ESOP expenses deemed ascertained liability, upheld by Tribunal for AY 2014-15

The Tribunal upheld the decision of Ld.CIT(A) regarding the allowability of ESOP expenses under the Income Tax Act for the assessment year 2014-15. Relying on the judgment of the Hon'ble Delhi High Court and SEBI guidelines, the Tribunal concluded that the expenses were an ascertained liability and thus allowable. The Revenue's appeal was dismissed, affirming the position in favor of the assessee.

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Issues:
Allowability of ESOP expenses under Income Tax Act for the assessment year 2014-15.

Analysis:
The appeal filed by the Revenue challenged the order of Ld. CIT(A) for deleting the addition of Rs. 1,18,59,997/- on account of disallowance of ESOP expenses. The Assessing Officer added this amount to the declared income of the assessee company, which was selected for scrutiny. The assessee contended that the expenditure was allowable, citing relevant case laws. However, the Assessing Officer disallowed the amount, resulting in an increased assessment. The Ld.CIT(A), considering the judgment of the Hon’ble Delhi High Court and a decision of the Special Bench of Tribunal, partly allowed the appeal of the assessee.

The Revenue, aggrieved by the decision, appealed before the Tribunal. The issue revolved around the allowability of ESOP expenses. The Sr. Advocate for the assessee referred to the judgment of the Hon’ble Delhi High Court and the Special Bench of the Tribunal, asserting that the issue was in favor of the assessee. The Sr. DR opposed this, but acknowledged that the judgment of the Hon’ble Delhi High Court supported the assessee's position.

After hearing the contentions, the Tribunal focused on the sole issue of ESOP expenses. The Ld.CIT(A) based her decision on the judgment of the Hon’ble Delhi High Court, emphasizing compliance with SEBI guidelines regarding ESOP. The Tribunal concurred with the view that the expenditure on ESOP was an ascertained liability as per SEBI guidelines, and thus, allowable. No contrary binding precedents were presented by the Revenue. Consequently, the Tribunal upheld the order of Ld.CIT(A) and dismissed the grounds raised by the Revenue.

In conclusion, the Tribunal dismissed the appeal of the Revenue, affirming the decision on the allowability of ESOP expenses as per SEBI guidelines. The judgment was pronounced on 18th August 2021 after a Virtual Hearing in the presence of both parties.

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