The Revenue had disallowed Delhivery's claimed deduction of Rs. 51.48 crore for ESOP expenditure and made an addition under Section 56(2)(viib) of the Income Tax Act, 1961, on the ground that the share valuation supporting the ESOP had been prepared by a Chartered Accountant rather than a merchant banker.
A Delhi High Court bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta upheld the deduction, holding that a CBDT order permitted CA-prepared valuations at the relevant time and that a later rule requiring merchant-banker valuation could not be applied retrospectively to reject a valuation that was compliant when it was made.
Companies that claimed ESOP expenditure deductions using contemporaneous Chartered Accountant valuations have a strong precedent to resist reassessment where the Revenue seeks to apply a later, stricter valuation-methodology requirement retrospectively.