Employee Stock Option Expenses Revenue In Nature: ITAT Deletes Disallowance Against Cleartrip

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that employee stock option expenses are revenue in nature.

The bench of Sandeep Singh Karhail (Judicial Member) and Prashant Maharishi (Accountant Member) has directed the assessing officer to delete the disallowance of employee stock option expenditure of Rs. 6,064,232 against Cleartrip.

The appellant/assessee has debited a sum of Rs. 6,065,232 to the profit and loss account because of employee stock option scheme costs.

The AO noted that it has been granted by the ultimate holding company, i.e., ClearTrip Inc., Cayman Islands.

The assessee explained that wherever the holding entity grants such a benefit to the employees of the subsidiary entity, the cost of such an ESOP needs to be recorded as an expense in the profit and loss account of the subsidiary entity. The benefit granted to the employees of the assessee entity in order to compensate them and ensure continuity of the services to the assessee It is a salary or employee compensation. Accordingly, these expenditures are allowable under Section 37(1).

The assessing officer held that such expenditures are capital expenditures and cannot be allowed as revenue expenditures for the assessee.

The CIT(A) confirmed the disallowance for the reason that the assessing officer has issued a show cause notice to the appellant to explain why these expenses should not be disallowed under Section 37(1). being capital expenditure in nature. The assessee did not furnish any substantial material to establish the revenue nature of the expenditure.

The tribunal held that the employee stock option expenses of Rs. 6,065,232 are not capital expenditures and are revenue in nature.

Case Title: Cleartrip Private Limited Versus DCIT

Case No.: ITA No. 2601/Mum/2022

Date: 15.09.2023

Counsel For Appellant: Fereshte D

Counsel For Respondent: Manish Sareen

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