ESOP Discount Is Allowable Business Expenditure Despite Pending SLP: ITAT Mumbai

Strides Pharma Science Limited Vs ITO (ITAT Mumbai)

The Income Tax Appellate Tribunal (ITAT), Mumbai, partly allowed the assessee’s appeal for Assessment Year 2020-21 arising from the assessment completed under Sections 143(3) read with 144B of the Income-tax Act, 1961. The appeal involved disallowances relating to ESOP expenses, weighted deduction for scientific research, Section 14A disallowance, business promotion expenditure, deduction under Section 80G, and other claims.

The first substantive issue concerned the disallowance of Employee Stock Option Plan (ESOP) expenses of ₹1.58 crore claimed under Section 37(1). The Assessing Officer (AO) and the Commissioner (Appeals) treated the expenditure as notional and capital in nature. The Tribunal noted that the issue was covered in favour of the assessee by several High Court decisions, particularly the Karnataka High Court’s ruling in Biocon Ltd., which held that the discount on issue of ESOPs represents an ascertained business expenditure incurred to secure employee services and is allowable under Section 37(1). The Tribunal also observed that similar deductions had been allowed to the assessee in earlier years. It held that the mere filing of a Special Leave Petition (SLP) by the Revenue against a High Court decision could not justify denial of the deduction and allowed the ESOP claim.