Dismissed

Principal Commisioner of Income TAX-4 v. M/S Molecular Connections Pvt. Ltd.

Karnataka HC14 Sept 2021ITA/180/2021

Case brief

AI extract

What is this about?

The High Court of Karnataka dismissed the Revenue's appeal filed under Section 260-A against an Income Tax Appellate Tribunal order allowing ESOP expenses. Relying on a co-ordinate Bench decision, the court held the question covered and answered against the Revenue, condoning filing delay.

What did the court decide?

The appeal stands dismissed; the substantial question of law is answered against the Revenue and in favour of the assessee.

Principal Commisioner of Income TAX-4 Vs M/S Molecular… — Income Tax | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 14^TH DAY OF SEPTEMBER, 2021

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PRESENT

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THE HON’BLE MRS.JUSTICE S.SUJATHA

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AND

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THE HON’BLE MR. JUSTICE RAVI V. HOSMANI

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I.T.A.No.180/2021

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BETWEEN :

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1 . PRINCIPAL COMMISSIONER OF INCOME TAX-4, BMTC COMPLEX, KORAMANGALA, BENGALURU.

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2 . JOINT COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(2) 2^ND FLOOR, BMTC COMPLEX, 80 FEET ROAD, 6^TH BLOCK, KORAMANGALA, BANGALORE. ...APPELLANTS

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(BY SRI E.I.SANMATHI, ADV.)

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AND :

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M/s MOLECULAR CONNECTIONS PVT. LTD., No.5, BRIGADE SESHAMAHAL, VANIVILAS ROAD, BANGALORE-560004. PAN NO.AACCM5956A …RESPONDENT

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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 02.08.2019 PASSED IN ITA NO.937/BANG/2019, FOR THE ASSESSMENT YEAR 2015-2016 PRAYING TO A) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE

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HON’BLE COURT AS DEEMED FIT. B) SET ASIDE THE APPELLATE ORDER DATED 02.08.2019 PASSED BY THE ITAT ‘C’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS ITA No.937/BANG/2019 (ANNEXURE-A) FOR THE ASSESSMENT YEAR 2015-2016 AS SOUGHT FOR IN THIS APPEAL.

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THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J ., DELIVERED THE FOLLOWING:

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J U D G M E N T

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This appeal is filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, 'the Act') assailing the order dated 02.08.2019 passed by the Income Tax Appellate Tribunal, Bengaluru Bench, in ITA. No.937/Bang/2019 relating to the assessment year 2013-14 raising the following substantial question of law:

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“Whether on the facts and circumstances of the case and in law, the Tribunal was justified in allowing ESOP expenses to the assessee ignoring the fact that it is not a revenue expenditure actually incurred by the company, as per the provisions of the Act?”

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The assesee is engaged in the business of M

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Bio information, molecular biology and bio-technology. The assessee company filed its return of income for the assesment year under consideration declaring a total income of Rs.18,19,92,070/-. The Assessing Officer passed an order under Section 143(3) of the said Act and disallowed the claim made towards Employees Stock Option Plan (ESOP) expenditure under Section 37(1) of the said Act.

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Being aggrieved, by the said order, the assesee filed an appeal before the Commissioner of Income Tax (Appeals), wherein the Commissioner followed the decision of the Bangalore Special Bench in the case of BIOCON LIMITED & OTHERS .v. DCIT & OTHERS (2013) 35 Taxman.com 335 and allowed the appeal of the assessee. Aggrieved by the same, the Revenue had preferred an appeal before the Tribunal which came to be dismissed, following the decisions in the cases of (i)

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BIOCON LIMITED ( supra ) , (ii) C.I.T. .v. LEMONTREE HOTELS LIMITED [ITA No.107/2015] rendered by the Hon'ble High Court of Delhi and (iii) C.I.T. .v. PVP VENTURES LIMITED reported in (2012) 23 Taxman.com

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286 rendered by the Hon'ble High Court of Madras .

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Being aggrieved by the order of the Tribunal,

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the Revenue has preferred this appeal.

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It is significant to note that ITA. No.653/2013

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filed by the Revenue challenging the decision of the Special Bench of the Tribunal in the case of BIOCON LIMITED ( supra) has been dismissed by this court, answering the substantial questions of law against the Revenue and in favour of the assessee. The substantial questions of law that fell for consideration in ITA. No.653/2013 [(2020) 430 ITR 0151] is quoted hereunder for ready reference:

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“(i) Whether on the facts and in the circumstances of the case and in law the

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tribunal was right in holding that the discount on issue of ESOP is allowable deduction in computing the income under the head profits and gains of the business?

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(ii) Whether on the facts and in the circumstances of the case and in law the tribunal was right in holding that difference between market price of the shares at the time of grant of option and offer price amounts to discount and the same has to be treated as remuneration to the employees for their continuity of service?

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(iii) Whether on the facts and in the circumstances of the case and in law the tribunal committed an error in not examining the scheme of ESOP from which it is clear that the employees will not get any right in the shares till completion of the period prescribed and the expenditure claimed is contingent and recorded perverse finding?”

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The substantial question of law now raised by

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the Revenue being identical to the substantial questions

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of law considered in ITA.653/2013 (decided on 11.11.2020), we have no hesitation to dispose of this appeal in terms of the said findings of the co-ordinate Bench.

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Accordingly, we are of the opinion that issuing of notice to the respondent would be a futile exercise as the issue involved herein is squarely covered by the judgment referred to supra.

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In view of the decision taken on the merits of the case, as aforesaid, no prejudice would be caused to the assessee in condoning the delay of 8 days in filing the appeal. Delay is condoned. Accordingly, I.A.No.1/2020 is allowed.

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