Make My Trip (India) Private Limited Vs DCIT (International Taxation) (ITAT Delhi)
Conclusion: Revision order issued by PCIT was quashed against Make My Trip (India) Private Limited as AO had conducted a proper inquiry before allowing the deduction of Employee Stock Option Plan (ESOP) expenses.
Held: Assessee-company was operated as a travel agent and tour operator and was a subsidiary of Make My Trip Limited, Mauritius. AO completed the assessment for the Assessment Year 2011-12 under section 143(3) read with section 92CA(3). PCIT reviewed the records and found that assessee had claimed a deduction of ₹11.35 crore for ESOP costs paid to its parent company. A show cause notice under section 263 was issued, stating that the deduction was allowed without proper inquiry, making the order erroneous and prejudicial to Revenue. Assessee argued that the claim was duly examined by AO and was a business expense, as the shares were issued by the parent company at its request. However, PCIT found that ESOP scheme was launched by the parent company for its own business interests. The deduction had not been claimed in previous years, and no change justified its allowance. PCIT also cited a Central Board of Direct Taxes (CBDT) notification barring such deductions. As a result, PCIT set aside the assessment order and directed the AO to re-examine the claim. Aggrieved by this, assessee appealed before the Tribunal. It was held that assessee had provided details regarding the ESOP charges claimed as a deduction. These details were submitted during the transfer pricing proceedings and formed part of the assessment record. AO and Transfer Pricing Officer (TPO) had issued notices, raising multiple queries on ESOP cross charges, including valuation, employee benefits, and accounting treatment. In response, assessee explained that ESOPs were part of employee compensation, benefiting both employees and the company. The valuation was carried out using the “Black-Scholes” formula, and the expenses were recorded under salary and compensation in the profit and loss account. AO examined these details, raised specific queries, and allowed the deduction after due verification. Tribunal observed that the company had fully disclosed the ESOP expenses and that AO had conducted a proper inquiry before allowing the claim. It referred to relevant precedents, including the Special Bench ruling in Biocon Ltd. and the Mumbai ITAT decision in Ambuja Cements Ltd., which upheld ESOP costs as deductible expenses in the year of vesting. Concluding that the PCIT had invoked revisionary jurisdiction without proper justification, Tribunal ruled that adequate inquiries had already been conducted. Accordingly, the revision order was quashed.
