DY. CIT CC 6(4), Mumbai V. INDIABULLS HOUSING FINANCE LTD, DELHI

MA 189/MUM/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2754 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-09-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-09-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 05-07-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER MA.No. 189/MUM/2022 [ARISING OUT OF ITA No. 4849/MUM/2019 (A.Y: 2013-14)] DCIT – Central Circle – 6(4) Range – 6, Room No. 1925, 19 th Floor Air India Building, Nariman Point Mumbai – 400 021 v. Indiabulls Housing Finance Limited M-62 & 63, First Floor Connaught Place, New Delhi - 100001 PAN: AABCI3612A (Appellant) (Respondent) Assessee by : None Department by : Shri Chetan Kacha Date of Hearing : 16.09.2022 Date of Pronouncement : 21.09.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. Through this Miscellaneous Application revenue is seeking for rectification of certain mistakes crept in the order passed by the Tribunal in ITA.No. 4849/Mum/2019 dated 08.03.2021 and requested for suitable amendment in the Tribunal order. 2 MA.No. 189/MUM/2022 Indiabulls Housing Finance Limited 2. At the time of hearing, none appeared from the assessee side and we decided to hear the case with the assistance of Ld. DR. This Miscellaneous Application was filed by the revenue with the plea that ITAT has not adjudicated Ground Nos. 2 and 3 of its appeal regarding ESOP expenses amounting to ₹.25.89 crores. He also brought to our notice Para Nos. 7 and 8 of the ITAT order. 3. Considered the submissions of Ld.DR and we observe that ITAT inadvertently missed to adjudicate the Ground Nos. 2 and 3 which is a covered issue in favour of the assessee. This fact was disclosed in Para No. 6 of the ITAT order, accordingly, these two grounds were recalled for adjudication. 4. Ld.DR has agreed to represent the case considering the fact that this issue is covered. Accordingly, we proceeded to hear the case. 5. Considered the Ld.DR submissions and fact on record that the issue raised by the revenue in Ground Nos. 2 and 3 is covered in the case of M/s. Indiabulls Financial Services Limited in which the ITAT Delhi bench has decided the issue in favour of the assessee in ITA.No. 6602 and 3 MA.No. 189/MUM/2022 Indiabulls Housing Finance Limited 6603/Del/16 dated 11.03.2020, for the sake of clarity it is reproduced below:- “17. Heard the arguments of both the parties and perused the material available on record. 18. The Special Bench of ITAT examined the following issues. *Whether any deduction of discount given on shares is allowable? *If Yes when and how much? *Subsequent adjustment to discount? 19. The Tribunal examined the issue from the perspective of capital expenditure as laid down by the Delhi bench in the case of Ranbaxy Laboratories Ltd. Vs Addl. CIT 39 SOT 17. It was held in VIP Industries Vs DCIT in ITA No. 7242/Mum/2008 that the short receipt of premium on receiving option to the employee will be notional loss but not actual loss for which any liability has incurred. The Chennai Bench of the Tribunal in SSI Ltd. Vs DCIT 85 TTJ 1049 wherein granting of deduction of the discount on shares was treated as employee cost. The order has been relied upon by the order of the Hon’ble High Court of Madras in the case of CIT Vs PVP Ventures Ltd. 211 Taxmann 554. 20. It was held the amount of discount represents the difference between market price of the shares at the time of the grant of option and the offer price. In order to be eligible for acquiring the shares under the ESOP, the concerned employees are obliged to render services to the company during the vesting period as given in the scheme. 21. The Special Bench held that the discounted premium on shares is a substitute to giving direct incentive in cash for availing the services of the employees. There is no difference in the situations, (a) when the companies issues shares to public at market price and a part of premium is given to the employees in lieu of their services, 4 MA.No. 189/MUM/2022 Indiabulls Housing Finance Limited (b) When the shares are directly issued to employees at a reduced rate. 22. In both the situations, the employees stand compensated for their efforts. ESOP is one such mode of compensating the employees for their services. Since, it is an expenditure for the company, the same needs to be allowed u/s 37(1) of the Act. 23. As to when and how much deduction is to be claimed, the Special Bench observed that the period from grant of option to the vesting of option is the vesting period and it is during such period that an employee is supposed to render the service to the company so as to earn and entitlement to the shares at a discounted price. If the vesting period is, say, four years with equal vesting at the end of each year, then it is at the end of the vesting period or during the exercise period, which in turn immediately succeeds the vesting period, that the employee becomes entitled to exercise 100 options or qualify for receipt of 100 shares at discount. Though the shares are allotted at the end of the vesting period, but it is during such vesting period that the entitlement is earned. It means that 25 options vest with the employee at the end of each year on his rendering service for the respective year. If during the interregnum, he leaves the service, say after one year, he will still remain entitled to exercise option for 25 shares at the discounted premium at the time of exercise of option. In that case, the benefit which would have accrued to him at the end of the second, third and fourth years would stand forfeited. Thus, it becomes abundantly clear that an employee becomes entitled to the shares at a discounted premium over the vesting period depending upon the length of service provided by him to the company. In all such schemes, it is at the end of the vesting period that option is exercisable albeit the proportionate right to option is acquired by rendering service at the end of each year. 24. The contra situation to the company is such that the obligation falls on the company to allot shares at the time of exercise of the option depending upon the length of the service rendered by the employee during the vesting period. The Special Bench held that such discount is deductible over the vesting period on straight line basis. 5 MA.No. 189/MUM/2022 Indiabulls Housing Finance Limited 25. To sum up, it was held that the discount under ESOP is in the nature of employee cost and hence deductible during the vesting period.” 6. Respectfully following the above said decision and Revenue has filed Ground No. 3 as there is violation of Rule 46A. Assessee has submitted details of working of ESOP expenditure and Ld.CIT(A) by relying on the order of Ld.CIT(A) for the A.Y. 2012-13 allowed the grounds based on the findings that it is in favour of the assessee. Similarly, we are inclined to remit this issue to the file of the Assessing Officer to determine the allowability u/s. 37(1) of the Act, accordingly, Ground raised by the revenue is allowed for statistical purpose. 7. In the result, Miscellaneous Application filed by the Revenue is allowed and appeal filed by the revenue is partly allowed for statistical purpose. Order pronounced in the open court on 21 st September, 2022. Sd/- Sd/- (PAVAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 21/09/2022 Giridhar, Sr.PS 6 MA.No. 189/MUM/2022 Indiabulls Housing Finance Limited Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum