DCIT Vs IBM India Private Limited (ITAT Bangalore)
ESOP Discount Allowable as Business Expenditure; ITAT Follows Karnataka HC, Revenue Appeal Dismissed
In this case, the AO disallowed ESOP expenditure of ₹90.30 crore on the ground that it was notional, capital in nature, and pending final adjudication before the Supreme Court. However, the CIT(A) deleted the disallowance by relying on earlier ITAT orders in the assessee’s own case.
The ITAT upheld the CIT(A)’s order, holding that the issue is squarely covered in favour of the assessee by the Karnataka High Court, which had affirmed the allowability of ESOP discount as an employee cost. The Tribunal noted that merely because the matter is pending before the Supreme Court, the binding jurisdictional High Court ruling cannot be ignored.
Accordingly, the Revenue’s appeal was dismissed, confirming that ESOP expenditure is allowable under section 37(1) as a legitimate business expense.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. Above appeal is filed in case of IBM India private Limited [ Assessee] by the Deputy Commissioner of Income Tax, Circle, 3(1)(1), Bangalore (the learned AO) for Assessment Year 2022-23 against the appellate order passed by the National Faceless Appeal Centre NFAC Delhi (the learned CIT-A) dated 30th October, 2025 wherein appeal filed by the assessee on 24th April, 2025 against assessment order dated 26th March, 2025 passed under Section 143(3) of the Income Tax Act, 1961 (the Act) by the Deputy Commissioner of Income Tax Circle 3(1)(1) Bengaluru, was partly allowed.
