Assessee

Revenue

The assessee submitted that it was a debt-free company, with no debts outstanding as at 31.03.2022, and therefore the outstanding receivables did not represent any financing arrangement or interest-bearing accommodation to the AEs. It also relied on its own case for AY 2020-21, where a similar TP adjustment had been deleted.

The Revenue supported the orders of the TPO and DRP and the levy of interest on outstanding receivables. The lower authorities had treated the delayed receivables as warranting a separate TP adjustment.

The assessee submitted that the ESOP expenditure was incurred in relation to its employees. The amount recovered from employees was remitted to the parent company, whose shares were allotted to the employees under the ESOP scheme, and such expenditure was allowable under Section 37(1).

The AO disallowed the ESOP expenditure, and the DRP confirmed the disallowance of ₹7.50 crore, on the ground that the ESOP expenditure was capital in nature.

Court’s Judgement

The ITAT noted that the assessee was a debt-free company and followed the decision of the Coordinate Bench in the assessee's own case. Accordingly, no interest adjustment on outstanding receivables was warranted

The ITAT, following the consistent judicial precedents including Biocon Ltd., held that ESOP expenditure was an allowable business expenditure and directed the deletion of the disallowance.