DCIT Vs FIS Global Business Solutions India Private Limited (ITAT Delhi)
ESOP Expenditure Allowable u/s 37(1) and CSR Donations Eligible for Section 80G: ITAT Delhi Dismisses Revenue Appeal
The Delhi Bench of the ITAT dismissed the Revenue’s appeal and upheld the order of the CIT(A) granting relief to the assessee on two significant issues for AY 2020-21—allowability of ESOP expenditure under section 37(1) and deduction under section 80G in respect of donations made as part of Corporate Social Responsibility (CSR).
On the issue of ESOP expenditure, the Tribunal noted that the matter was squarely covered in favour of the assessee by its own decisions for AYs 2017-18 and 2018-19, which in turn followed the judgment of the Delhi High Court in CIT v. Lemon Tree Hotels Ltd.. It was held that share-based compensation incurred by the assessee had a direct nexus with business operations, involved actual cash outflow to the overseas holding company, and therefore constituted allowable business expenditure under section 37(1).
Regarding CSR-related donations, the Revenue argued that deduction under section 80G was not permissible since CSR expenditure is mandatory and not voluntary. Rejecting this contention, the ITAT held that disallowance of CSR expenditure as business expenditure under Explanation 2 to section 37(1) does not bar a separate deduction under section 80G, provided the donations satisfy the conditions prescribed therein. The Tribunal relied on a long line of consistent judicial precedents, including Interglobe Technology Quotient Pvt. Ltd., Goldman Sachs Services Pvt. Ltd., and Allegis Services (India) Pvt. Ltd., and emphasized that denying section 80G deduction would result in impermissible double disallowance.
The ITAT further clarified that CSR expenditure is treated as application of income and continues to form part of total income, thereby qualifying for Chapter VI-A deductions. Since the eligibility of donations under section 80G was not disputed by the Revenue, the CIT(A)’s order allowing the deduction was upheld. Consequently, the Revenue’s appeal was dismissed and the assessee’s cross-objection was rendered infructuous.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Revenue and cross objection filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [herein after referred as “CIT(A)”] for the dated 10.06.2025 for the A.Y. 2020-21.
