ESOP Expenses are not allowable When the Shares/ ESOP are granted by Parent Company: ITAT [Read Order]

ESOP expenses are not allowable when the shares/ ESOP are granted by the Parent company the Delhi Bench of, the Income Tax Appellate Tribunal (ITAT) held that can’t allow without factual verification and restored the issue for verification.

International Travel House Limited, the assessee is an associate company of ITC Ltd. The assessee claimed an expenditure of Rs.2,58,48,144/- in its revised return as expenditure incurred on share-based payments to employees on account of providing an option to the employees to purchase shares of ITC Ltd. during the year under reference.

The Assessing Officer pointed out that the real cost of expenses on account of ESOP was that of ITC Ltd. and the only reason the assessee was debiting these expenses in its books of account was due to the reimbursement claimed by ITC Ltd. The Assessing Officer concluded that the assessee had booked expenditure incurred on behalf of third parties in its books of account. 

On appeal, the CIT(A) noted that a perusal of the profit & loss account shows that the assessee has not claimed any such expenditure in its profit & loss account and rejected the assessee’s contention. 

It was viewed that the submission of the assessee has considerable cogency that the ESOP expenditure allowable revenue expenditure u/s 37 has been duly upheld by the various authorities.

 It was contended by the assessee that the assessee has reimbursed the parent company for the said expenses.  The employees are solely deputed to work for the assessee by the parent company. The actual payment in respect of the value of ESOP has been paid by the assessee to the parent company i.e. ITC Ltd.

A Coram of Shri Shamim Yahya, accountant member and Shri Anubhav Sharma, Judicial Member has directed the AO to verify the factual aspects that there were employees deputed by ITC Ltd. for working for the assessee and that expenditure was paid during the next year but it related to current year and financials of the current year were duly recast.

To Read the full text of the Order CLICK HERE

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