Tax Tribunal Allows Deduction for ESOP Expenses under Section 37(1)

The appeal was filed against the disallowance of Employee Stock Option Plan (ESOP) expenses claimed as capital expenditure. The Tribunal, following precedent cases, held ESOP expenses to be an allowable deduction under section 37(1) of the Act. The Tribunal set aside the order of the lower authority and directed the Assessing Officer to treat ESOP expenses as revenue expenditure. As a result, the appeal was allowed in favor of the assessee.

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Issues:
1. Disallowance of Employee Stock Option Plan (ESOP) expenses claimed under section 37(1) of the Act as capital expenditure.
2. Applicability of the decision of Tribunal Special Bench Bangalore in the case of Biocon Vs DCIT and Tribunal Pune Bench in the case of Sandvik Asia Pvt. Ltd. Vs ACIT.

Analysis:
1. The appeal was filed against the order of the Ld. CIT(A)-21, Mumbai for the assessment year 2009-10. The assessee raised two substantive grounds of appeal, but the first ground was dismissed as not pressed by the Ld. Counsel for the assessee.

2. The second ground of appeal related to the disallowance of Rs. 1,20,47,684 claimed under section 37(1) of the Act towards ESOP expenses as capital expenditure. The Ld. Counsel for the assessee contended that this issue was settled in favor of the assessee by the decision of the Tribunal Special Bench Bangalore in the case of Biocon Vs DCIT and the Tribunal Pune Bench in the case of Sandvik Asia Pvt. Ltd. Vs ACIT.

3. The Ld. Departmental Representative failed to provide any distinguishing decision in favor of the Revenue. Upon careful consideration of the orders of the authorities below and the decisions of the Tribunals cited, it was noted that the Tribunal had held ESOP expenses to be an allowable deduction under section 37(1) of the Act.

4. The Tribunal, in line with the decisions of the Co-ordinate Benches, set aside the order of the Ld. CIT(A) and directed the Assessing Officer to allow the ESOP expenses as revenue expenditure. Consequently, the appeal filed by the assessee was allowed, and the order was pronounced in the open court on 24th June 2015.

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