Facts of the Case

  • The petitioner company had deposited excess TDS, resulting in refund claims.
  • The Revenue refunded:
    • ₹72 Crores (excess TDS)
    • ₹12 Crores (computational error correction)
  • However, an addition of ₹22.30 Crores was made by the Assessing Officer regarding ESOP expenditure.
  • The petitioner challenged this addition as being contrary to settled law laid down in CIT vs Lemon Tree Hotels Ltd..

Issues Involved

  1. Whether expenditure incurred towards Employee Stock Ownership Plan (ESOP) is allowable as a deductible business expenditure.
  2. Whether the Assessing Officer was justified in making additions despite binding precedent.
  3. Whether the petitioner is entitled to refund of tax adjusted against such disallowed ESOP expenditure.

Petitioner’s Arguments

  • The addition of ₹22.30 Crores towards ESOP expenditure is erroneous and contrary to binding precedent.
  • Relied upon Delhi High Court judgment in CIT vs Lemon Tree Hotels Ltd. (2015), which allows ESOP expenditure as deductible.
  • Asserted that no stay exists on the said judgment.
  • Therefore, adjustment of refund based on such addition is illegal.

Respondent’s Arguments

  • The Revenue contended that the judgment in CIT vs Lemon Tree Hotels Ltd. is under challenge before the Supreme Court.
  • However, no confirmation of stay on the judgment was presented.

Court’s Findings / Order

  • The Court held that:
    • Since no stay exists on the precedent judgment, it remains binding.
    • ESOP expenditure must be treated in accordance with the ruling in Lemon Tree Hotels Ltd.
  • Direction Issued:
    • The Assessing Officer is directed to refund the adjusted amount within 8 weeks.
  • The writ petition was disposed of with directions.

Important Clarification

  • Mere pendency of appeal before the Supreme Court does not dilute the binding nature of a High Court judgment unless stayed.
  • ESOP expenditure continues to be allowable as business expenditure under prevailing law.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:3845-DB/MMH26112021CW90632020_191801.pdf

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