Trimble Information Technologies India Pvt. Ltd. Vs ITO (ITAT Chennai)
ESOP Expenditure Is Allowable Business Deduction Under Section 37(1); ESOP Cost Remitted to Parent Company Cannot Be Disallowed: ITAT Chennai
Summary: The assessee, a wholly owned subsidiary of Trimble Inc., USA, engaged in software development, application services, internet services and IT-enabled services, filed its return for AY 2022-23 declaring total income of Rs.56,29,17,140/-. The assessment involved both transfer pricing and corporate tax adjustments. The Transfer Pricing Officer proposed an upward adjustment of Rs.32,945/- towards notional interest on overdue receivables. The assessee contended that it was a debt-free company and that the agreed credit period with its associated enterprises was 90 days, whereas the TPO allowed only 30 days. The Tribunal noted that an identical adjustment in the assessee’s own case for AY 2020-21 had been deleted by the Coordinate Bench. Following that decision and considering that the assessee was debt free, the Tribunal held that the interest adjustment on outstanding receivables deserved to be deleted.
The Tribunal also considered the disallowance of Employee Stock Purchase Plan (ESPP/ESOP) expenditure under section 37(1). The lower authorities had disallowed ESOP expenditure, with the DRP confirming disallowance of Rs.7,50,08,759/-. The assessee explained that the ESOP cost was recovered from employees and remitted to the parent company whose shares were allotted to employees. Relying on the judicial principles concerning allowability of ESOP expenditure, including the decision of the Karnataka High Court in CIT v. Biocon Ltd., the Tribunal held that the AO/DRP were not correct in disallowing the ESOP cost. The disallowance was accordingly directed to be deleted.
