The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the employee stock option (ESOP) expenses were capital in nature and were not allowable under Section 37(1) of the Income Tax Act 1961.
Assessee, Cvent India Pvt. Ltd. is a company stated to be engaged in the business of providing IT Software, Development and Sales option and marketing services. Assessee filed its original return of income.
During the course of assessment proceedings, AO noticed that the assessee had claimed Employee Stock Option (ESOPs) expense. AO noted that assessee did not furnish the break-up of expenses on shares exercise i.e., allotted during the year. He, therefore, held that the claim of the assessee cannot be allowed and accordingly disallowed and made its addition. On appeal it was held that AO was not justified in deleting the ESOP expenses.
Himanshu Sinha,on behalf of the assessee submitted that the expense on account of ESOP was an incentive/compensation to the employees and had direct nexus with their employment and therefore such expenses could not be said to have been incurred wholly for the purpose of business and were revenue in nature and, therefore, allowable under Section 37(1) of the Act.
Avikal Manu, appeared on behalf of the revenue.
The Division Bench of Anil Chaturvedi, (Accountant Member) and Yogesh Kumar Us, (Judicial Member) dismissed the appeal filed by the revenue observing that,
“We find that CIT(A) after considering the various High Courts and Tribunals decisions cited in the order held the ESOP expenses to be allowable u/s 37(1) of the Act. Before us, Revenue has not placed any material on record to point out any fallacy in the findings of CIT(A) nor has placed any contrary binding decision in ACIT vs. Cvent India Pvt. Ltd. 10 its support.”
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