ACIT, MUMBAI V. AVENDUS CAPITAL PRIVATE LIMITED, MUMBAI

ITA 6128/MUM/2025

AI Insights

The case revolves around the classification of expenses related to the Employee Stock Option Plan (ESOP) by Avendus Capital Private Limited for the Assessment Year 2021-22. The primary legal issue was whether the expenditure on the ESOP scheme should be considered a capital expenditure or a revenue expenditure under the Income Tax Act, 1961. The Assessing Officer (AO) initially treated the expenditure as capital, leading to an appeal by the assessee. The CIT(A) reversed the AO's decision, classifying the expenditure as revenue, which was contested by the revenue in the Tribunal. The Tribunal, referencing previous decisions and the Special Bench's ruling in Biocon Limited, upheld the CIT(A)'s decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789321 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 29-09-2025
• Other Referred Cases: Biocon Limited vs. DCIT [2013] 144 ITD 21 (Bang) (SB)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH MEHTA
• Assessee Lawyers: SURENDRA MOHAN
• Keywords: Revenue expenditure; Fair market value; Tax effect; Capital expenditure
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 6128/MUM/2025 Assessment Year: 2021-22 DCIT-14(1)(1), Mumbai Room No. 432, 4th Floor, Aayakar Bhavan, M.L. Road, Mumbai 400020 vs Avendus Capital Private Limited 901, 9th Floor Platina, Plot No. C-59, Bandra Kurla Complex, Bandra East, Mumbai 400051 PAN: (AABCC2404Q) Appellant Respondent Present for: Appellant by : Shri Ashish Mehta and Shri Pulkit Pandey, Advocates Respondent by : Shri Surendra Mohan, Sr. DR Date of Hearing : 26.11.2025 Date of Pronouncement : 27.11.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the revenue is against the order of CIT(A) 48, Mumbai vide Order No. ITBA/APL/S/250/2025-26/1078825129(1) dated 23.07.2025 passed against assessment order u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 28.12.2023 for AY 2021-22. 2. Grounds taken by the revenue are reproduced as under: “1. Whether, on the facts and in the circumstances of the case and in law, the CITIA) failed to appreciate that the expenditure incurred on the ESOP scheme is a capital expenditure and not a revenue expenditure Printed from counselvise.com 2 ITA No. 6128/Mum/2025 Avendus Capital Private Limited AY 2021-22 2. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the ESOP expenditure is an allowable deduction under Section 37111 of the Income Tax Act, 1961. ignoring the fundamental nature of the transaction which is a capital transaction involving the issuance of shares and an increase in the company's equity base. 3. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) erred in relying on the decision of the Hon'ble ITAT, Mumbai, in the appellant's own case for previous assessment years, without considering that the department has consistently appealed this issue to the higher judiciary and the dismissal of those appeals was solely due to the low tax effect, not on the merits of the case. 4. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) failed to consider that the grant of an ESOP is a measure to align employee and shareholder interests and is inherently a part of the capital restructuring of the company, with no nexus to the day to day business operations. 5. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the substance over form of the transaction, whereas the difference between the fair market value and the exercise price of the shares is an opportunity cost to the company, but it does not represent a real, out-of-pocket expenditure that can be claimed as a business expense.” 2.1. Sole issue raised by the revenue in the present appeal is in respect of claim of expenditure towards “Employee Stock Option Plan (ESOP) Scheme”, whether to be treated as capital or revenue in nature. 3. Brief facts of the case are that assessee is engaged in the business of Management consultancy, Investment Banking, Merchant Banking advisory services for mergers and acquisitions. It filed its original return of income on 15.03.2022, reporting total income at Rs.87,99,30,130/-. This return was revised on 31.03.2022 with revised total income at Rs.89,19,17,420/-. Ld. AO noted that assessee has claimed expense on account of ESOP in its profit and loss account for Rs.5,76,56,828/- out Printed from counselvise.com 3 ITA No. 6128/Mum/2025 Avendus Capital Private Limited AY 2021-22 of which amount of Rs. 1,96,21,272/- was suo moto added back in the computation of income while filing the return. Thus, out of the said total amount, assessee claimed a deduction of Rs. 3,80,35,556/- for which explanations were called for. Assessee made its detailed submissions which are reproduced in the impugned assessment order. 3.1. Assessee submitted that the issue raised by the ld. AO is no longer res-integra on account of long line of judicial precedents in assessee’s own case for past several years, listed below: (i) For AY 2009-10 in ITA No. 4542/Mum/2013 (ii) For AY 2010-11 in ITA No. 5679/Mum/2015 (iii) For AY 2011-12 in ITA No. 3475/Mum/2016 (iv) For AY 2016-17 and 2017-18 in ITA No. 1738 and 1739/Mum/2023 3.2. Assessee also contended that the issue is squarely covered by the decision of Hon’ble Special Bench in the case of Biocon Limited vs. DCIT [2013] 144 ITD 21 (Bang) (SB). 3.3. Ld. AO after considering the submissions made by the assessee concluded that the amount spent by the assessee and claimed as deduction is for change in capital and hence, a capital expenditure not allowable u/s. 37(1). He also noted in respect of decision of Hon’ble Special Bench in the case of Biocon limited that SLP was filed against the decision of Hon’ble High Court of Karnataka in the case of Biocon limited in ITA No. 653/2013 which is pending before the Hon’ble Supreme Court and, therefore, the matter has not attained finality. Printed from counselvise.com 4 ITA No. 6128/Mum/2025 Avendus Capital Private Limited AY 2021-22 3.4. Aggrieved, assessee went in appeal before the ld. CIT(A) reiterating the factual position as well as long line of judicial precedents on the issue and considered the same meritoriously. He noted that issue of allowability of ESOP expenditure is no longer res-integra for the assessee as Co-ordinate Bench of ITAT, Mumbai in assessee’s own case for several preceding years has consistently held that ESOP is an allowable revenue expenditure u/s.37(1). Thus, following this consistent view in assessee’s own case on identical fact pattern, he held that the disallowance made by the ld. AO is unjustified and directed to delete the same. 4. Aggrieved, revenue is in appeal before the Tribunal. Ld. Counsel for the assessee placed on record a paper book containing copies of orders of Co-ordinate Bench in assessee’s own case for past several years which have been perused. On confrontation of the same to the ld. Department Representative (DR), nothing distinguishable was brought on record to controvert. It was submitted that revenue has taken up the case of Biocon Limited (supra) before the Hon’ble Supreme Court which is pending for disposal. 5. We have heard both the parties and perused the material on record. We have also gone through the orders of Co-ordinate Bench in assessee’s own case for past several preceding years, whereby claim of the assessee towards ESOP expenditure has been held to be revenue in nature and allowed u/s. 37(1). There been no change in material facts and position of law and nothing has been brought on record to controvert the above position, respectfully following the preceding decisions as well as the decision of Hon’ble Special Bench in the case of Biocon Limited (supra), we do not find any reason to interfere with the findings arrived at by the ld. CIT(A) who upheld that the disallowance Printed from counselvise.com 5 ITA No. 6128/Mum/2025 Avendus Capital Private Limited AY 2021-22 made by the ld. AO is unjustified. Accordingly, grounds raised by the revenue in this respect are dismissed. 6. In the result, appeal of the revenue is dismissed. Order pronounced in the open court on 27.11.2025. Sd/- Sd/- [Anikesh Banerjee] [Girish Agrawal] Judicial Member Accountant Member Dated: 27.11.2025. Divya Ramesh Nandgaonkar Stenographer Copy to: 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "