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Facts
The Revenue appealed against the CIT(A)'s order allowing the claim of ESOP expenses. The assessee claimed an expenditure of Rs. 8,46,15,358/- on account of ESOP, which was disallowed by the AO as capital in nature. The CIT(A) deleted the disallowance.
Held
The Tribunal held that the issue of allowability of ESOP expenses had been decided in the assessee's own case in preceding years, wherein the discount offered on shares under ESOP was allowed as a deduction under section 37(1). Following the precedent, the Tribunal upheld the CIT(A)'s order.
Key Issues
Whether ESOP expenses are allowable as a revenue expenditure or are capital in nature, especially when shares are issued below market price.
Sections Cited
250, 37(1), 143(3)
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANTSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 10/03/2026 Date of Order - 30/03/2026
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The Revenue has filed the present appeals against the impugned order dated 26.07.2025 passed under section 250 of the Income Tax Act, 1961 (“the Act”), by the learned Commissioner of Income Tax (Appeals)-54, Mumbai [“learned CIT(A)”] for the assessment years 2023-24.
In this appeal, the Revenue has raised the following grounds: - “
a) Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of ESOP expenses without
2. (A.Y. 2023-24 ) appreciating that by issuing shares at below the market price, the assessee company has not incurred any revenue expenditure, rather it resulted in short receipt of share premium which the assessee was otherwise entitled to, on capital account. b) Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of ESOP expenses without appreciating that as the receipt of share premium is not taxable, any short receipt of such premium will only be a notional loss and not actual loss requiring any deduction, hence, incurring of such notional loss cannot be considered as expenditure within the meaning of section 37(1) of the Income tax Act, 1961, as there was no "spending" or "paying out or away?.”
3. The solitary grievance of the Revenue is against the deletion of disallowance made on account of Employee Stock Option Stock (“ESOP”) expenses.
We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is engaged in the business of real estate property advisory, property marketing, maintenance of completed properties, engineering, industrial and technical consultancy, construction and development of real estate properties, and all other related activities. For the year under consideration, the assessee filed its return of income on 24.10.2023, declaring a total loss of Rs. 22,63,15,664/-. During the assessment proceedings, it was observed that the assessee has claimed an expenditure of Rs. 8,46,15,358/- on account of ESOP. In response to the statutory notices issued during the assessment proceedings, the assessee submitted that the ESOP expenses pertain to the share appreciation right benefit given by the assessee to its employees during the year under consideration. In support of its claim of deduction in respect of ESOP expenses, the assessee placed reliance upon the decision of the 3 (A.Y. 2023-24 )
Tribunal rendered in its own case for the assessment year 2012-13, wherein deduction in respect of ESOP expenses was allowed to the assessee.
The Assessing Officer (“AO”), vide order dated 23.12.2024 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the expenditure on ESOP compensation is not in the nature of revenue expenditure, as the same has been incurred towards raising of share capital, which is clearly capital in nature. As regards the reliance placed by the assessee on the decision of the Tribunal in its own case for the assessment year 2012-13, the AO held that the Revenue has not accepted the said decision and has filed an appeal before the Hon’ble High Court, and, thus, the matter is pending for finality. Accordingly, the sum of Rs. 8,46,15,358/- incurred in connection with ESOP was treated as capital in nature and disallowed by the AO and added to the total income of the assessee.
The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue and deleted the disallowance made by the AO in respect of ESOP expenses. Being aggrieved, the Revenue is in appeal before us.
Having considered the submissions of both sides and perused the material available on record, we find that the name of the assessee was initially M/s. Indiabulls Real Estate Limited, which was subsequently changed to Equinox India Developments Limited and thereafter it was changed to the current name, i.e., Embassy Developments Limited.
We find that the Coordinate Bench of the Tribunal in the assessee’s own case in ACIT vs. M/s. Indiabulls Real Estate Limited, in for the assessment year 2012-13, vide order dated 11.03.2020, following the decision of the Special Bench of the Tribunal in M/s. Viacom Ltd. and the decision of the Hon’ble Delhi High Court in M/s. Lemon Tree Hotels Limited, observed as follows: - “26. From the details filed in the case Indiabulls Real Estate Ltd., we find that two schemes have been issued by the assessee namely, IBREL ESOP 2006 and IBREL ESOP 2007. The spread of ESOP 2006 was from FY 2006-07 to 2013- 14 whereas ESOP 2008 spread from FY 2008-09 to FY 2009-10. The assessee has also given the details of date of vesting, number of shares granted, number of shares vested, perk value, taxed in the hands of employees, period of vesting. The perk value of the share ranged from Rs.635/- to Rs.134/- and Rs.101/-. The perk value of the share on the date of vesting i.e. 01.11.2011 was Rs.6158/-. The discount given in the ESOP 2008 scheme was Rs.110.50. Further, no material was placed as to what was the value of the shares as per the market at different years of vesting (page 143 to 154 PB) ……….. 27………………… 28. Hence, while laying down the principle that the discount offered on the shares under the ESOP of scheme is allowable deduction u/s 37(1) of the Act, we hereby remand the matter to the file of the AO for the limited purpose of arithmetic calculation of apportioning the year wise discount over the period of vesting taking into consideration, the options granted to the employees, determination of the perk value, FBT levied and allow the same as per the provisions of the Income Tax Act, 1961”
Thus, from the perusal of the aforesaid order passed in the assessee’s own case for the preceding year, it is evident that the Coordinate Bench of the Tribunal, in principle, agreed with the contention of the assessee that the discount offered on the shares under the ESOP scheme is allowable as a deduction under section 37(1) of the Act. The Coordinate Bench of the Tribunal thereafter issued directions to the AO for carrying out the arithmetic calculation of apportioning the year-wise discount for the period of vesting. We find that similar findings were rendered by the Coordinate Bench of the 5 (A.Y. 2023-24 )
Tribunal in ACIT vs. Indiabulls Real Estate Limited, in vide order dated 30.12.2024, for the assessment year 2022-23.
Since the issue of allowability of ESOP expenses has already been adjudicated in the assessee’s own case in preceding years, in the absence of any allegation of change in facts and law, respectfully following the decisions of the Coordinate Bench of the Tribunal rendered in assessee’s own case in preceding years, we do not find any infirmity in the findings of the learned CIT(A) on this issue and direct the AO to carry out arithmetic calculation of apportioning the year-wise discount over the period of vesting, as directed by the Coordinate Bench in preceding years. Accordingly, in the light of the decisions of the Coordinate Bench in preceding years, the solitary issue raised by the Revenue before us is decided in favour of the assessee, and the grounds raised by the Revenue are dismissed.
In the result, the appeal by the Revenue is dismissed. Order pronounced in the open Court on 30/03/2026