Show-Cause Notices Issued to Firstcry Over Esop Expenditures Totalling INR 80 Crore

Show-Cause Notice

Nitin Konde, Apoorva Bajj

Aug 26, 2024 — 3 min read

Show-Cause Notices Issued to FirstCry Over Esop Expenditures Totalling INR 80 Crore

Show-cause notices have been issued to Brainbees Solutions, the parent company of FirstCry, in relation to employee stock ownership plan (ESOP) expenses that were close to INR 80 crore and were incurred during the fiscal years 2018-19 and 2021-22.

The notices have been sent by the Income Tax Department in accordance with clause (b) of Section 148A of the Income Tax Act.

Firstcry in Its Defence

According to the filing that the company made with the Bombay Stock Exchange (BSE), the company is determined in its belief that the claim of ESOP expenses that it has made in its tax returns for the assessment years mentioned above is in compliance with the provisions of the Income Tax Act of 1961 and is in accordance with judicial precedents established by a variety of courts as well as the advice of our external tax advisors.

A comparable employee stock ownership plan (ESOP) expenditure claim was previously allowed by the Commissioner of Income Tax (Appeals) for the assessment year 2015-16, according to the company to which SoftBank provided financial backing. Consequently, the organisation is of the opinion that "no income that is subject to tax has evaded the assessment."

As was stated earlier, the corporation is of the opinion that it has a solid case on merit, and at this point, there has been no order of any type having been passed. According to the filings, the corporation will, in due course, provide a response that is suitable to the show cause notices.

Not the First Time for the FirstCry

In 2023, it has been reported that the tax department, which is under the jurisdiction of the Ministry of Finance in India, has sent notices to the creator of FirstCry, Supam Maheshwari, requesting him to explain why he did not pay more than $50 million in taxes on equity transactions that were carried out in privately held FirstCry. The tax department has requested that they not be named because the information is not publicly available.

In addition, queries concerning the problem have been received by at least six investors in FirstCry, according to the statement. These investors include the private equity firm ChrysCapital Management Co. and the family office of Sunil Bharti Mittal. In order to resolve the investigation, Maheshwari had several meetings with the tax agency.

The financial year that ended on March 31, 2021 was the first time that FirstCry had generated a profit after years of operating at a loss.

FirstCry’s IPO

An initial public offering (IPO) of $500 million was submitted by FirstCry earlier this year. The IPO featured a fresh issue of INR 1,666 crore as well as an offer for sale of 543 lakh equity shares by existing shareholders. FirstCry is a company that offers a wide variety of products meant for infants and toddlers.

The omnichannel retailer finished the first day of trading on the Indian stock markets with a market value of $4.1 billion, an increase of 44.8% from the previous day's trade.