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2023 (4) TMI 143 - AT - Income TaxDisallowance of the expenses incurred in relation to ESOP cost - As per DR any short receipt of such premium would only amount to a notional loss and not actual loss requiring any deduction u/s. 37(1) of the Act as it was a capital expenditure - CIT(A), NFAC deleted the addition - HELD THAT - Hon ble High Court of Delhi in the case of CIT Vs. Lemon Tree Hotels Ltd. 2015 (11) TMI 404 - DELHI HIGH COURT on a similar issue which was considered by the Coordinate bench in the case of ACIT Vs. People Strong HR Services (P) Ltd. 2021 (12) TMI 553 - ITAT DELHI decided issue in favour of assessee. Considering the facts on record and the judicial precedents referred above as well as going through the analysis of the test contemplated u/s. 37(1) of the Act by the ld. CIT(A), we do not find any reason to interfere with the finding arrived at by the CIT(A). Accordingly, ground taken by the revenue in this respect is dismissed.
Issues:
The judgment involves the issue of whether the Ld. CIT(A), NFAC erred in deleting the addition made on account of the disallowance of expenses incurred in relation to ESOP cost. Summary: The appeal filed by the revenue challenged the order of Ld. CITA, National Faceless Appeal Centre (NFAC), Delhi regarding the disallowance of ESOP expenses claimed by the assessee. The assessee, a banking company, claimed a deduction of Rs.5,55,24,417/- on account of "ESOP cost borne by the company." The dispute centered around whether this expense was allowable under section 37(1) of the Income-tax Act, 1961. The assessee argued that the ESOP cost, in the form of a discount given to employees under ESOS schemes, was a legitimate business expenditure incurred to appreciate and encourage employees for their loyalty and performance. The assessee contended that the discount on ESOP should be treated as an employee cost and allowed as a deduction under section 37(1) of the Act. The assessee relied on various judicial precedents, including the decision of the Hon'ble Special Bench of ITAT, Bangalore, and the High Court of Karnataka, which upheld the allowability of ESOP expenses. The revenue, represented by Ld. Sr. DR, contended that the ESOP expenditure did not satisfy the conditions of section 37(1) as it did not involve actual expenditure but a short receipt of share premium, which was considered a capital expenditure. However, the Ld. AR for the assessee reiterated that the ESOP expense was a valid deduction as it represented an employee cost and was in line with the provisions of the Act and judicial precedents. After considering the arguments and judicial precedents cited, the Tribunal upheld the decision of the Ld. CIT(A) and dismissed the revenue's appeal. The Tribunal found that the ESOP expenses were in the nature of employee cost and were allowable as a deduction under section 37(1) of the Act. The Tribunal relied on the decisions of the Hon'ble High Courts of Delhi, Karnataka, and Madras, which supported the allowability of ESOP expenses as business expenditure. In conclusion, the Tribunal upheld the allowability of ESOP expenses as a deduction under section 37(1) of the Act, in line with the judicial precedents and the decision of the Ld. CIT(A). Separate Judgment: No separate judgment was delivered by the judges in this case.
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