Delhi High Court Upholds Delhivery's ₹51.48 Crore Deduction For ESOP Expenditure

The Delhi High Court has upheld Delhivery Pvt. Ltd.'s claim for deduction of ₹51.48 crore in ESOP expenditure, ruling that the Assessing Officer was also not justified in rejecting a Chartered Accountant's valuation report for an assessment year when such certification was permissible

The Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta dismissed the Revenue's appeal in its entirety and answered both questions raised before it in favour of the assessee.

One of the questions before the Court was whether ITAT was correct in deleting the disallowance of a deduction claimed by Delhivery on account of ESOP expenditure amounting to ₹51,48,28,498.

Counsel appearing for Delhivery submitted that the issue had already been settled by the Delhi High Court in Commissioner of Income Tax v. Lemon Tree Hotels Ltd., decided on August 18, 2015.

In that case, the High Court had considered whether expenses debited towards the cost of ESOPs in the profit and loss account could be disallowed. Relying on a judgment of the Madras High Court in CIT-III Chennai v. PVP Ventures Ltd., the Delhi High Court had held that the cost of ESOP could be debited to the assessee's profit and loss account.

The Court in the present case noted that the Revenue was unable to dispute the legal position emerging from the earlier judgment.

Following Lemon Tree Hotels, the Bench answered the first question in favour of the assessee, thereby upholding the ITAT's decision deleting the disallowance of the ₹51.48 crore ESOP deduction.

The second issue concerned an addition of ₹62,72,719 made under Section 56(2)(viib) of the Income Tax Act, 1961.

The Assessing Officer had made the addition on the ground that the valuation obtained by Delhivery had been carried out by a Chartered Accountant, whereas it ought to have been done by a Merchant Banker.

The AO had relied upon CBDT Notification No. 23/2018 dated May 24, 2018, which, according to the AO, had done away with certification by a CA and made a Merchant Banker eligible to issue the valuation report.

The High Court however noted that the relevant assessment year was 2018-19, corresponding to Financial Year 2017-18. It observed that the CBDT had done away with certification by a CA only from the subsequent financial year, pursuant to the May 24, 2018 order.

As such, the Court held that the Assessing Officer was not justified in discarding the valuation report prepared by the CA.

For Appellant: Advocate Siddhartha Sinha, SSC with Lakshya, 

For Respondent: Senior Advocate Sachit Jolly with Advocate Mansha Anand, Abhyudaya S. Bajpai, Sohum Dua, Saloni Ray, Ghunaim Siddiqui, Yahavi Sharma and Manvi.