2024 (6) TMI 100 - AT - Income Tax

Expenses incurred on Employee Stock Option (ESOP) scheme - allowable expenses u/s 37(1) or not? - AO held as such expenses are notional and contingent in nature and are not allowable - CIT(A) deleted the expenditure - assessee is a private limited company engaged in the business of providing services in the area of real estate related consultancy site management professional advisory project management - HELD THAT - Allowability of the ESOP expenses actually incurred and cross charged by the parent from an assessee has been decided in favour of the assessee in a plethora of cases including the Hon ble jurisdictional High Court in M/S. BIOCON LTD. 2020 (11) TMI 779 - KARNATAKA HIGH COURT LEMON TREE HOTELS LTD 2015 (11) TMI 404 - DELHI HIGH COURT and the Coordinate Bench of ITAT Delhi Benches. Respectfully following the decision of the Hon ble High Courts supra and Delhi ITAT CVENT INDIA PVT. LTD. 2023 (2) TMI 1063 - ITAT DELHI we decline to interfere with the findings of the ld. CIT(A) and dismiss the ground raised by the Revenue.

Summary

Issues involved: Appeal against order of NFAC, Delhi regarding deletion of expenses on Employee Stock Option (ESOP) scheme u/s 37(1) for A.Y. 2018-19.

Facts: The assessee, a private limited company in real estate consultancy, filed return declaring income. AO disallowed ESOP expenses as notional and contingent. CIT(A) allowed the claim based on High Court decisions.

Arguments: Assessee claimed actual cost incurred for ESOP, supported by invoices. Revenue contended expenses were notional and contingent. Assessee argued expenses were determined and paid during the year.

Decision: Tribunal found ESOP expenses allowable u/s 37(1) based on High Court decisions. Revenue failed to provide contrary evidence. Expenses were considered incurred and allowable. Appeal dismissed in favor of assessee.

Judicial Precedents: High Courts in Delhi and Madras held ESOP expenses debitable to profit and loss account. Karnataka High Court stated expenses incurred for consistent employee services are deductible u/s 37(1).

Conclusion: Allowability of ESOP expenses upheld based on various court decisions. Appeal of Revenue dismissed.