFLUENCE THE STOCK MA RKET PRICES ON A PARTICULAR DATE. THERE IS NO EVIDENCE OR EVEN A SU GGESTION MADE BY THE CIT(A) IN HIS ORDER. THERE IS NO BASIS TO APPLY TH E PROVISIONS OF SEC.40A(2)(B) OF THE ACT. 22. WITH REGARD TO THE DECISION OF THE ITAT IN TH E CASE OF ACCENTURE (SUPRA) , WE FIND THAT THE FACTS OF THE CASE OF ACCENTURE (SUPRA) ARE IDENTICAL. IN THE CASE OF ACCENTURE (SUPRA) , THE FACTS WERE THAT THE ITA NO.1275/BANG/2011 PAGE 18 OF 20 ASSESSEE COMPANY INCURRED CERTAIN EXPENSES ON ACCOU NT OF PAYMENTS MADE BY IT FOR THE SHARES ALLOTTED TO ITS EMPLOYEES IN CONNECTION WITH THE ESPP. THE AO HAD DISALLOWED RS. 9,06,788/- INCURRED BY THE ASSESSEE ON THE GROUND THAT THIS EXPENDITURE IS NOT THE EXPENDI TURE OF ASSESSEE COMPANY BUT THAT EXPENDITURE IS OF PARENT COMPANY A ND THE BENEFIT OF SUCH EXPENDITURE ACCRUES TO THE PARENT COMPANY AND NOT A SSESSEE. THE CIT(A) DELETED THE ADDITION MADE BY THE AO. THE CIT(A) FOU ND THAT THE COMMON SHARES OF ACCENTURE LTD. THE PARENT COMPANY, HAVE B EEN ALLOTTED TO THE EMPLOYEES OF ASPL, THE INDIAN AFFILIATE/ASSESSEE AN D NOT TO THE EMPLOYEES OF THE PARENT COMPANY. THE CIT(A) ALSO FOUND THAT T HOUGH THE SHARES OF THE PARENT COMPANY HAVE BEEN ALLOTTED, THE SAME HAVE BE EN GIVEN TO THE EMPLOYEES OF THE ASSESSEE AT THE BEHEST OF THE ASSE SSEE. THE CIT(A) THUS HELD THAT IT WAS AN EXPENSE INCURRED BY THE ASSESS EE TO RETAIN, MOTIVE AND AWARD ITS EMPLOYEES FOR THEIR HARD WORK AND IS AKIN TO THE SALARY COSTS OF THE ASSESSEE. THE SAME WAS THEREFORE BUSINESS EXPEN DITURE AND SHOULD BE ALLOWABLE IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. THE TRIBUNAL UPHELD THE VIEW OF THE CIT(A). IT CAN BE SEEN FROM THE DECISION IN THE CASE OF ACCENTURE (SUPRA) THAT THE SHARES OF THE FOREIGN COMPANY WERE ALLOTTED AND GIVEN TO THE EMPLOYEES OF AFFILIA TE IN INDIA AT THE BEHEST OF THE AFFILIATE IN INDIA. THE CIT(APPEALS), HOWEVER, PRESUMED THAT THE FACTS IN THE INSTANT CASE OF THE ASSESSEE WAS THAT THE SH ARES WERE ALLOTTED TO THE EMPLOYEES OF THE AFFILIATE IN INDIA AT THE BEHEST O F THE FOREIGN COMPANY. THIS IS NOT THE FACTUAL POSITION IN THE ASSESSEES CASE, AS THE ASSESSEE HAD ITA NO.1275/BANG/2011 PAGE 19 OF 20 ON ITS OWN FRAMED THE NNIPL ESOP SCHEME, 2005, TO B ENEFIT ITS EMPLOYEES. NNAS MAY HAVE A GLOBAL POLICY OF REWAR DING EMPLOYEES OF AFFILIATES WITH ITS SHARES BEING GIVEN AT A DISCOUN T AND THAT POLICY MIGHT BE THE BASIS FOR THE ASSESSEE TO FRAME ESOP. THAT BY ITSELF WILL NOT MEAN THAT THE ESOP WAS AT THE BEHEST OF THE PARENT COMPANY. IN ANY EVENT THE IMMEDIATE BENEFICIARY IS THE ASSESSEE THOUGH THE PA RENT COMPANY MAY ALSO BE INDIRECT BENEFICIARY OF A MOTIVATED WORK FO RCE OF A SUBSIDIARY. WE ARE OF THE VIEW THAT THE FACTUAL BASIS ON WHICH THE CIT(APPEALS) DISTINGUISHED THE DECISION OF THE MUMBAI BENCH OF I TAT IN THE CASE OF ACCENTURE (SUPRA) IS ERRONEOUS. 23. WITH REGARD TO THE OBSERVATIONS OF THE CIT(APPE ALS) THAT THE ESOP ACTUALLY BENEFITS ONLY THE PARENT COMPANY, WE ARE O F THE VIEW THAT THE EXPENDITURE IN QUESTION IS WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND THE FACT THAT THE PARE NT COMPANY IS ALSO BENEFITED BY REASON OF A MOTIVATED WORK FORCE WOULD BE NO GROUND TO DENY THE CLAIM OF THE ASSESSEE FOR DEDUCTION, WHICH OTHE RWISE SATISFIES ALL THE CONDITIONS REFERRED TO IN SECTION 37(1) OF THE ACT. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SASSOON J. DAVID & CO. (P) LTD. (SUPRA) AND THE HONBLE KARNATAKA HIGH COURT DECISION IN TH E CASE OF MYSORE KIRLOSKAR LTD. (SUPRA) CLEARLY SUPPORT THE PLEA OF THE ASSESSEE IN THIS REGARD. ITA NO.1275/BANG/2011 PAGE 20 OF 20 24. WE ARE OF THE VIEW THAT IN THE FACTS AND CIRCUM STANCES OF THE PRESENT CASE, THE EXPENDITURE IN QUESTION WAS WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND HAD TO BE ALLOWED AS DEDUCTION AS A REVENUE EXPENDITURE. 25. FOR THE REASONS GIVEN ABOVE, WE DIRECT THE EXPE NDITURE BE ALLOWED AS DEDUCTION. 26. IN VIEW OF THE DECISION ON MERITS, THE GROUND R ELATING TO CHARGING OF INTEREST U/S. 234D OF THE ACT IS ONLY ACADEMIC. 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2013. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 30 TH SEPTEMBER, 2013. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.