ITAT allows Deduction of ESOP expenses claimed within the time limit prescribed u/s 139(5) of Income Tax Act [Read Order]

The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) allowed deduction of Employees Stock Option Plan ( ESOP ) claimed within the time limit prescribed under Section 139(5) of the Income Tax Act, 1961.

The Assessee, Fortune Park Hotels Limited filed original return of income declaring total income of Rs.9,42,13,670/-. Thereafter the  return was later revised under section 139(5) of the Act on 31/03/2018 declaring an income of Rs.5,14,86,020/- after claiming deduction of expenses relating to Employee Stock Options aggregating to Rs.4,27,27,652/-

Further  the assessee is a subsidiary of ITC Ltd holding all of 100% of the shares of the company directly and through nominee shareholders. The employees working for the assessee are covered under the ITC Employee Stock Option Scheme, whereby, the said employees are granted an option to purchase shares of ITC Ltd in accordance with the terms and conditions of the scheme.

In respect of the employees working with the assessee, ITC Ltd seeks reimbursement of the value of stock options from the assessee company. Accordingly, ITC Ltd raises invoice/ debit note seeking to recover the value of the said ESOPs from the assessee.Subsequently The assessee claimed deduction of the actual amount reimbursed to ITC Ltd in respect of the ESOP expenditure. AO, however, disallowed the claim of deduction of his expenses

Aggrieved, the assessee filed an appeal before the CIT(A) who upheld the disallowance  made by the AO  . Therefore the assessee filed another appeal before the tribunal.

It was observed that relevant documents for the purpose of adjudication of the issue of allowability of deduction on account of ESOP expenditure were duly furnished by the assessee before the lower authorities. Thus ESOP expenditure is allowable expenditure in the hands of the company,

Therefore the two-member bench of M. Balaganesh ( Accountant Member ) and Yogesh Kumar U.S, ( Judicial Member ) held that claim of deduction of ESOP expenditure was made by the assessee in the revised return filed on 31/03/2019 which is well within the time limit prescribed under Section 139(5) of the Income Tax Act.

Rohit Jain, counsel appeared for assessee and Vivek Kumar Upadhyay, counsel appeared for revenue.

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