- 1 - NC: 2025:KHC:1851-DB ITA No. 451 of 2023 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 17TH DAY OF JANUARY, 2025 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE G BASAVARAJA INCOME TAX APPEAL NO. 451 OF 2023 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA BENGALURU - 560 095 2. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3(1)(1) 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA BENGALURU - 560 095 … APPELLANTS (BY SRI. Y.V. RAVI RAJ AND SRI DILIP M., ADVOCATE) AND: M/S IBM INDIA PVT LTD NO.12 SUBRAMNYA ARCADE BANNERGHATTA ROAD, BENGALURU - 560 029 PAN: AAACI 4403L … RESPONDENT (BY SMT. TANMAYEE RAJKUMAR., ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 14/02/2022 PASSED IN IT(TP)A NO.289/BANG/2021, FOR THE ASSESSMENT YEAR 2015-2016, PRAYING TO I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; II) ALLOW THE APPEAL AND SET ASIDE THE ORDERS Digitally signed by NANDINI D Location: HIGH COURT OF KARNATAKA - 2 - NC: 2025:KHC:1851-DB ITA No. 451 of 2023 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 289/BANG/2021 DATED 14/02/2022 FOR ASSESSMENT YEAR 2015-2016 ANNEXURE-D AND CONFIRM THE OTHER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BENGALURU AND ETC., THIS APPEAL COMING ON FOR FURTHER ORDERS THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT AND HON'BLE MR JUSTICE G BASAVARAJA ORAL JUDGMENT (PER: HON'BLE MR JUSTICE KRISHNA S DIXIT) The subject matter of this appeal is similar to the one decided by the Co-ordinate Bench of this Court in the case of Commissioner of Income Tax, LTU v. Biocon Ltd. - (2020) 121 taxmann.com 351 (Karnataka), wherein paragraph Nos. 6, 7 and 11 read as under: "6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under Section 37 of the Act. Before proceeding further, it is apposite to take note of Section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature - 3 - NC: 2025:KHC:1851-DB ITA No. 451 of 2023 described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession". 7. Thus, from perusal of Section 37 (1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or expended and does not contain a requirement that there has to be a pay out. If an expenditure has been incurred, provision of Section 37(1) of the Act would be attracted. It is also pertinent to note that Section 37 does not envisage incurrence of expenditure in cash 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of accounts, which has been prepared in accordance with Securities And Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999." In view of the above, the appeal is dismissed, costs having been made easy. Sd/- (KRISHNA S DIXIT) JUDGE Sd/- (G BASAVARAJA) JUDGE VP