The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that the Employee Stock Option Expenses (ESOP) is revenue in nature, thus deleted the disallowance employee stock option expenses claimed of ₹ 6,065,232.
The assessee Cleartrip Private Limited is a company engaged in the business of travel agency and providing travel related services through its Web portal to various customers. It is a wholly owned subsidiary of Cleartrip Inc., Mauritius. Cleartrip Inc., Mauritius is a wholly owned subsidiary of Cleartrip Inc., Cayman Island. Several individuals and private equity funds have invested in Cleartrip Inc. Cayman Island.
The assessee filed its return of income at a loss of ₹59,95,10,511. The Assessing Officer (AO) found that assessee has received ₹33,33,15,000 as share premium from Cleartrip Inc., Mauritius. The assessee has issued 1,66,65,750 equity shares at a face value of ₹10 each at a premium of ₹10 having total issue price of ₹20 per share .
During the assessment proceeding the assessee ordered disallowance of employee stock option expenses claimed of ₹ 6,065,232. Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].
The CIT(A) confirmed the disallowance for the reason that the AO has issued a show cause notice to the appellant to explain as to why these expenses should not be disallowed under Section 37 (1) of the Income Tax Act, 1961 being capital expenditure in nature, assessee did not furnish any substantial material to establish the revenue nature of such expenditure.
Further aggrieved the assessee filed an appeal before the Tribunal.
The Bench comprising of Prashant Maharishi, Accountant Member and Sandeep Singh Karhail, Judicial Member observed that the disallowance of employee stock option expenses of ₹6,065,232, was held to be capital expenditure.
The Bench relied on decision of the Karnataka High Court in CIT versus Biocon Land of Delhi High Court in case of Lemon Tree Hotels and Madras High Court in case of PVP Ventures limited, where it was held that the ESOP expenditure are revenue in nature.
Accordingly the Bench directed the AO to delete the disallowance of employee stock option expenditure of ₹ 6,064,232. Hence the appeal filed by the assessee was allowed.
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