ORDER

Per Dr. B. R. R. Kumar, Accountant Member:

The present appeal has been filed by the assessee against the order of ld. CIT(A)-15, New Delhi dated 17.12.2015.

2. Following grounds have been raised by the assessee:

“1. That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) (hereinafter referred to as ‘Ld. CIT(A)’) erred on facts and in law by confirming the disallowances made by the Ld. Assessing Officer (hereinafter referred to as 'Ld. AO’).

2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred on facts and in law by confirming the disallowance made by the Ld. AO of the expenses incurred under employee stock option (hereinafter referred to as ‘ESOP’) scheme amounting to Rs. 96,30,345/- and consequently adding it to the total income of the Appellant.

2.1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in observing that the Appellant did not furnish evidence of vesting and disbursal of ESOP in as much as the Ld. CIT(A) failed to understand the scheme of grant of the ESOP as evidenced by the Agreements entered into by the Appellant with its eligible employees. Also, the Ld. CIT(A) failed to take note of the pro-rata claim of expenditure charged over the period of vesting of the ESOP in the audited financial statements. Further, the Ld. CIT(A) has failed to take note of the fact that the actual allotment of ESOP will take place only upon exercise of the option at the end of vesting period.

2.2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in observing that the Appellant failed to furnish evidence of tax deduction at source at the time of paying the exercise price. The Ld. CIT(A) has failed to take into account the fact that there was no exercise of option during the AY under consideration. The liability to deduct tax at source, if any, would arise only upon exercise of options by the employees.

2.3. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the Appellant did not provide the list of employees to whom ESOP had been granted in as much as no such specific information was sought from the Appellant. The Ld. CIT(A) has failed to take into account that material particulars relating to ESOPs, including the number of eligible employees, was provided as part of notes to accounts (note 27) in the financial statements for the relevant AY.

2.4. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the ESOP expenses incurred by the Appellant are at best notional expenses as the same have not been actually incurred.

2.5. That on the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the true intent of the definition laid under Section 37(1) of the Income Tax Act, 1961 hereinafter referred to as ‘the Act’) in as much as by undertaking to issue shares at discount premium, the Appellant does not pay anything to its employees, but incurs obligation of issuing shares at a discounted price on future date in lieu of their services, which is nothing but deductible expenditure u/s 37(1) of the Act.

2.6. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not appreciating that such disallowance of expenditure would result in taxation of such amount twice, once in the hands of the employees as perquisite and secondly in the hands of the appellant.

3. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred on facts and in law in upholding the disallowance made by the Ld. AO of business product and research development expenses (hereinafter referred to as ‘R&D expenditure’) incurred by the Appellant amounting to Rs. 64,59,150/- that the same is not in the nature of revenue expenditure and further the said expenditure is also not capital expenditure.

3.1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred on facts and in law confirming the finding