No addition can be made on amount debited to  “Employees Share Option Scheme”  for benefit of Employees of Company: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) of Mumbai  bench recently held that no addition can be made on the amount debited to Employees Share Option Scheme” for the benefit of employees of the company.

Assesee Unilever India Exports Limited is a wholly owned subsidiary of Hindustan Unilever Limited (HUL) and engaged in the manufacturing of branded FMCG products, namely Foods and Beverages and Home and Personal Care (HPC) products. These brands are owned either by Unilever Plc / Unilever NV, the ultimate parent companies of the Unilever Group of HUL.

Assesee filed return of income through electronically for A.Y. 2017-18 declaring total income of Rs.156,38,060/- Since the assessee had international transactions with its AE a reference was made to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP) of such transactions.

After making the TPO adjustment AO passed the draft assessment order. Besides, the Assessing Officer also made a disallowance of Employees Share Option Scheme expenses (ESOP). Aggrieved, the assessee filed its objection before the DRP.

The DRP upheld the disallowance of ESOP expenses. The AO passed the final assessment order in accordance with the directions of the DRP against which the assessee is in appeal before the tribunal. 

During the course of assessement proceedings the assessee has debited a sum of Rs.147.50 lakhs towards benefit provided to employees of the company in respect of “Employees Share Option Scheme (ESOP)” .

The assessee made a detailed submission before the assessing officer explaining the nature of the ESOP and the reasons why the same is allowable under Section 37(1) Income Tax Act.

Karishma Phatarphekar, counsel for the assessee submitted that, ESOPs vest in an employee over a period of four years .That is at the rate of 25%, which means at the end of first year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options.

It was observed by the tribunal that for the Assessment Year 2009-10 onwards the AO has permitted the deduction of ESOP expenses and in view of law laid down by the Supreme Court in Radhasoami Satsang vs. CIT.

Samuel Pitta, counsel for the revenue, supported the decision of the lower authorities.

The two member  tribuna of Amit Shukla (Judicial Member) and Padmavathy S. (Accountant Member) while considering the contentions of the both parties delete the addition made by the AO and allow the appeal filed by the assessee. 

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates