ACIT, MUMBAI vs. AVENDUS CAPITAL PRIVATE LIMITED, MUMBAI

Assessment Year: 2021-22 DCIT-14(1)(1), Mumbai vs Avendus Capital Private Limited Room No. 432, 4th Floor, 901, 9th Floor Platina, Plot No. Aayakar Bhavan, M.L. Road, C-59, Bandra Kurla Complex, Mumbai 400020 Bandra East, Mumbai 400051 PAN: (AABCC2404Q) Appellant Respondent Present for: Appellant by : Shri Ashish Mehta and Shri Pulkit Pandey, Advocates Respondent by : Shri Surendra Mohan, Sr. DR Date of Hearing : 26.11.2025 Date of Pronouncement : 27.11.2025 O R D E R

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

3. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) erred in relying on the decision of the Hon'ble ITAT, Mumbai, in the appellant's own case for previous assessment years, without considering that the department has consistently appealed this issue to the higher judiciary and the dismissal of those appeals was solely due to the low tax effect, not on the merits of the case.

4. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) failed to consider that the grant of an ESOP is a measure to align employee and shareholder interests and is inherently a part of the capital restructuring of the company, with no nexus to the day to day business operations.

5. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the substance over form of the transaction, whereas the difference between the fair market value and the exercise price of the shares is an opportunity cost to the company, but it does not represent a real, out-of-pocket expenditure that can be claimed as a business expense.” 2.1. Sole issue raised by the revenue in the present appeal is in respect of claim of expenditure towards “Employee Stock Option Plan (ESOP) Scheme”, whether to be treated as capital or revenue in nature.

3.1. Assessee submitted that the issue raised by the ld. AO is no longer res-integra on account of long line of judicial precedents in assessee’s own case for past several years, listed below:

(i) For AY 2009-10 in (ii) For AY 2010-11 in (iii) For AY 2011-12 in (iv) For AY 2016-17 and 2017-18 in ITA No. 1738 and 1739/Mum/2023 3.2. Assessee also contended that the issue is squarely covered by the decision of Hon’ble Special Bench in the case of Biocon Limited vs. DCIT [2013] 144 ITD 21 (Bang) (SB).

3.3. Ld. AO after considering the submissions made by the assessee concluded that the amount spent by the assessee and claimed as deduction is for change in capital and hence, a capital expenditure not allowable u/s. 37(1). He also noted in respect of decision of Hon’ble Special Bench in the case of Biocon limited that SLP was filed against the decision of Hon’ble High Court of Karnataka in the case of Biocon limited in which is pending before the Hon’ble Supreme Court and, therefore, the matter has not attained finality.

Avendus Capital Private Limited AY 2021-22 3.4. Aggrieved, assessee went in appeal before the ld. CIT(A) reiterating the factual position as well as long line of judicial precedents on the issue and considered the same meritoriously. He noted that issue of allowability of ESOP expenditure is no longer res-integra for the assessee as Co-ordinate Bench of ITAT, Mumbai in assessee’s own case for several preceding years has consistently held that ESOP is an allowable revenue expenditure u/s.37(1). Thus, following this consistent view in assessee’s own case on identical fact pattern, he held that the disallowance made by the ld. AO is unjustified and directed to delete the same.