In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) allowed Goldman Sachs to claim deduction under Section 37(1) of the Income Tax Act 1961 and held that ESOP expenses should not be regarded as contingent or notional.
In this case, the assessee, Goldman Sachs (India) Securities Pvt. Ltd., had raised several grounds in its appeal before the ITAT and one of the grounds was concerning the disallowance of the amortisation cost by the department in respect of employee stock plans ( ESOP ) granted to its employees of Rs. 38,28,70,712 incurred by the Appellant, on the basis that the ESOP costs are notional or contingent in nature.
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During the assessment proceedings, although submissions were made by the assessee with regard to the above-mentioned issue, the assessing officer ( AO ) held that the assessee
has failed to furnish any breakdown of the actual expenses paid and amortise expenditure, including the amount of Rs. 38,75,59,875 debited to the profit and loss account.
The assessee contended disallowance was made by not considering the order of the tribunal in the appellant’s own case for the assessment year ( AY ) 2008-09, AY 2009-10, AY 2010-11 AY 2011-12, AY 2012-13, AY 2014-15 and AY 2015-16 where the amount of ESOP cost was allowed as a deductible expenditure in the year of amortization.
The bench, relying on the judgement of its coordinate bench in in assessee’s own case for the assessment year 2010-11, in ITA No. 1546/Mum./2015, in which the coordinate bench observed that “the ESOP expenses should not be regarded as contingent or notional, and it should be allowed as deduction u/s 37(1) of the IT.”
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The ITAT upheld the assessee’s plea regarding the disallowance of ESOP expenses.
Thus, the Mumbai ITAT, comprising Amarjit Singh ( Accountant Member ) and Sandeep Singh Karhail ( Judicial Member ), by following the orders passed by the coordinate bench of the Tribunal in the assessee’s own case, deleted the disallowance made on account of ESOP expenses.
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