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2023 (2) TMI 1063 - AT - Income TaxNature of expenses - Employees Stock Expenses (ESOP) as an allowable expense u/s 37(1) - AO had disallowed the expenditure by holding it to be capital in nature and not allowable u/s 37(1) - HELD THAT - We find that CIT(A) after considering the various High Court s and Tribunal s decisions held the ESOP expenses to be allowable u/s 37(1) of the Act. Before us, Revenue has not placed any material on record to point out any fallacy in the findings of CIT(A) nor has placed any contrary binding decision in its support. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.
Issues Involved:
1. Allowability of Employee Stock Option (ESOP) expenses under Section 37(1) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Allowability of Employee Stock Option (ESOP) expenses under Section 37(1) of the Income Tax Act: The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which granted relief to the assessee regarding the disallowance of ESOP expenses. The Assessing Officer (AO) had disallowed the ESOP expenses amounting to Rs. 4,45,31,251/- claimed by the assessee under Section 37(1) of the Income Tax Act, on the grounds that the expenditure had not crystallized and was capital in nature. The CIT(A) examined the case in light of various judicial precedents, including decisions from the Bangalore Bench of the Tribunal in the case of Biocon Ltd., Delhi Tribunal in the case of Lemon Tree Hotels Ltd., and the Delhi High Court in the case of CIT vs. Lemon Tree Hotels Ltd. and PCIT vs. NDTV. The CIT(A) concluded that the AO was not justified in disallowing the ESOP expenses, referencing the principle that expenditure incurred wholly and exclusively for the purpose of business is allowable under Section 37(1). The CIT(A) emphasized that the ESOP expenses were incurred to incentivize employees and were not capital in nature. The CIT(A) also noted that the assessee had provided sufficient evidence, including Form 15CBS, bank statements, job offer letters, and an advance pricing agreement with the CBDT, to substantiate the claim. The CIT(A) relied on several judicial rulings which held that ESOP expenses are allowable as business expenditure. Upon appeal, the Revenue reiterated the AO's position, while the assessee argued that the ESOP expenses were a form of employee compensation directly related to business operations and thus allowable under Section 37(1). The Tribunal reviewed the submissions and material on record and found no reason to interfere with the CIT(A)'s order. The Tribunal noted that the Revenue did not provide any contrary binding decision or evidence to refute the CIT(A)'s findings. Conclusion: The Tribunal upheld the CIT(A)'s decision, allowing the ESOP expenses under Section 37(1) of the Income Tax Act and dismissed the Revenue's appeal. The judgment emphasized that ESOP expenses, being a form of employee compensation, are revenue in nature and incurred wholly for business purposes, thus allowable as a deduction under Section 37(1). The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 24.02.2023.
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