Procter & Gamble Hygiene & Health Care Ltd Vs Assessment Unit (ITAT Mumbai)
ESOP reimbursement not capital or contingent: ITAT Mumbai deletes disallowance u/s 37
ITAT Mumbai allowed the appeal of Procter & Gamble Hygiene & Health Care Ltd., deleting a disallowance of ₹11.17 crore u/s 37(1) related to employee benefit expenses incurred for ESOP & ISOP schemes offered by its US-based holding company.
The parent company (Procter & Gamble Co., USA) offered ESOP (Employee Stock Option Plan): Stock-based incentives based on vesting & ISOP (International Stock Ownership Plan): Employee contributions to P&G shares, matched 50% by the employer. Assessee reimbursed the holding company ₹10.68 crore for ESOP & claimed ₹49 lakh under ISOP total ₹11.17 crore as business expense.
AO disallowed the entire amount, treating it as Contingent/notional, not crystallized in the relevant year. AO held that its in the nature of capital expenditure, linked to share capital.
CIT(A) affirmed the disallowance made by the AO in toto, observing that AO had passed a well-reasoned and detailed order based on binding precedents.
Tribunal found that the disallowance of ₹11.17 crore made by the lower authorities does not stand the test of law or fact. The ESOP & ISOP schemes originate from the foreign holding company & involve no issuance of shares or premium by Assessee. Assessee merely reimburses actual costs in relation to its own employees, which are recorded in the books & supported by actual payments & TDS deduction. . The evidences produced cross-charge invoices, foreign remittance documentation, & perquisite reporting clearly establish the crystallisation of liability & actual outgo in the relevant previous year.
