S.K.JHA & Associates

13/10/2026

🚨*ESOP Share Discount Is A Deductible Business Expenditure: Kerala High Court*

*Case citation:* The Principal Commissioner of Income Tax v. Geojit Financial Services Ltd., ITA No. 21 of 2025

*Background of the Case*

The Kerala High Court has ruled that the discount offered by a company on shares allotted to employees under an Employee Stock Option Plan (ESOP) qualifies as deductible revenue expenditure under Section 37(1) of the Income-tax Act, 1961.

A Division Bench comprising Justice Devan Ramachandran and Justice Basant Balaji delivered the ruling while dismissing the Income Tax Department’s appeal against *Geojit Financial Services Ltd.* The Court upheld the decision of the Income Tax Appellate Tribunal (ITAT), Cochin Bench.

*Dispute Over ESOP Expenditure*

Geojit Financial Services had allotted shares to its employees under an ESOP at a price below their market value and claimed the resulting discount as business expenditure.

The Assessing Officer disallowed the deduction. However, the first appellate authority allowed the claim, and the ITAT subsequently upheld the relief granted to the company.

The Revenue challenged the Tribunal’s decision before the High Court, arguing that the company’s method of accounting for ESOP expenses differed from the straight-line method and that earlier judicial decisions were distinguishable.

*High Court’s Observations*

Rejecting the Revenue’s arguments, the High Court held that the difference between the market value of shares and the discounted issue price represents an expenditure incurred to retain employees, secure their continued services and provide performance incentives.

The Court observed that such a discount cannot be treated merely as a short receipt of capital or a notional expense. The economic cost borne by the employer serves a legitimate business purpose and is therefore allowable under Section 37(1).

The Bench relied on the principles laid down by the Delhi High Court in *CIT v. Lemon Tree Hotels (P) Ltd.* and the Karnataka High Court in *CIT (LTU) v. Biocon Ltd.*

*Key Takeaway*

The judgment reinforces that genuine ESOP discounts may qualify as deductible business expenditure when incurred for commercial purposes. It provides important guidance to companies claiming tax deductions for employee share-based incentive schemes.

04/10/2026

04/10/2026

Rs. 20,000 PENALTY FOR MISSED INCOME TAX NOTICES — DELHI ITAT SAYS “NOT SUSTAINABLE”

A missed response to a Section 142(1) notice cost Laxmi Narain Kesrwani ₹10,000 for AY 2019-20 and another ₹10,000 for AY 2020-21.

The notices were served. The replies were not filed on time.

The Income Tax Department imposed penalties under Section 272A(1)(d), and the CIT(A) upheld them.

But the taxpayer did not stop there.

He approached the Delhi ITAT and argued that although there had been an initial lapse, he subsequently participated in the reassessment proceedings and submitted the required replies and documents.

The Tribunal examined what happened after the missed notices.

The assessments were ultimately completed under Section 147 read with Section 143(3) — not under Section 144 as an ex-parte best-judgment assessment.

The ITAT also noted that the taxpayer had subsequently cooperated with the Assessing Officer and that his explanation for the initial non-compliance was plausible.

There was another important point.

Section 272A(1)(d) is subject to Section 273B, which provides relief where reasonable cause for the failure is established.

On October 1, 2026, the Delhi ITAT deleted both penalties.

₹10,000 + ₹10,000 = ₹20,000 relief.

The larger lesson from this order?

A missed tax notice should never be ignored.

But an initial compliance lapse does not necessarily end the matter.

If there is reasonable cause and the taxpayer subsequently cooperates, responds and provides the information sought, those facts can become crucial in penalty proceedings.

In tax compliance, one missed notice can create a problem.

But how you respond afterwards can make a difference.

29/09/2026

The ITAT Nagpur, in a consolidated order covering 40 appeals, held that compensation received by employees of BSNL under the BSNL Voluntary Retirement Scheme, 2019, implemented pursuant to the Government-approved revival plan of BSNL and MTNL, was in the nature of retrenchment compensation covered by section 10(10B) of the Income-tax Act. The Tribunal held that such compensation was a capital receipt and exempt from tax without the monetary limit of Rs. 5 lakh prescribed under section 10(10C). The Tribunal accordingly set aside the findings of the CIT(A) and allowed all the appeals, directing the assessees to submit revised computations claiming exemption under section 10(10B), after which the Revenue authorities were directed to grant the eligible refund after verification.
Case citation Yogesh Shyamsunder Maheshwari, Mumbai v. DCIT/ACIT, Circle-3, Nagpur & Ors., ITA Nos. 220 & 221/NAG/2026 & 38 other cases, ITAT Nagpur, dated 14 July 2026.

Core issue Whether compensation received by BSNL employees under the BSNL Voluntary Retirement Scheme, 2019, pursuant to the Government-approved revival scheme, is retrenchment compensation exempt under section 10(10B), or merely voluntary retirement compensation subject to the Rs. 5 lakh exemption limit under section 10(10C).

Fact The assessees were employees of BSNL, which was under the administrative control of the Department of Telecommunications, Government of India. As part of the Government-approved revival plan for BSNL and MTNL, the Union Cabinet decided to reduce the workforce and BSNL introduced the VRS-2019 for employees aged 50 years and above. The employees received ex-gratia/compensation under the scheme. In their original returns, the assessees generally claimed exemption only under section 10(10C), limited to Rs. 5 lakh, and offered the balance compensation to tax. In several cases, the claim of exemption under section 10(10B) was subsequently raised before the CIT(A) or Tribunal. The CIT(A)s had either dismissed the appeals on limitation or declined to entertain the fresh claim on the ground that it should have been made through a revised return.

BSNL VRS-2019 was introduced as part of the Government-approved revival plan to reduce the workforce and employee costs. The key trigger was whether compensation paid under this scheme, despite being termed “VRS compensation. The assessees had originally claimed only the limited exemption under section 10(10C), but subsequently raised the claim under section 10(10B) before the appellate authorities. The Tribunal therefore had to consider whether a fresh claim could be entertained and whether the BSNL VRS-2019 compensation qualified as retrenchment compensation

AO / CIT(A) finding The Revenue authorities treated the compensation as payment under a Voluntary Retirement Scheme and restricted the exemption to Rs. 5 lakh under section 10(10C). In some cases, the CIT(A) did not entertain the claim under section 10(10B) as it had not been made in the original or revised return. The Revenue also contended before the Tribunal that the assessees had voluntarily opted for VRS and therefore could not claim the benefit applicable to retrenchment compensation.

ITAT finding The Tribunal held that the nomenclature of the scheme as “VRS” was not decisive. It examined the Government-approved revival plan and the circumstances in which the scheme was introduced, including the objective of reducing employee costs as part of the revival of BSNL and MTNL. Relying upon decisions of the Chandigarh and Ahmedabad Benches and the Madras High Court, including Harish Kumar v. ITO and Hindustan Photo Film Workers Welfare Centre v. Government of India, the Tribunal held that the compensation received under BSNL VRS-2019 was in the nature of retrenchment compensation covered by section 10(10B). The Tribunal also held that appellate authorities can entertain a new claim where necessary to determine the correct tax liability, relying upon Jute Corporation of India Ltd. v. CIT. The contention that only a “workman” could receive the benefit under section 10(10B) was rejected in view of the Madras High Court decision holding that the benefit applied to employees covered by the scheme. Accordingly, the compensation was held to be a capital receipt exempt under section 10(10B), without the Rs. 5 lakh ceiling applicable under section 10(10C).

Cases relied

Harish Kumar v. ITO (2025) 175 taxmann.com 379 (Chandigarh-Trib.); Dayal Singh v. ITO, ITA No. 519/Chd/2024; Suresh Pal Chauhan v. ITO (2023) 154 taxmann.com 529 (Chandigarh-Trib.); Shree Rajeshwar Sharma v. ITO, ITA No. 870/Chd/2018; Jayesh Kumar Tulsidas Sutaria v. ITO (2026) 183 taxmann.com 587 (Ahmedabad-Trib.); Hindustan Photo Film Workers Welfare Centre v. Government of India (2017) 79 taxmann.com 298 (Madras); CIT (TDS) v. Hindustan Photo Film Workers Welfare Centre (2021) 129 taxmann.com 356 (Madras); Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC); CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC); PCIT v. Karnataka State Cooperative Federation Ltd. (2021) 128 taxmann.com 1 (Karnataka); and CIT v. Pruthvi Brokers & Shareholders (2012) 23 taxmann.com 23 (Bombay).

Outcome All the appeals were allowed. The Tribunal set aside the impugned findings of the CIT(A) and held that the compensation received under BSNL VRS-2019 was exempt under section 10(10B) as retrenchment compensation and was not subject to the Rs. 5 lakh limit under section 10(10C). The assessees were directed to place revised computations before the respective Assessing Officers claiming exemption under section 10(10B). The Revenue authorities were directed to grant the eligible refund, after verification of the revised computations and the relevant BSNL scheme documents.

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15/08/2026

🇮🇳 स्वतंत्रता दिवस की हार्दिक शुभकामनाएँ! 🇮🇳

आइए, इस पावन अवसर पर उन वीर स्वतंत्रता सेनानियों को नमन करें, जिनके त्याग और बलिदान से हमें आज़ादी मिली।

देश की एकता, अखंडता और समृद्धि के लिए हम सभी अपना योगदान दें और भारत को और मजबूत एवं गौरवशाली बनाएँ।

जय हिन्द! 🇮🇳
वन्दे मातरम्! 🙏