DCIT Vs IBM India Private Limited (ITAT Bangalore)
The Income Tax Appellate Tribunal (ITAT), Bangalore, adjudicated an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year 2022–23 concerning the allowability of Employee Stock Option Plan (ESOP) expenditure claimed by the assessee. The dispute centered on whether ESOP expenditure amounting to ₹903.03 crore qualified as a deductible business expenditure under Section 37(1) of the Income Tax Act, 1961.
The assessee, engaged in software development, IT services, and related activities, had filed its return declaring total income exceeding ₹40,000 crore. During scrutiny assessment under Section 143(3), the Assessing Officer disallowed the ESOP expenditure on the ground that it was notional in nature, did not involve actual cash outflow, and represented a capital transaction in the form of foregone share premium. The Assessing Officer also noted that the issue of ESOP deductibility was pending before the Supreme Court and made the disallowance to keep the issue open.
Aggrieved, the assessee appealed before the CIT(A), who deleted the disallowance by following earlier decisions of the ITAT in the assessee’s own case for prior assessment years. The CIT(A) observed that for Assessment Years 2015–16 to 2018–19, similar additions had been deleted by the Tribunal, and thus the issue was covered in favour of the assessee.
