Appeal by Revenue challenging ITAT order allowing ESOP discount as deductible expense. High Court held law settled by coordinate bench, no substantial question of law, dismissed appeal.
Appeal dismissed as devoid of merit since law settled and no question of fact arose.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
NC: 2024:KHC:33101-DB ITA No. 65 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 19TH DAY OF AUGUST, 2024
PRESENT
THE HON'BLE MR JUSTICE S.G.PANDIT
AND
THE HON'BLE MR JUSTICE C.M. POONACHA
INCOME TAX APPEAL No. 65 OF 2024
BETWEEN:
…APPELLANTS
(BY SRI SUSHAL TIWARI N, ADVOCATE)
Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA
AND:
SAP INDIA PVT. LTD., 6TH FLOOR, RMZ ECOWORLD 8A CAMPUS, SARJAPUR MARATHAHALLI OUTER RING ROAD DEVERABEESANAHALLI BENGALURU, KARNATAKA – 560 103. (PAN: AACCS 7483E)
…RESPONDENT
(BY SRI NAGESWAR RAO D D, ADVOCATE – V.C)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A No. 874/BANG/2022 DATED 19/04/2023 FOR ASSESSMENT YEAR 2017-2018 ANNEXURE-A AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY / ASST. COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1), BENGALURU AND ETC.,
THIS APPEAL COMING ON FOR ADMISSION THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR JUSTICE S.G.PANDIT and
HON'BLE MR JUSTICE C.M. POONACHA
ORAL JUDGMENT
(PER: HON'BLE MR JUSTICE C.M. POONACHA)
The present appeal is filed under Section 260A of the Income Tax Act, 19611 by the Revenue challenging the order dated 19.4.2023 passed in IT(TP)A No.874/Bang/2022 by the Income Tax Appellate Tribunal, Bangalore2 , for the Assessment Year3 2017-18.
1 Hereinafter referred to as the ‘IT Act’
2 Hereinafter referred to as the ‘Tribunal’
3 Hereinafter referred to as the ‘AY’
2) Whether on facts and in circumstances of the case and in law, the Hon’ble ITAT is justified in law in deleting the disallowance in respect of ESOP discount, even when the said amount representing discount i.e., expenses of fair market value over the face value of the capital receipt and consequently, any shortfall in receipt of such share premium is tantamount to capital loss and cannot be debited under profit and loss account.
3) Whether on facts and in circumstances of the case and in law, the Hon’ble ITAT is correct in law in allowing Assessee claim even though expenditure claimed by the assessee is notional and it is clear from the scheme of ESOP that the employees will not get any right in the share till completion of the period prescribed and expenditure claim is contingent, this is not an allowable expenditure under Section 37(1) of the Act.”
Officer4 . Vide order dated 22.1.2021, the TPO recommended an amount of `178,54,75,146/- relating to TP adjustment. Subsequently, the Assessing Officer5 passed a draft assessment order on 26.9.2021. Against which, the assessee filed objections before the Dispute Resolution Panel6 . The DRP issued directions vide order dated 13.6.2022. Being aggrieved, the assessee preferred appeal IT(TP)A No.874/Bang/2022 before the Tribunal. The Tribunal by order dated 19.4.2023 partly allowed the appeal. Being aggrieved, the present appeal is filed by the Revenue.
AO had held that the same tantamounted to revenue expenditure and hence, disallowed the same. The DRP affirmed
4 Hereinafter referred to as the ‘TPO’
5 Hereinafter referred to as the ‘AO’
6 Hereinafter referred to as the ‘DRP’
the view taken by the AO. However, the Tribunal relying on the judgment of a coordinate Bench of the Tribunal in the case of Novo Nordisk India (P) Ltd.,7 allowed the contention of the assessee regarding disallowance of ESOP expenses.
7 (2014) 63 SOT 242 (Bang)
8 (2020) 121 taxmann.com 351 (Karnataka)
to be put forth by the Revenue in the present appeal is liable to be rejected.
sought to contend in the present appeal that the expenditure towards ESOP is not an allowable expenditure as per Section 37(1) of the IT Act. However, this Court in the case of Biocon Ltd.,8 having categorically held that the same is an allowable expenditure, there is no merit in the contention sought to be put forth by the Revenue.
Sd/(S.G.PANDIT) JUDGE
Sd/(C.M. POONACHA) JUDGE
Nd
List No.: 1 Sl No.: 17
2 issues framed by the court
Whether discount on ESOP issue is allowable deduction under Section 37(1).
Whether ESOP discount constitutes capital loss and cannot be debited under profit and loss account.
Colour shows how this judgement treated each authority
Novo Nordisk India (P) Ltd.Referred¶46
(2014) 63 SOT 242 (Bang)
Commissioner of Income Tax, LTU v. Biocon Ltd.Followed¶6
(2020) 121 taxmann.com 351 (Karnataka)
3 provisions across 1 enactments
THE PR. COMMISSIONER OF INCOME -TAX 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU – 560 095 AND THE DEPUTY/ASST. COMMISSIONER OF INCOME - TAX CIRC
SAP INDIA PVT. LTD.
S.G. PANDIT
C.M. POONACHA
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
