TaxTMI 
TaxTMI 
2025 (11) TMI 469
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....tion 144B on 30 September 2021 was set aside for de novo assessment on the question of allowability of deduction towards Employee Stock Option Plan (ESOP) expenditure. The assessee, now known as Nuvama Wealth Management Limited (formerly Edelweiss Securities Limited), has assailed the assumption of jurisdiction as well as the conclusions drawn by the learned Principal Commissioner on both facts and law. 2. The background of the case lies in the assessee's claim of deduction of ESOP cost amounting to Rs. 73,30,24,968 under section 37(1) of the Act, being the expenditure incurred in respect of ESOPs issued by its holding company Edelweiss Financial Services Limited (EFSL) to the employees of the assessee as part of a group-wide incentive p....
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....n No. 3(h), the assessee was specifically required to justify the deduction claimed on account of ESOP, furnish supporting computations, and provide evidentiary proof of the expenditure and tax deduction at source on the perquisite value. In compliance, the assessee furnished a comprehensive note dated 13 March 2021 along with voluminous supporting documents, including a detailed explanation of the ESOP scheme framed by EFSL, computation of the discount, employee-wise details, tax deduction certificates, treatment in books, and relevant extracts of the financial statements. 4. Not only this, the Assessing Officer, upon examination of these documents, issued a further show-cause notice dated 9 September 2021 proposing disallowance of the ....
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....ommissioner unmistakably demonstrate that the amounts received from EFSL represented merely the TDS component collected centrally by the holding company on behalf of group entities for subsequent remittance to the credit of the Central Government. It was categorically explained that EFSL, being the listed entity and the issuer of shares, collected the TDS amounts on behalf of all participating subsidiaries and subsequently transferred such amounts to the respective entities so that they could discharge their statutory liability to deposit tax. The total such TDS funding for the year was Rs. 25.70 crores, and not Rs. 58.02 crores as erroneously presumed by the learned Principal Commissioner. This factual explanation, supported by audited acc....
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....(India) Securities, Cera Sanitaryware Ltd., Dr. Reddy's Laboratories, Mylan Laboratories Ltd., Bharti Airtel Ltd., and Apollo Health Street Ltd. all of which have uniformly held that ESOP discount is a deductible business expenditure being a form of employee compensation. 8. In light of the foregoing, it becomes evident that the Assessing Officer, after due examination of the assessee's responses, documents, and the applicable legal position, had arrived at a reasoned and plausible conclusion that the claim was allowable in law. Such an order cannot be termed as erroneous merely because the learned Principal Commissioner entertains a different subjective interpretation of facts. The jurisdiction under section 263 is confined to correctin....
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....ds its employees in consideration of their services during the vesting period. It is a substitute for direct cash incentive and forms an integral component of the overall remuneration structure. The issuance of shares at a discount involves a real and definite expenditure in the form of an obligation, even if not discharged in cash. The Special Bench in Biocon Limited lucidly held that the difference between the market price on the exercise date and the grant price of shares constitutes allowable business expenditure under section 37(1), and that actual cash outflow is not a precondition for deductibility. The Hon'ble Karnataka High Court affirmed this principle, observing that ESOP discount represents consideration for services rendered by....