“Reasons are life blood for any judicial/quasi-judicial order”: ITAT orders fresh adjudication on disallowance of 30% of ESOP cost [Read Order]

The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench ordered fresh adjudication in the matter of disallowance of 30% of Employee Stock Ownership Plan (ESOP) cost and observed that reasons are the life blood for any judicial/quasi-judicial order without which it would be difficult for the appellate authority to sustain or overrule the findings reached by the authorities.

The assessee, Nuvama Wealth and Investment Limited, is engaged in the business of share/stock broking and trading in shares and securities as well as providing advisory services. During the course of scrutiny of the return of income for the assessment year 2017-18, the learned Assessing Officer disallowed the Employee Stock Option Plan (ESOP) cost claimed by the assessee as expenditure and also allowed the TDS credit for a lesser amount than was available.

The assessee preferred appeal before the CIT(A) and submitted that under the Employee Stock Option Plan (ESOP) scheme formulated by Edelweiss Financial Services Limited (EFSL) of which the assessee is a subsidiary, the assessee claimed deduction of the difference between the market price of EFSL shares as on the date of exercise by the employees and the grant price of such shares as expenditure under Section 37(1) of the Income Tax Act.

The assessee also referred to the provisions under Section 17(2)(vi) of the Income Tax Act and submitted that the discount/benefit enjoyed by the employee on receipt of shares under the Employee Stock Option Plan (ESOP) scheme at a concessional rate would constitute a revenue expenditure laid out or expended wholly or exclusively for the purpose of business of the assessee.

The Tribunal of Rama Kanta Panda, Accountant Member and K Narasimha Chary, Judicial Member observed that “We are of the considered opinion that the exercise, if any, done by the CIT(A) in formulating the opinion that various contentions raised by the assessee to the effect that ESOP expenditure is a revenue expenditure allowable in the hands of the employer are not acceptable is not reflected on the face of the order.”

The Tribunal concluded by setting aside the impugned order and restore the appeal to the file of the CIT(A) to dispose it of by way of speaking order, after affording an opportunity to both the parties.

To Read the full text of the Order CLICK HERE

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