ESOP Expenditure Incurred towards Raising Share Capital is Allowable as Revenue Expenditure: ITAT [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) has held that the Employees Stock Ownership Plan (ESOP) expenditure incurred towards raising of share capital was allowable as revenue expenditure.

The assessee-company, Dhani Services Ltd was a stock broker of National Stock Exchange and Bombay Stock Exchange had claimed ESOP expenditure. While computing the total income, the Assessing Officer took the view that the ESOP expenditure was not Revenue expenditure as it had been incurred towards raising of Share Capital and hence it was clearly Capital in nature.

Further, he took the view that the ESOP expenditure was not an actual expenditure incurred by the company and it was notional in nature. The Commissioner of Income Tax Appeals (CIT(A)), however, noticed that ESOP expenditure had been held to be Revenue in nature by the Special Bench of the Tribunal in the case of Biocon Ltd. (2013). The CIT(A) further observed that an identical disallowance of ESOP expenditure made in Asst. Years 2012-13, 2013-14 and 2017-18 had been deleted by the CIT(A). Accordingly, following the decision rendered in the earlier years, the CIT(A) deleted the disallowance.

K. Gopal appeared on behalf of the assessee and Sanyogita Nagpal appeared on behalf of the revenue.

The two-member Bench of B.R. Baskaran (Accountant Member) and Narender Kumar Choudhry (Judicial Member) noted that the view taken by the Assessing Officer in order to disallow the ESOP expenditure was contrary to the view expressed by the Special Bench in the case of Biocon Ltd, wherein it had been held that ESOP expenditure was allowable as Revenue expenditure.

The Bench also noticed that the decision rendered by the CIT(A) in Asst. Year 2012-13 in deleting the disallowance of ESOP expenditure had since been upheld by the Tribunal in ITA vide order dated 16.02.2023 and the CIT(A) had granted identical relief in Asst. Year 2017- 18 and the Revenue did not challenge the said decision before the Tribunal.

The Bench based upon these observations of deletion of the disallowance of ESOP expenditure by the CIT(A) and Income Tax Appellate Tribunal (ITAT) in the earlier years in the hands of the assessee upheld the order passed by the CIT(A) on this issue dismissing the appeal filed by the revenue.

To Read the full text of the Order CLICK HERE

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