2017 (11) TMI 1860 - AT - Income Tax

Expenses incurred towards the Employee Stock Option Plan (ESOP) as allowable u/s 37(1) - HELD THAT - We find that the issue in the instant case is squarely covered in favour of the assessee by the order of the Co-ordinate Bench in the case of the assessee for the AY 2009-10 which says an identical issue was considered by the Tribunal Special Bench Bangalore in the case of Biocon vs. DCIT 2 013 (8) TMI 629 - ITAT BANGALORE and it has held that ESOP expenses is an allowable deduction u/s 37(1) of the Act.

Summary

Issues:
- Allowability of expenses incurred towards Employee Stock Option Plan (ESOP) under section 37(1) of the Income Tax Act 1961.

Analysis:
1. The appeal before the Appellate Tribunal ITAT Mumbai concerned the allowability of expenses amounting to &8377;2,09,72,732 incurred towards ESOP under section 37(1) of the Income Tax Act 1961 for the assessment year 2010-11.

2. The Assessing Officer disallowed the expenses as capital expenditure, considering the impact of ESOP on the company's capital due to the difference between exercise value and market value of securities provided to employees.

3. The assessee appealed to the Ld. CIT(A), who allowed the appeal based on a previous decision of the ITAT in the assessee's case for the AY 2009-10, where ESOP expenses were considered as revenue expenditure.

4. During the Tribunal hearing, the Ld. DR supported the AO's decision, while the assessee's counsel relied on the Ld. CIT(A)'s order and the ITAT 'A' Bench decision for the AY 2009-10 in favor of the assessee.

5. The Tribunal found that the issue was similar to the one decided in the assessee's case for the AY 2009-10 by the Co-ordinate Bench, where ESOP expenses were allowed as revenue expenditure based on decisions in other cases like Biocon vs. DCIT and Sandvik Asia Pvt. Ltd. vs. ACIT.

6. Citing the precedent set by the Co-ordinate Bench and following the decision in the AY 2009-10, the Tribunal upheld the Ld. CIT(A)'s order, dismissing the appeal and directing the AO to treat ESOP expenses as revenue expenditure under section 37(1) of the Act.

7. Therefore, the Tribunal ruled in favor of the assessee, emphasizing the allowability of ESOP expenses as revenue expenditure under section 37(1) of the Income Tax Act 1961, in line with previous decisions and the Co-ordinate Bench's order for the AY 2009-10.