FirstCry Gets I-T Dept Notice Over INR 80 Cr ESOP Expenses

Kids-focussed omnichannel retailer FirstCry’s parent Brainbees Solutions has received show-cause notices from the Income Tax (I-T) Department over its employee stock option plan (ESOP) expenses. 

In a filing with the BSE, the company said that the notices pertain to ESOP expenses of INR 79.7 Cr for assessment years (AY) 2018-19 to 2021-22. The notices have been sent under Section 148A of the Income Tax Act, 1961.

Under the provision, an assessing officer (AO) can issue a show-cause notice to a taxpayer if there is material suggesting that income has escaped assessment. 

Meanwhile, FirstCry said that it will file an “appropriate” response to the notices. 

“… The company believes that no income chargeable to tax has escaped the assessment. At this stage, no order of any kind has been passed and as mentioned above, the company believes that it has a strong case on merit. The company will be filing an appropriate response to the show cause notices in due course,” it said. 

As per the company, the I-T Department notice noted that expenses to the tune of INR 2.76 Cr for AY19, INR 8.98 Cr for AY20, INR 23.13 Cr for AY21, and INR 44.38 Cr for AY22 are liable to be disallowed and added back to the total income. 

Additionally, the company informed the bourses that its ESOP expenses in tax returns for the said assessment years were in accordance with the provisions of the I-T Act. “Furthermore, similar claim of ESOP expenses in the past has been allowed by (the) Honourable Commissioner of Income Tax (Appeals) for AY 2015-16,” it added. 

Founded in 2010 by Supam Maheshwari, Amitava Saha, Prashant Jadhav and Sanskriti Hattimattur, FirstCry is an omnichannel consumer brand that sells baby and kids products across India. 

It has more than 900 brick-and-mortar stores across the country, including FirstCry and BabyHug locations. It has raised more than $700 Mn in funding across multiple rounds from the likes of SoftBank, ChrysCapital, and Vertex Ventures. 

The regulatory scrutiny comes a couple of weeks after FirstCry had a bumper listing on the bourses. Its shares listed on the NSE at a premium of over 40% to the issue price. The company’s initial public offering (IPO) comprised a fresh issue of shares worth INR 1,666 Cr and an offer for sale (OFS) component of 5.43 Cr equity shares.

With the show-cause notices, FirstCry has become the latest Indian listed startup to receive such notices from the tax authorities in recent months. In June, auto marketplace CarTrade received a demand notice from the I-T Department to the tune of INR 15.79 Lakh for shortfall in payment or collection of tax deducted at source (TDS) or tax collected at source (TCS).

Meanwhile, gaming major Nazara’s two subsidiaries, Openplay Technologies and Halaplay Technologies, received cumulative tax notices worth INR 1,119.93 Cr from the Director General of GST Intelligence, Kolkata.

Foodtech major Zomato too has received multiple tax notices in the recent past, including an INR 2 Cr goods and services tax (GST) penalty from Delhi’s sales tax office for FY19 in May. In April, it also received a GST notice of INR 11.8 Cr from Gurugram GST authority.