Value of shares allotted free of cost to employees is deductible revenue expenditure

ACIT vs. Spray Engineering Devices Ltd (ITAT Chandigarh)

The assessee allotted 3,94,692 Sweat Equity shares to its employees free of cost for rewarding them for past services or providing know how for making available rights in the IPR as per s. 79A of the Companies Act, 1956. Though the shares were allotted for no consideration, the assessee accounted for the shares at Rs.106.26 each (face value Rs. 10) at its arms length price and claimed Rs. 4.19 crores as a deduction towards “employees benefit expenses”. The shares were not allotted as at 31.3.2006. The AO disallowed the claim on the ground that it was not an ascertained liability but was a contingent liability though the CIT (A) allowed the claim. In appeal before the Tribunal, the department relied on Ranbaxy Laboratories 124 TTJ 771 (Del) & VIP Industries (ITAT Mum). HELD dismissing the appeal: