DCIT 14(1)(1), MUMBAI vs. AVENDUS CAPITAL P.LTD, MUMBAI

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-22, Mumbai and arises out of the order u/s 143(3) of the Income Tax Act 1961, (the ‘Act’). 2. The sole ground raised by the Revenue in this appeal is that the Ld. CIT(A) erred in holding that the expenses of Rs.2,09,72,732/- M/s Avendus Capital Pvt. Ltd. Employee Stock Option Plan (ESOP) is allowable u/s 37(1).

3. Briefly stated, the facts of the case are that the Assessing Officer (AO) observed that in the scheme of ESOP, the company gives an option to its employees to purchase its securities at a price lower than the market price. As per the scheme, the difference between the exercise value and the market value is paid by the company. This is a practice which is exercised in order to benefit the employees to retain them. As it leads to the change in number of shares or the share capital, the AO observed that it affects the capital of the company. Therefore, the AO made a disallowance of Rs.2,09,72,732/- holding it as capital expenditure.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) followed the decision of the ITAT in assessee’s own case for the AY 2009-10 and allowed the appeal.

5. Before us, the Ld. DR relies on the order of the AO. On the other hand, the Ld. counsel of the assessee relies on the order of the Ld.CIT(A) and that of ITAT ‘A’ Bench in the case of the assessee for the AY 2009-10.

6. We have heard the rival submission and perused the relevant materials on record. We find that the issue in the instant case is squarely covered in favour of the assessee by the order of the Co-ordinate Bench in the case of the assessee for the AY 2009-10 (ITA No. 4542/Mum/2013), which reads ad under:

M/s Avendus Capital Pvt. Ltd. Tribunal brought to our notice. The grievances of the assessee is that the Ld. CIT(A) erred in confirming the disallowance of Rs.1,20,47,684/- claimed u/s 37(1) of the Act towards Employees Stock Option Plan (ESOP) expenses as capital expenditure. An identical issue was considered by the Tribunal Special Bench Bangalore in the case of Biocon vs. DCIT 25 ITR (T) 602 and it has held that ESOP expenses is an allowable deduction u/s 37(1) of the Act. The same view was followed by ITAT Pune Bench in the case of Sandvik Asia Pvt. Ltd. vs. ACIT in & 2054/PN/2012. Respectfully following the decision of the Co- ordinate Benches, we set aside the order of the Ld. CIT(A) and direct the AO to allow the ESOP expenses as revenue expenditure.”