2024 (2) TMI 1429 - HC - Income Tax

Disallowance of expenses incurred in relation to ESOP cost - deduction u/s 37(1) - ITAT deleted addition - as argued ESOP expense is notional and that too of capital nature - HELD THAT - The legal issue involved in this appeal is squarely covered by the decision of three High Courts in favour of the assessee. See PVP Ventures Ltd. 2012 (7) TMI 696 - MADRAS HIGH COURT and followed by the decision Lemon Tree Hotels Ltd. 2015 (11) TMI 404 - DELHI HIGH COURT and M/S. BIOCON LTD. 2020 (11) TMI 779 - KARNATAKA HIGH COURT In all the decisions it has been held that ESOPs was allowable as a deduction under Section 37(1) of the Act as primary object was not to waste capital but to earn profits by securing consistent service to the employees. The three decisions which were relied on by the assessee were taken note of by the learned Tribunal and the appeal filed by the revenue was dismissed. All the three decisions which were referred above have attained finality as it appears that the revenue has not preferred any appeal against those decisions. Thus we find that Tribunal was well justified in dismissing the appeal filed by the revenue.

Summary

The High Court of Calcutta heard an appeal regarding the disallowance of ESOP expenses under the Income Tax Act, 1961. The court condoned the delay in filing the appeal and dismissed it, citing previous High Court decisions in favor of the assessee allowing ESOP expenses as a deduction under Section 37(1) of the Act. The appeal was dismissed, and the substantial question of law was answered against the revenue.