2026 (4) TMI 120 - AT - Income Tax

ESOP expenditure allowed as business deduction where prior binding precedent had already settled the issue.

ESOP expenditure was held allowable as business expenditure under section 37(1) because the same issue had already been decided in the assessee's own case ... Allowability of ESOP expenditure as deductible business expenditure under section 37(1) - Reliability on Binding precedent of jurisdictional High Court -pendency of the issue before the Supreme Court HELD THAT:- Both the parties confirmed that issues are covered in favour of the assessee by the decision of the honourable Karnataka High court in M/S IBM INDIA PVT LTD [2025 (1) TMI 1807 - KARNATAKA HIGH COURT] where in order of the ITAT in assessee’s own case is confirmed. Though the revenue might have challenged the deductibility of ESOP expenditure before the Honourable Supreme Court however, as in the case of the assessee the issue is settled by the Honourable Karnataka High Court against which the special limitation filed by the assessee is also dismissed - Mere pendency of the issue before the Supreme Court in another matter was held insufficient to displace the binding effect of the jurisdictional High Court decision governing the assessee. On that basis, the Revenue's challenge to the allowability of the ESOP claim under section 37(1) was rejected. Final Conclusion: The appeal of the Revenue was dismissed. The Tribunal upheld the order deleting the disallowance of ESOP expenditure on the ground that the issue was already concluded in favour of the assessee by the jurisdictional High Court. Issues: Allowability of ESOP expenditure as deductible business expenditure under section 37(1) of the Income-tax Act, 1961.Analysis: The issue was already decided in the assessee's own case for earlier assessment years and that view had been affirmed by the jurisdictional High Court. In view of the binding decision covering the same question, the disallowance of ESOP expenditure could not be sustained merely because the Revenue had carried the matter further before the Supreme Court in another case.Conclusion: ESOP expenditure was allowable, and the Revenue's objection to its deduction failed.