Expenses of ESOP are allowable as revenue expenditure u/s 37(1) of Income Tax Act.

Expenses incurred on ESOP are allowable as revenue expenditure u/s 37(1) of Income Tax Act – ITAT Delhi

In a recent judgment, ITAT Delhi has held that expenses of ESOP is considered as allowable u/s 37(1) of the Act and mere admission of SLP before Supreme Court would not negate the decision of High Court.

ABCAUS Case Law Citation:
5000 (2026) (01) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition/disallowance made by the Assessing Officer on account of expenses incurred in connection with issuance of shares to the employees under Employee Stock Option claimed as business expenses u/s 37 of the Income Tax Act, 1961 (the Act).

During the course of assessment proceedings, the Assessing Officer noticed that the assessee company has debited an amount in the Profit and Loss Account towards cost of share awards granted under ESOP to the employees.

The Assessing Officer denied the claim of ESOP expenses u/s 37 of the Act, claim and added the same the same to the income of the assessee.

Before the Tribunal, the assessee reiterated what had been stated before the lower authorities.  It was stated that now this issue is no more res integra as the same had been decided by the Hon’ble Jurisdictional High Court of Delhi. He further relied on the decision by the Hon’ble High Court of Karnataka wherein similar view was taken.

The Tribunal observed that the Delhi High Court had held the issue of ESOP against the Revenue and ruled that the cost of ESOP could be debited to the profit and loss account of the assessee.

The Tribunal further noted that the decision of the CIT(A) to uphold the order of the Assessing Officer stemmed from the fact that the Revenue had filed an appeal before the Hon’ble Supreme Court against the decision in the Delhi High Court which had been admitted and therefore, the issue of ESOP had become subjudice.

The Tribunal opined that just because the SLP is pending before the Hon’ble Supreme Court would not negate the decision of the Delhi High Court on holding that expenditure incurred in connection with ESOP are revenue expenditure. In so far as the decision in the said case had not been stayed by the Supreme Court, the decision of the Delhi High Court would apply with full force.

Accordingly, the Tribunal held that the expenses of ESOP is considered as allowable u/s 37(1) of the Act.

As a result, the ground of appeal was allowed.

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