Revenue's Appeals Dismissed: Deferred Income & ESOP Expenses Rulings Upheld by ITAT

The appeals by the Revenue involved the deletion of additions on account of deferred income and the disallowance of Employee Stock Option Plan (ESOP) expenses. The Commissioner, supported by the ITAT, ruled in favor of the assessee in both issues. The deletion of deferred income additions was upheld based on the consistent method followed by the assessee and previous Tribunal decisions. Similarly, the disallowance of ESOP expenses was overturned, citing justification from a Madras High Court decision and past judicial precedents allowing such expenditure. The ITAT affirmed the Commissioner's decisions, dismissing the appeals.

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Issues:
Deletion of addition made on account of deferred income.
Deletion of disallowance of Employee Stock Option Plan (ESOP) expense/cost.

Issue 1: Deletion of addition made on account of deferred income

The appeals by the Revenue arose from three separate orders of the Commissioner of Income Tax (Appeals) related to the assessment years 2011-12, 2012-13, and 2013-14. The primary issue was the deletion of an addition made on account of deferred income. The assessee, a resident company engaged in the business of running resorts and hotels, had a revenue recognition policy where a portion of the membership fee was recognized as income in the year of membership acquisition, and the remaining amount was deferred over the period of providing holiday facilities. The Assessing Officer treated the entire membership fee received during the year as income, contrary to the assessee's consistent method. The Commissioner, noting the Tribunal's decisions in favor of the assessee in previous years, deleted the additions made by the Assessing Officer. The ITAT upheld the Commissioner's decision, emphasizing that the issue was already settled in the assessee's favor by the Tribunal in previous years, and no contrary decision was presented by the department.

Issue 2: Deletion of disallowance of Employee Stock Option Plan (ESOP) expense/cost

The second common issue in the appeals related to the disallowance of ESOP expenses debited to the profit and loss account. The Assessing Officer disallowed the ESOP expenses, citing contravention to SEBI guidelines and previous Tribunal decisions. The assessee relied on the decision of the Madras High Court and argued that the ESOP expenses were justified. The Commissioner, finding the issue covered by the Madras High Court decision, deleted the disallowances made by the Assessing Officer. The ITAT upheld this decision, noting that the ESOP expenditure represented the difference between fair market value and issue price of stocks, and that similar expenditure had been allowed in previous judicial precedents. The ITAT dismissed the appeals, affirming the Commissioner's decision on this issue.

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