ITAT allows ESOP expenses u/s 37(1) of Income Tax

Assessee is a company stated to be engaged in the business of providing ITeS, Software, Development and Sales option and marketing services. Assessee filed its original return of income for A.Y. 2016-17 on 24.11.2016 declaring income of Rs.23,41,59,160/- which was modified as per APA on 26.05.2017 at an income of Rs.23,41,86,210/-. The case of the assessee was selected for scrutiny and, thereafter, assessment was framed u/s 143(3) of the Act vide order dated 30.12.2018 and the total income was determined at Rs.27,87,17,461/-.

Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 08.11.2019 in Appeal No.10162/2019-20 granted substantial relief to the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal and has raised the following effective ground:

“1. Whether on facts and circumstances of the case and in law, the Learned CIT(A) is legally justified in holding that the Employees Stock Expenses (ESOP) is an allowable expense u/s 37(1) of the Act.”

ITAT Order:

10. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the allowability of expenses towards ESOP expenses. AO had disallowed the expenditure by holding it to be capital in nature and not allowable u/s 37(1) of the Act. We find that CIT(A) after considering the various High Court’s and Tribunal’s decisions cited in the order 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.

9. In the result, appeal of Revenue is dismissed.