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DCIT-7(3) Mumbai Vs. Blow Plast Ltd. DGP House, 88-C, Old Prabhadevi Road, Mumbai 400 025
June, 19th 2014
                       MUMBAI BENCH "B", MUMBAI

                             ITA No. 6402/Mum/2012
                              Assessment Year: 2006-07
         DCIT-7(3)                           Blow Plast Ltd.
         Mumbai                          Vs. DGP House, 88-C, Old
                                             Prabhadevi Road, Mumbai
                                             400 025
               (Appellant)                              (Respondent)
                   Permanent Account No. :-AAACB 0476 G

                          Appellant by    :   Shri J.P. Bairagra
                           Revenue by     :   Shri Vikas Agarwal

                     Date of hearing  : 16.06.2014
                Date of Pronouncement : 16.06.2014



      This appeal filed by the Revenue is directed against the order of the
Ld.CIT(A)-13, Mumbai dated 25.07.2012 deleting the penalty of Rs.33,01,004/-
levied by the AO u/s 271(1)(c) of the Income Tax Act for the Assessment Year 2007-

2.    Briefly stated, the AO levied the impugned penalty on account of Employee
Stock Ownership Plan (ESOPs) liability claimed by the assessee as revenue
expenditure in the P & L Account. The AO disallowed the said claim of the assessee
as the same is not allowed under section 37(1) being not revenue in nature.
Accordingly, the AO disallowed the difference between the market price and the
price on which the shares were allotted to the employees under ESOPs as allowable
revenue expenditure. In the quantum appeal, the Tribunal confirmed the said
disallowance by following the decision of the Tribunal on the same issue in the case
of a group company M/s. VIP Industries Ltd. for A.Y. 2005-06 & 2006-07 by relying
on the decision of the Delhi Tribunal in the case of Ranbaxy Laboratories Ltd. Vs.
                                                                        ITA No. 6402/Mum/2012
                                          2                                         Blow Plast Ltd.
                                                                         Assessment Year: 2006-07

ACIT 124 TTJ 771 (Del). On appeal against the penalty levied by the AO, the
Ld.CIT(A) deleted the impugned penalty as the assessee has not provided any
inaccurate particulars of income and also the issue of allowability of the expenditure
is a debatable one. Aggrieved by the impugned decision, the Revenue is in appeal
before us.

3.    Having heard both the sides and perused the material on record, it is
pertinent to mention that the issue whether or not ESOPs is an allowable deduction
as business expenditure has been very much a debatable issue when the Tribunal
decided the matter in quantum proceedings. It is observed that due to the divergent
views taken by the Tribunal, later on similar issue has been referred to the Special
Bench in the case of Biocom Ltd. Vs. DCIT (35 335) (Bangalore) SB and
vide order dated 16th July, 2013 it has been held by the Special Bench that discount
on issue of employees stock option is allowable as deduction in computing the
income under the head `Profits and Gains of business or Profession'. This indicates
that the impugned claim of deduction has been a debatable issue and by now the
Special Bench of the Tribunal has decided the issue in favour of the assessee. When
the issue is debatable and where there is a possibility of two sustainable views, it is
a well settled principle of law that penalty cannot be levied. Moreover, it is observed
that in the group concern case of the assessee in DCIT Vs. M/s. VIP Industries Ltd.
in ITA Nos. 6403, 6401/Mum/2012 for the Assessment Years 2005-06 and 2006-07
respectively, the Tribunal confirmed the deletion of penalty by the Ld.CIT(A) as the
issue involved is debatable where two views are possible. In view of the
aforementioned discussion, we do not find any justifiable reason to interfere with the
order of the Ld.CIT(A) deleting the impugned penalty levied by the AO. Thus, the
order of the Ld.CIT(A) is upheld.
4.    In the result, the appeal filed by the Revenue is dismissed.

     Order pronounced in the open court on this 16th day of June 2014.

              Sd/-                                                     Sd/-
        (SANJAY ARORA)                                      (Dr.S.T.M.PAVALAN)
     ACCOUNTANT MEMBER                                       JUDICIAL MEMBER
Mumbai, Dated: 16.06.2014.
                                                                 ITA No. 6402/Mum/2012
                                        3                                    Blow Plast Ltd.
                                                                  Assessment Year: 2006-07

Copy to: The Appellant
         The Respondent
         The CIT, Concerned, Mumbai
         The CIT(A) Concerned, Mumbai
         The DR "B" Bench

                              //True Copy//

                                                By Order

                                    Dy/Asstt. Registrar, ITAT, Mumbai.
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