Deduction u/s. 37(1) allowable towards ESOP expense since it is not contingent or notional

Goldman Sachs (India) Securities Pvt Ltd Vs National Faceless Assessment Centre (ITAT Mumbai)

ITAT Mumbai held that the Employee Stock Option Plans [ESOP] expenses should not be regarded contingent or notional and it should be allowed as deduction u/s 37(1) of the Income Tax Act.

Facts- During the assessment proceedings, from the perusal of the financial statement of the assessee, it was observed that employee cost include the cost of Restrictive Stock Unit and Stock Option’s Plan under the Goldman Sachs Group Inc. Further, it was noticed that the Stock Incentive Plan has been charged to the profit and loss account over the period of vesting. AO vide draft assessment order dated 27/04/2021 passed under section 143(3) read with section 144C(1) of the Act disagreed with the submissions of the assessee and held that the assessee has failed to furnish any breakup of the actual expenses paid and amortise expenditure including the amount of INR 38,75,59,875 debited to the profit and loss account. Thus, in the absence of proper details for verification, the ESOP cost of INR 38,75,59,875 was disallowed and added to the total income of the assessee.

Conclusion- The coordinate bench of the Tribunal in assessee’s own case for the assessment year 2010-11, in ITA No. 1546/Mum./2015, vide its order dated 17/02/2022 has held that the ESOP expenses should not be regarded contingent or notional and it should be allowed as deduction u/s 37(1) of the IT. Act.