Joint Commissioner of Income tax(OSD), Circle - 4(1)(2), Bangalore V. M/s. Molecular Connections Private Limited, Bangalore

ITA 937/BANG/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6088 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-07-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 02-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K SESHADRI
• Assessee Lawyers: DR P V PRADEEP KUMAR
• Keywords: Fair market value; Valuation report; Revenue expenditure; Capital expenditure; TDS
• Section: 37(1)

Judgement Text

IT A NO 9 37 (B)/201 9 . 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : C , BANGALORE BEFORE SHRI B.R.BASKARAN ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDICAL MEMBER ITA NO.937(BANG)/2019 (ASSESSMENT YEAR : 2013 - 14) THE JOINT COMMISSIONER OF INCOME TAX, CIRLE - 4(1)(2), 2 ND FLOOR, BMTC BUILDING, 80FT ROAD, 6 TH BLOCK, KORAMANGALA BANGALORE APPELLANT VS M/S MOLECULAR CONNECTIONS PVT.LTD., NO.5, BRIGADE SESHAMAHAL, VANIVILAS ROAD, BANGALORE - 560 004 PAN NO.AACCM5 956A RESPONDENT REVENUE BY : DR.P.V.PRADEEP KUMAR, ADDL. CIT APPELLANT BY : SHRI K. SESHADRI, C A DATE OF HEARING : 3 0 - 07 - 2019 DATE OF PRONOUNCEMENT : 02 - 08 - 2019 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : P R ESENT APPEAL HAS BEEN FILED BY REVENUE AGAINST ORDER DATED 21/03/19 PASSED BY LD. CIT (A) - 4, BANGALORE FOR ASSESSMENT YEAR 2015 - 16 ON FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD.CIT (A) IS OPPOSED TO THE LAW AND FACTS OF THE CASE. 2. THE CIT (A) WAS NOT JUSTIFIED IN ALLOWING ESOP EXPENSES TO THE ASSESSEE IGNORING THE FACT THAT IT IS NOT IT A NO 9 37 (B)/201 9 . 2 A REVENUE EXPENDITURE ACTUALLY INCURRED BY THE COMPANY, AS PER THE PROVISIONS OF THE IT ACT. ON FACTS OF THE CASE, THE LD CIT (A) HAS ERRED IN GIVING RELIEF TO THE ASSESSEE BY RELYING ON THE ORDER OF THE SPECIAL BENCH OF THE ITAT BANGALORE IN THE CASE OF M/S BIOCON LTD., IN ITA NOS 248, 368 TO 371 &1206 (BANG) OF 2010, WHICH HAS NOT BEEN ACCEPTED BY THE DEPT., AND FURTHER APPEAL HAS BEEN FILED BEFORE THE H ON'BLE HIGH COURT OF KARNATAKA, WHICH IS PENDING ADJUDICATION. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER O F THE CIT (A) IN SO FAR AS IT IS RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED. 2. IT IS OBSERVED THAT ONLY ISSUE ALLEGED BY REVENUE IS IN RESPECT OF ALLOWANCE OF ESOP EXPENDITURE DURING THE YEAR. BOTH PARTIES SUBMITTED THAT , ISSUE STANDS SETTLED IN FAVOUR OF ASSESSEE BY DECISION OF S PECIAL B ENCH IN CASE OF BIOCON LTD VS DCIT REPORTED IN (2013) 35 TAXMAN.C OM 335 . LD.AR FURTHER SUBMITTED THAT THE VIEW HAS BEEN UPHELD BY HONBLE DELHI HIGH COURT AND HONBLE MADRA S HIGH COURT IN CASE OF CIT VS L EMON T REE H OTELS LTD IN ITA NO. 107/2015 AND CIT VS PVP VENTURES LTD REPORTED IN (2012) 23 TAXMANN.COM 286 RESPECTIVE LY. 3. LD.AR SUBMITTED THAT DECISION OF DELHI T RIBUNAL IN CASE OF ACIT VS RANBAXY L ABORATORIES IN ITA NO. 2613 AND 3871 HAS BEEN CONSIDERED BY THIS IS S PECIAL BENCH IN BIOCON (SUPRA). 4. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT A NO 9 37 (B)/201 9 . 3 4.1 IT IS OBSERVED THAT LD. AO DISALLOWED ESOP EXPENDITURE BY STATING THAT THERE IS NO EXPENDITURE INCURRED AND THE EXPENDITURE CRYSTALLISES ONLY ON THE DATE ON WHICH THE EMPLOYEE EXERCISES OPTION AND ANY EXPENSES CLAIME D DURING VESTING PERIOD IS CONTINGENT IN NATURE AND THAT THE EXPENDITURE ON ESOP IS A CAPITAL EXPENDITURE. 4.2 IT I S OBSERVED THAT LD. CIT (A) , WHILE DECIDING THE ISSUE HAS LOOKED INTO THE MERITS OF THE CASE ARE AS UNDER: 6.2. IT IS SEEN THAT DURING THE Y EAR EMPLOYEES WERE ALLOTTED 34.485 E QUITY SHARES AT THE FACE VALUE OF RS.2 PER SHARE. THE EXPENDITURE IN T HE APPELLANTS HANDS WAS THUS CALCULATED IN THE FOLLOWING MANNER. PARTICULARS AMOUNT FAIR MARKET VALUE OF 34,485 EQUITY SHARES AS PER VALUATION REPORTS 3,59,21,750 LESS: FACE VALUE (34.485 SHARES X RS.2) 68,970 EMPLOYEE COMPENSATION EXPENSES 3,58,52,780 6.3 RS.3,58,52,780 CONSISTS OF RS.57,38,500 (5750 SHARES X RS.998) RELATING TO ESOPS AND RS.3,01,14,280 (28735 SHARES X RS.1,048) OF SWEAT E QUITY. OF THIS AMOUNT, EXPENDITURE TO THE TUNE OF RS.3,01,14,280/ - WAS INCURRED ON SWEAT EQUITY SHARES AND NOT AS THE AO WRONGLY OBSERVED ON ESOPS. IT IS ONLY THE BALANCE THAT RELATES TO ESOPS. 6.4 THIS SUM OF RS.3,58,52,780/ - WAS TAXED AS PERQUISITES I N THE HANDS OF THE EMPLOYEES AND TAX WAS DEDUCTED AT SOURCE IN THAT RESPECT. IT IS ALSO SEEN FROM PAGE 13 OF THE APPELLANTS PAPER BOOK, THAT NOTE 2(SHARE CAPITAL) TO THE AUDITED FINANCIAL STATEMENTS SHOWS THAT THE ESOPS WERE DUE AND HAVE BEEN EXERCISED AN D ALLOTTED DURING THE PREVIOUS YEAR. SWEAT EQUITY SHARES HAVE ALSO BEEN ISSUED AND ALLOTTED DURING THE YEAR. THIS IS ALSO CLEAR FROM THE BOARD RESOLUTIONS (PB 80 - 81,82 & 83) AND RETURNS OF ALLOTMENT FILED WITH THE ROC(PB70 TO74 ,75 TO 79). 6.5 IT IS SEE N THAT DURING THE YEAR, THE ASSESSEE HAD ALLOTTED EQUITY SHARES AND THE SAME WERE ISS U ED AND DEBITED TO THEI R BOOKS OF ACCOUNTS. 6.6 THE HONBLE ITAT IN THE CASE OF SPRAY ENGINEERING DEVICES LTD AND SSI LTD. HAVE HELD THAT THE EXPENDITURE ON SWEAT EQUITY SHARES IS ALLOWABLE U/S 37(1) OF IT A NO 9 37 (B)/201 9 . 4 THE IT ACT. IT IS ALSO SEEN THAT NECESSARY TAX IS ALSO DEDUCTED FROM THE HANDS OF THE EMPLOYE E S TREATING THIS SUM AS PERQUISITE. 6.7 RESPECTFULLY FOLLOWING THE DECISIONS OF SPECIAL BENCH IN THE CE OF BIOCON LTD., VS DCIT, DELHI HIGH COURT IN CIT VS LEMON TREE HOTELS LTD., AND THE MADRAS HIGH COURT IN CIT VS PVP VENTURE LTD.(2012) 23 TAXMAN.CO 286 FAVOURING THE APPELLANTS POSITION ON THE ISSUE, THE APPEAL OF TH ASSESEE IS ALL OWED. AND CIT (A) VERY CATEGORICALLY ANALYSED THAT THE OBJECTIONS RAISED BY LD. AO IN PRESENT CASE HAS BEEN ADDRESSED BY SPECIAL BENCH OF THIS TRIBUNAL IN BIOCON (SUPRA) IN FAVOUR OF ASSESSEE 5. LD.AR SUBMITTED THAT SHARES WERE ALLOTTED TO EMPLOYEES DURI NG YEAR UNDER CONSIDERATION, AND THEREFORE IN OUR CONSIDERED OPINION, RATIO OF DECISION OF SPECIAL BENCH IN BIOCON (SUPRA) SQUARELY COVERS THE ISSUE. 6. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY LD. CIT (A) AND THE SAME IS UPHELD. ACCORDINGLY GROUNDS RAISED BY REVENUE STANDS DISMISSED. 7. IN TH E RESULT APPEAL FILED BY REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02 - 08 - 2019. SD/ - SD/ - (B.R.BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 2 ND AUGUST, 2019. *AM COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.GUARD FILE BY ORDER ASST.REGISTRAR IT A NO 9 37 (B)/201 9 . 5