2021 (8) TMI 772 - AT - Income Tax

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. ... Disallowance of ESOP expenses - CIT-A deleted the addition - HELD THAT:- CIT(A) has in her decision relied on the judgement of Hon’ble Delhi High Court in LEMON TREE HOTELS LTD [2015 (11) TMI 404 - DELHI HIGH COURT] Tribunal in its order stated correctly that it was a benefit conferred on the employee. So far as the company is concerned, once the option was given and exercised by the employee, the liability in this behalf got ascertained. This was recognised by SEBI and the entire Employees Stock Option Plan was governed by guidelines issued by SEBl. On the facts thus found, the Tribunal held that it was not a case of contingent liability depending on the various factors on which the assessee had no control. The expenditure in this behalf was an ascertained liability, thus the expenditure incurred being on lines of the SEBI guidelines, there could be no interference in the relief granted by the Assessing Authority for the expenditure arising on account of Employees Stock Option Plan. This expenditure incurred as per SEBI guidelines and granted by the Officer could not be considered as erroneous one calling for exercise of jurisdiction under Section 263. For Employees Stock Option Plan is concerned, as rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. We do not find that there exists any error to disturb the order of the Tribunal and in turn the Assessing Authority. - Decided in favour of assessee. 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.