DCIT, CHENNAI V. Shriram Insight Share Brokers Ltd., CHENNAI

ITA 872/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8859 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R SIVARAMAN
• Keywords: Fair market value; Revenue expenditure
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' ! ' ! ' ! ' . #$ #$ #$ #$ , % % % % &' &' &' &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 872/MDS/2016 % ( )( / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-6(1), CHENNAI 34. (+,/ APPELLANT) V. M/S. SHRIRAM INSIGHT SHARE BROKERS LIMITED, MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN AAACI 2727H (./+,/ RESPONDENT) +, 0 1 / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT ./+, 0 1 / RESPONDENT BY : SHRI R. SIVARAMAN, ADVOCATE 0 2 / DATE OF HEARING : 07.06.2016 34) 0 2 / DATE OF PRONOUNCEMENT: 15.07.2016 5 5 5 5 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 24 .9.2015 FOR - - ITA 872/16 2 THE ASSESSMENT YEAR 2009-10. 2. THE GRIEVANCE OF THE REVENUE IN THIS APPEAL IS T HAT THE CIT(APPEALS) ERRED IN DELETING THE ESOP EXPENSES FO R 35,42,500/-. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE CLAI MED AN EXPENDITURE OF 35,42,500/- AS ESOP. THE SAME WAS DISALLOWED BY THE ASSESSING OFFICER. ON APPEAL, TH E CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE BY P LACING THE RELIANCE ON THE JUDGMENT OF THE MADRAS HIGH COURT I N THE CASE OF CIT V. PVP VENTURES (211 TAXMAN 554). AGAINST THIS , THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES. SIMILAR ISSUE W AS DECIDED BY THIS TRIBUNAL IN FAVOUR OF THE REVENUE I N ASSESSEES OWN CASE IN ITA NOS. 733, 734 & 735/MDS/2015 FOR TH E ASSESSMENT YEARS 2008-09, 2010-11 AND 2010-12. VID E ORDER DATED 5.5.2016, THE TRIBUNAL HAS OBSERVED AS FOLLOW S: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND PERUSED THE RELEVANT MATERIAL AVAIL ABLE ON RECORD. DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE CLAIMS THAT IT IMPLEMENTED ESOP SCHEME TO THE BENEFIT OF ITS EMPLOYEES. THE SCHEME WAS SAID TO BE IMPLEMENTED THROUGH SHRIRAM INSIGHT WELFARE TRUST. IN FACT, THE TRUST PURCHASED 3,50,000/- EQU ITY SHARES FROM THE EXISTING PROMOTERS OF THE COMPANY A T - - ITA 872/16 3 A PRICE OF 15/- PER EQUITY SHARE. THEREAFTER IT WAS ALLOTTED TO ELIGIBLE EMPLOYEES AT A PRICE OF 15/- PER EQUITY SHARE. SUBSEQUENTLY, THE TRUST PURCHASED 32,700 EQUITY SHARES FROM THE EMPLOYEES AT A PRICE OF 340/- PER EQUITY SHARE. THE ASSESSEE-COMPANY GRANTED A SUM OF 1,11,80,000/- FOR THE PURPOSE OF BUYING BACK THE EQUITY SHARES BY THE TRUST FROM ITS EMPLOYEES. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE SUM OF 1,11,18,000/- ADVANCED BY THE ASSESSEE TO THE TRUST FOR BUYING BACK THE EQUITY SHARES FROM ITS EMPLOYEES CAN BE ALLOWED AS EXPENDITURE OR NOT? AS PER THE SCHEME OF ESOP, AS APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA (SHARE BASED EMPLOYEE BENEFITS) REGULATIONS, 2014, THE SCHEME CAN BE IMPLEMENTED EITHER DIRECTLY OR THROUGH A TRUST. IN THIS CASE, THE ASSESSEE OPT ED TO IMPLEMENT THE SCHEME THROUGH A TRUST. THE CIT(APPEALS) FOUND THAT THE TRUST IS A SEPARATE LEG AL ENTITY AND THE EXPENDITURE INCURRED FOR BUYING BACK THE SHARES FROM ITS EMPLOYEES WAS ACCOUNTED IN THE BOOK S OF ACCOUNT OF THE TRUST. THEREFORE, THE CIT(APPEAL S) FOUND THAT THE AMOUNT ADVANCED BY THE ASSESSEE FOR BUYING BACK THE SHARES FROM THE EMPLOYEES HAS TO BE TREATED AS LOAN. EVEN THOUGH THE ASSESSEE HAS PRODUCED MATERIAL BEFORE THE AUTHORITIES BELOW FOR PURCHASE OF 3,50,000 EQUITY SHARES FROM THE EXISTIN G PROMOTERS OF THE COMPANY AT A PRICE OF `15/- PER EQ UITY SHARE, THERE IS NO MATERIAL AVAILABLE ON RECORD TO SUGGEST THAT WHEN THE SHARES WERE ALLOTTED TO THE EMPLOYEES OF THE ASSESSEE-COMPANY. WHEREAS THE ASSESSEE-COMPANY CLAIMS THAT THE SHARES PURCHASED BY THE TRUST FROM THE PROMOTERS OF THE ASSESSEE- COMPANY WERE ALLOTTED TO THE ELIGIBLE EMPLOYEES AT A PRICE OF 15/- PER EQUITY SHARE. THE ASSESSEE ALSO CLAIMS THAT THE TRUST AGAIN PURCHASED THE SHARES FR OM THE EMPLOYEES AT 340/- PER SHARE. IT IS NOT KNOWN WHEN THE SHARES WERE SAID TO BE ALLOTTED AT 15/- PER EQUITY SHARE, WHY THE VERY SAME SHARES WERE CLAIMED TO BE PURCHASED AT A COST OF 340/- PER EQUITY SHARE? THIS ARRANGEMENT OF PURCHASE OF VERY SAME SHARES - - ITA 872/16 4 SAID TO BE ALLOTTED AT 15/- PER EQUITY SHARE WERE BOUGHT BACK AT 340/- PER EQUITY SHARE CREATES A DOUBT WHETHER THE SHARES WERE IN FACT ALLOTTED TO T HE RESPECTIVE EMPLOYEES OR NOT? IN THE ABSENCE OF ANY MATERIAL, THIS TRIBUNAL IS OF THE CONSIDERED OPINIO N THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 10. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN NOVO NORDISK INDIA PVT. LTD. V. DCIT (2014) 63 SOT 242. IN THE CASE BEFORE THE BANGALORE BENCH, THE ACTUAL ISSUE O F SHARES OF THE PARENT COMPANY BY THE ASSESSEE TO ITS EMPLOYEES IS NOT IN DISPUTE. THEREFORE, THE DIFFER ENCE BETWEEN THE FAIR MARKET VALUE OF THE SHARES OF THE PARENT COMPANY ON THE DATE OF ISSUE OF SHARES AND T HE PRICE AT WHICH THOSE SHARES WERE ISSUED BY THE ASSESSEE TO ITS EMPLOYEES WAS REIMBURSED BY THE ASSESSEE TO ITS PARENT COMPANY. THIS SUM WAS CLAIMED AS EXPENDITURE IN THE PROFIT & LOSS ACCOUNT . THE BANGALORE BENCH OF THE TRIBUNAL IN FACT FOUND T HAT THE DIFFERENCE BETWEEN FAIR MARKET VALUE OF THE SHA RES AND THE PRICE AT WHICH THE SHARES WERE ALLOTTED TO THE EMPLOYEES IS REVENUE EXPENDITURE AND THEREFORE, IT HAS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME. THE BANGALORE BENCH FURTHER FOUND THAT THE VERY OBJECT OF ISSUING OF SHARES TO THE EMPLOYEES A T A DISCOUNTED PREMIUM IS TO COMPENSATE THEM FOR THE CONTINUITY OF THEIR SERVICES IN THE COMPANY. IN TH E CASE BEFORE US, IT IS THE CASE OF THE ASSESSEE-COMPANY T HAT THE TRUST ALLOTTED THE SHARES TO ITS EMPLOYEES. TH E ASSESSEE-COMPANY ADVANCED FUNDS TO THE TRUST FOR PURCHASING SHARES OF THE PROMOTERS OF THE COMPANY A T A PRICE OF 15/-. THE VERY SAME SHARES WERE CLAIMED TO BE PURCHASED FROM THE EMPLOYEES AT 340/-. THE ASSESSEE IS NOT CLAIMING DIFFERENCE BETWEEN FAIR MARKET VALUE AND ALLOTMENT PRICE AS EXPENDITURE. T HE ASSESSEE IS CLAIMING THE PURCHASE PRICE AT 340/- FROM ITS EMPLOYEES AS EXPENDITURE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DECI SION - - ITA 872/16 5 OF BANGALORE BENCH IN NOVO NORDISK INDIA PVT. LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE CASE. SINCE THE SHARES WERE PURCHASED BY THE TRUST FROM THE PROMOTERS OF THE ASSESSEE-COMPANY AT THE RATE OF 15/- PER EQUITY SHARE AND THE SAME WAS ALSO CLAIMED TO BE ALLOTTED TO THE EMPLOYEES OF THE ASSESSEE- COMPANY AT A PRICE OF 15/- PER EQUITY SHARE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE BUY BACK OF THE SHARES FROM THE VERY SAME EMPLOYEES AT A COS T OF 340/- PER EQUITY SHARE CANNOT BE AN EXPENDITURE FOR THE ASSESSEE-COMPANY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CLAIM OF THE ASSESSEE I S ONLY TO REDUCE THE TAXABLE INCOME OF THE ASSESSEE. THEREFORE, THE SAME CANNOT BE ALLOWED UNDER SECTION 37 OF THE ACT. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. RESPECTFULLY FOLLOWING THE ABOVE, WE ARE INCLINED T O CONFIRM THE ORDER OF THE AO ON THIS ISSUE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED. ORDER PRONOUNCED ON FRIDAY, THE 15 TH OF JULY, 2016 AT CHENNAI. SD/- SD/- ( ! ' . #$ ) ( ) ( DUVVURU RL REDDY ) (CHANDRA POOJARI) % /JUDICIAL MEMBER /ACCOUNTANT MEMBER /CHENNAI, I /DATED, THE 15 TH JULY, 2016. MPO* - - ITA 872/16 6 5 0 .%2JK LK)2 /COPY TO: 1. +, /APPELLANT 2. ./+, /RESPONDENT 3. M () /CIT(A) 4. M /CIT 5. KNO .%2% /DR 6. O$( P /GF.