Rajesh R Hemrajani Vs ITO (ITAT Mumbai)
Mumbai ITAT Considers ESOP Cost of Acquisition
The appeal arose from the final assessment order dated 25/12/2024 for A.Y. 2019-20. The assessee was an individual, a non-resident and UK resident employed with L&T Infotech Ltd., UK Branch. During the relevant year, he exercised ESOPs and acquired 1,540 shares at an exercise price of Re.1 per share. The fair market value on the exercise date was determined at Rs.1,753.58 per share. The shares were subsequently sold for an aggregate consideration of Rs.25,99,863/-. The assessee adopted the fair market value as the cost of acquisition under Section 49(2AA) and computed a short-term capital loss of Rs.1,00,650/-.
Assessment and DRP Proceedings
The Assessing Officer questioned the adoption of FMV as the cost of acquisition and proposed taxing the sale proceeds as short-term capital gains, while restricting the cost to the actual exercise price. The AO held that the ESOP perquisite did not accrue or arise in India and that Section 49(2AA) could not be applied. The AO proposed an addition of Rs.25,98,323/- against the short-term capital loss claimed.
The assessee approached the DRP. The DRP agreed with the AO and held that the cost of acquisition was limited to the actual consideration paid. It distinguished the Bangalore ITAT decision in Biplab Adhya on the ground that taxes had been paid in India in that case, whereas the assessee in the present case had paid tax on the perquisite in the UK. Following the DRP directions, the AO made an addition of Rs.29,59,332/- as unexplained short-term capital gains.
