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The Tax Publishers Allowability of ESOP expenses - ESOP allotments as push down cost from parent entity Selling goods below wholesale price at a loss - Whether creating a marketing intangible capital asset worth disallowing *Facts:* Assessee's employees were given (Employee Stock Options) ESOP's of its parent entity which was claimed an allowable expense. Revenue's stand was the issuance of ESOP was not warranted by the assessee but by the parent entity and thus cannot be allowed in the hands of the assessee no matter even if it as a "push down" cost from the parent entity. Asseessee sold goods below wholesale prices and returned the loss. Revenue disallowed the loss citing that these on a long term basis created a marketing intangible thus a capital asset and not a revenue loss. On appeal - Held in favour of the assessee that the liability of the assessee was absolute and since ESOP has already been held to be an allowable expenditure in many decisions the same needs to be granted to the assessee. Held in favour of the assessee there is no marketing intangible which is created by the assessee while selling goods below wholesale prices. It is a promotional strategy. *Applied:* Biocon Ltd. (2013) 25 ITR (T) 602 (Bang. Trib.) : 2013 TaxPub(DT) 2046 (Bang-Trib) affirmed by HC in (2021) 430 ITR 151 (Karnataka) : 2020 TaxPub(DT) 4924 (Karn-HC) Novo Nordisk India P. Ltd. v. DCIT, 2014 TaxPub(DT) 2272 (Bang-Trib) *Ed. Note:* push down cost of ESOP from parent this point + the aspect of promotional strategy being given green signal by ITAT needs to be noted. *Case:* Flipkart India (P) Ltd. v. Asstt. CIT 2023 TaxPub(DT) 1837 (Bangalore C Bench)

The Tax Publishers

Allowability of ESOP expenses - ESOP allotments as push down cost from parent entity

Selling goods below wholesale price at a loss - Whether creating a marketing intangible capital asset worth disallowing

Facts:

Assessee's employees were given (Employee Stock Options) ESOP's of its parent entity which was claimed an allowable expense. Revenue's stand was the issuance of ESOP was not warranted by the assessee but by the parent entity and thus cannot be allowed in the hands of the assessee no matter even if it as a "push down" cost from the parent entity.

Asseessee sold goods below wholesale prices and returned the loss. Revenue disallowed the loss citing that these on a long term basis created a marketing intangible thus a capital asset and not a revenue loss.

On appeal -

Held in favour of the assessee that the liability of the assessee was absolute and since ESOP has already been held to be an allowable expenditure in many decisions the same needs to be granted to the assessee.

Held in favour of the assessee there is no marketing intangible which is created by the assessee while selling goods below wholesale prices. It is a promotional strategy.

Applied:

Biocon Ltd. (2013) 25 ITR (T) 602 (Bang. Trib.) : 2013 TaxPub(DT) 2046 (Bang-Trib) affirmed by HC in (2021) 430 ITR 151 (Karnataka) : 2020 TaxPub(DT) 4924 (Karn-HC)

Novo Nordisk India P. Ltd. v. DCIT, 2014 TaxPub(DT) 2272 (Bang-Trib)

Ed. Note: push down cost of ESOP from parent this point + the aspect of promotional strategy being given green signal by ITAT needs to be noted.

Case: Flipkart India (P) Ltd. v. Asstt. CIT 2023 TaxPub(DT) 1837 (Bangalore C Bench)