DCIT, CIRCLE-5(1), HYDERABAD vs. PAYSWIFF TECHNOLOGIES PRIVATE LIMITED, HYDERABAD

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ DB-A ‘ Bench, Hyderabad �ी रिवश सूद,�ाियक सद� एवं �ी मधुसूदन साविड़या लेखा सद� सम� | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No. 2170/Hyd/2025 (िनधा�रण वष�/Assessment Year: 2022-23) Payswiff Technologies Vs. Asstt. Commissioner of Private Limited Income Tax, Circle 5(1) Hyderabad Hyderabad PAN: AAGCR5745L (Appellant) (Respondent) आ.अपी.सं /ITA No. 2361/Hyd/2025 (िनधा�रण वष�/Assessment Year: 2022-23) Deputy Commissioner of Vs. Payswiff Technologies Income Tax, Circle 5(1) Private Limited Hyderabad Hyderabad PAN: AAGCR5745L (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Shri Ajit Jain, CA राज� व �ारा/Revenue by:: Smt.U.Mini Chandran, CIT(DR) सुनवाई की तारीख/Date of hearing: 01/04/2026 घोषणा की तारीख/Pronouncement: 29/04/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.:

These cross appeals are filed by Payswiff Technologies Private Limited (“the assessee”) and the Revenue, feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 30.10.2025 for the A.Y.2022-23. Since common issues are involved in these cross appeals, these were heard

2 together and are being disposed of by this common and consolidated order. 2. The brief facts of the case are that the assessee is a company engaged in the business of providing technical and consultancy services in the field of software, filed its return of income for Assessment Year 2022–23 on 31.10.2022 declaring a loss of Rs.43,41,13,464/-. The case of the assessee was selected for scrutiny under CASS and accordingly, notice under section 143(2) of the Income Tax Act, 1961 (“the Act”) dated 23.06.2023 was issued by the Learned Assessing Officer (“Ld. AO”). After considering the submissions of the assessee, the Ld. AO made additions of (a) Rs.9.68 crores on account of ESOP expenses and Rs.8.97 crores on account of disallowance of other employee benefit expenses out of the total employee benefit expenses Rs. 20.20 crores, (b) Rs.21,92,36,162/- on account of loss on sale of investment in subsidiary company and (c) Rs.59,49,06,130/- on account of receipt of share premium. Accordingly, the Ld. AO completed the assessment under section 143(3) read with section 144B of the Act dated 20.03.2024, assessing the total income of the assessee at Rs.56,65,28,828/-, making total additions of Rs.100,06,42,292/-. 3. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). During the pendency of the appeal before the Ld. CIT (A), the Ld. AO passed a rectification order under section 154 read with section 143(3) of the Act dated 10.12.2024, whereby the disallowance of Rs.8.97 crores on account of other employee benefit expenses was reduced by Rs.1,79,44,333/-, and accordingly, the disallowance on this issue stood at Rs.7,17,55,667/-.

3 4. After considering the submissions of the assessee, the Ld. CIT(A) deleted the addition of Rs.9.68 crores on account of ESOP expenses and Rs.21,92,36,162/- on account of loss on sale of investment in subsidiary company. However, the Ld. CIT(A) sustained the addition of Rs.59,49,06,130/- on account of receipt of share premium and Rs.7,17,55,667/-on account of disallowance of other employee benefit expenses. Accordingly, the Ld. CIT(A) partly allowed the appeal of the assessee. 5. Aggrieved by the order of the Ld. CIT(A), both the assessee as well as the Revenue are in appeal before this Tribunal. We first take up the appeal of the assessee in ITA No.2170/Hyd/2025. ITA NO. 2170/HYD/2025 (Assessee’s Appeal) : 6. The assessee has raised the following grounds of appeal:

6 salary expenditure and accordingly restricted the allowance to Rs.3.35 crores and disallowed the balance amount, including Rs.9.68 crores on account of ESOP expenses and Rs.7,17,55,667/- on account of other employee benefit expenses. The Ld. AR further invited our attention to the detailed salary statement placed at page nos. 161 to 163 of the paper book containing PAN, name, designation, and amount of salary paid to each employee and submitted that complete details were furnished before the Ld. AO. He also referred to quarterly salary payment details along with TDS deductions filed before the Ld. AO which are placed at page nos. 101 to 127 of the paper book. It was contended that despite furnishing all these details, the Ld. AO has not pointed out any specific defect or discrepancy and has made the disallowance purely on an ad hoc basis. The Ld. AR further submitted that in the immediately preceding financial year, the employee benefit expenses were 6.81 times of the revenue and applying the same ratio to the current year, the employee benefit expenses would come to Rs.43.40 crores, whereas the actual expenditure is only Rs.20.20 crores, which is much lower. It was thus submitted that both the Ld. AO as well as the Ld. CIT(A) have sustained the disallowance on ad hoc basis without proper examination of facts and without pointing out any defect, and therefore, relying on various judicial precedents contended that the same is liable to be deleted. 8. Per contra, the Ld. DR submitted that the assessee has failed to substantiate the genuineness and business nexus of the employee benefit expenses. It was contended that the expenses claimed are disproportionately high as compared to the turnover of the assessee. The Ld. DR further submitted that the assessee has not produced sufficient evidence to demonstrate that such expenditure was wholly and exclusively incurred for the purpose of

7 business and therefore supported the orders of the lower authorities.

“Further, looking to the receipts of the business which is only Rs. 67 crores against which salary expenditure is shown Rs. 20.20 crores. The assessee has shown Revenue receipt in A.Y. 2021-22 of Rs. 1.33 crore and salary expense made of Rs. 9.06 crores It appears that the assessee company has shown huge expenses on account of salary. Salary expense growth is not comparable with Revenue receipts. Hence, only 50% of the Revenue Receipts of Rs 6.7 crore as salary expenditure on maximum higher side appears reasonable. Therefore, expenditure of Rs. 18.65 crore (Rs 22crore-Rs. 3.35 crore) is not allowable as business expenditure. Since Rs. 9.68 crore on account of ESOP is already disallowed as discussed above, the remaining amount of Rs. 8.97 crore is being disallowed and added back to the income of assessee. (Addition:- 8,97,00,000/-)” 10. On perusal of the above, it is observed that the Ld. AO has made the disallowance primarily on the basis of comparison between the revenue and employee benefit expenses and restricted the same to 50% of the revenue, which is purely an ad hoc approach. At the same time, the assessee has also attempted to justify the claim on the basis of ratio of earlier years. In our considered opinion, both these approaches are not determinative of the allowability of expenditure under the Act. At the same time, on perusal of the material placed on record, we find that certain crucial aspects require proper verification. As per the details furnished by the assessee placed at page No. 127 of the paper book, the total gross salary paid by the assessee is Rs.16.33 crores, which is to the following effect:

9 assessee has furnished certain details, the verification of supporting vouchers, actual rendering of services by employees, and the nexus of such expenditure with the business activity of the assessee has not been comprehensively examined by the Ld. AO. In view of the present facts, we are of the considered opinion that the issue requires fresh examination and can’t be decided on the basis of any judicial precedents without such factual verification. Accordingly, we set aside this issue to the file of the Ld. AO with a direction to verify the claim of employee benefit expenses, reconcile the difference between the salary figures, and examine the genuineness and business nexus of such expenditure. The assessee is directed to furnish all necessary evidences and reconciliation statements. The Ld. AO shall decide the issue afresh in accordance with law after providing adequate opportunity of being heard to the assessee. Accordingly, Ground No. 1 of the appeal of the assessee is allowed for statistical purposes. 13. Ground No. 2 of the appeal of the assessee is related to addition of Rs.59,49,06,130/- on account of Share Premium. In this regard, the Ld. AR submitted that during the course of assessment proceedings, the Ld. AO observed that the assessee has received share premium amounting to Rs.59,49,06,130/-. The Ld. AR invited our attention to page No. 4 of the assessment order and submitted that, the Ld. Ld. AO, on the ground that the assessee has not substantiated the receipt of such share premium, made an addition of Rs.59,49,06,130/- under section 69A of the Act. The Ld. AR further invited our attention to para no. 5.4.2 of the order of the Ld. CIT(A) and submitted that the Ld. CIT(A) has confirmed the addition by referring to the provisions of section 56(2)(viib) of the Act. In this regard, the Ld. AR invited our attention to the provisions of section 69A of the Act and submitted that the said provision is applicable only in a case where the assessee is found to be the

10 owner of any money, bullion, jewellery or other valuable article which is not recorded in the books of account. It was submitted that in the present case, the entire amount of share premium is duly recorded in the books of account of the assessee and therefore, the provisions of section 69A of the Act are not applicable. The Ld. AR thus contended that the addition made by the Ld. AO under section 69A of the Act is liable to be deleted. 14. Per contra, the Ld. DR invited our attention to the assessment order and submitted that the Ld. AO has categorically mentioned that the assessee has not submitted any evidence such as calculation of fair market value of share premium as required under the provisions of the Act. It was submitted that though the Ld. AO has mentioned section 69A, in substance, the addition has been made on account of failure of the assessee to substantiate the share premium received with reference to fair market value as required under the provisions of the Act. The Ld. DR further invited our attention to para Nos. 5.4.1 to 5.4.5 of the order of the Ld. CIT(A) and submitted that the Ld. CIT(A), after analyzing the provisions of section 56(2)(viib) of the Act, has clearly held that the assessee has failed to substantiate the value adopted for issue of shares in accordance with the Discounted Cash Flow (“DCF”) method or Net Asset Value (“NAV”) method as prescribed. It was further submitted that the assessee has not filed any valuation report as mandated under the law. 14.1 The Ld. DR further submitted that the assessee is a continuous loss-making company and invited our attention to the audit report placed at page No. 8 of the paper book, wherein at clause (xvii), the auditor has stated that the company has incurred cash losses in the current financial year as well as in the immediately preceding financial year amounting to Rs.23.35 crores and Rs.12.16 crores respectively. Further, referring to Note No. 37

11 of the audited financial statements placed at page No. 38 of the paper book, it was submitted that the assessee itself has recorded that due to continuous losses, there is a doubt about the ability of the company to continue as a going concern. It was thus contended that in such circumstances, issuance of shares at a huge premium is not justified. Accordingly, it was submitted that the assessee has failed to comply with the mandatory requirement of justifying the share premium by filing valuation report and therefore, the addition made by the lower authorities deserves to be upheld. 15. In rejoinder, the Ld. AR submitted that the assessee was never asked by the lower authorities to furnish any valuation report and therefore, no adverse inference can be drawn on that account. Further, as regards the contention of the Revenue regarding the going concern status of the assessee, the Ld. AR submitted that in Note No. 37 itself of the audited financial statements, proper explanation has been provided justifying the going concern assumption. Accordingly, the Ld. AR submitted that the addition made by the Ld. AO is liable to be deleted. 16. We have carefully considered the rival submissions and perused the material available on record including the case laws relied upon. We have also gone through the assessment order, order of the Ld. CIT(A), and the documents placed in the paper book. There is no dispute about the fact that the assessee has not submitted any valuation report before the Ld. AO, the Ld. CIT(A), and even before us, as mandated under section 56(2)(viib) of the Act read with Rule 11UA of the Income-tax Rules, 1962 (“the Rules”) to justify the fair market value of the shares issued at premium. It is also an undisputed fact that the assessee has not substantiated the justification for issuance of shares at premium so as to come out of the purview of section 56(2)(viib) of the Act. The contention of the assessee that it was never asked to furnish the valuation report

12 cannot be accepted. We have gone through the show cause notice issued by the Ld. AO dated 05.03.2024 placed at page No. 82 of the paper book, which is to the following effect:

14 through the relevant portion of page no.4 of the assessment order, which is to the following effect:

“With regard to the share premium received by the assessee company during the year of Rs.59,49,06,130/-, the assessee submitted in its reply that the Cholamandalam Investment and Finance Company Ltd and R. Prahuram, the Managing Director has acquired the shares of company at premium and the said premium of Rs.59,49,06,130/- has been received from both of them and due to Ind-AS Adjustment. In this regard, the assessee has not submitted any evidence such as calculation of Fair market value of share premium as per Income Tax Rules, etc. The assessee has also not furnished the calculation of DCF method which has been stated in its reply. Since the assessee has earned regular losses in previous years, the calculation of huge share premium apparently not appears appropriate. Therefore, the share premium so introduced by the assessee appears unexplained introduction of money on account of share premium. Therefore, the amount of Rs.59,49,06,130/- is being added as unexplained money under section 69A of the I. T. Act, 1961 and tax is calculated as per the provisions of section 115BBE of Income Tax Act, 1961. (Addition - Rs.59,49,06,130/-)” 18. We have also gone through para nos. 5.4.1 to 5.4.5 of the order of the Ld. CIT(A), which is to the following effect:

16 19. On perusal of the above, we find that both the authorities have clearly brought out that the addition is on account of share premium not being substantiated by the assessee with reference to fair market value as required under the provisions of the Act. Therefore, in our considered opinion, merely because the Ld. AO has mentioned section 69A of the Act, the same cannot override the substance of the addition, which is clearly with respect to unexplained share premium falling within the ambit of section 56(2)(viib) of the Act. In this regard, we have gone through the decision of the Hon’ble Supreme Court in the case of P.K. Palanisamy v/s N. Arumugham & Anr dated 23.07.2009, wherein, at para no. 13 of the order, the Hon’ble Supreme Court has held that “Only because a wrong provision was mentioned by the appellant, the same, in our opinion, by itself would not be a ground to hold that the application was not maintainable or the order passed thereon would be a nullity”. Hence, the Hon’ble Supreme Court has held that the substance of the transaction and not the label of the Article governs the taxability. Therefore, in our considered opinion, mentioning of a wrong section would not invalidate the addition if the same is otherwise sustainable in law on the basis of material on record. Further, the financial position of the assessee, as brought on record by the Ld. DR, including continuous losses and doubts regarding going concern, also does not support the justification for issuance of shares at a substantial premium, particularly in the absence of any valuation report. In view of the present facts and circumstances, we are of the considered opinion that the assessee has failed to discharge the onus cast upon it under section 56(2)(viib) of the Act read with Rule 11UA of the Rules. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) in confirming the addition of Rs.59,49,06,130/-.

17 Accordingly, the ground no.2 of the appeal of the assessee is dismissed.

ITA NO. 2361/HYD/2025 (Revenue’s Appeal) : 22. The Revenue has raised the following grounds of appeal:

19 list of employees to whom ESOP benefits were granted, however, no supporting evidences were furnished to justify the genuineness of the expenditure. It was submitted that the assessee failed to furnish crucial evidences such as details of vesting of options, working of accrual of liability, valuation of shares for determining the discount, and evidence demonstrating actual rendering of services by employees during the vesting period. The Ld. DR further invited our attention to para 5.2.1 of the order of the Ld. CIT(A) and submitted that the Ld. CIT(A) has allowed the claim of the assessee merely by relying upon judicial precedents without verifying whether the conditions laid down in the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Biocon Ltd. (2020) 121 Taxmann.com 351 were satisfied in the present case. Accordingly, the Ld. DR prayed that the order of the Ld. CIT(A) be set aside and that of the Ld. AO be restored. 24. Per contra, the Ld. AR submitted that the ESOP expenditure represents employee compensation incurred wholly and exclusively for the purpose of business. It was contended that the assessee had furnished all primary details before the Ld. AO, however, without properly considering those documents, the Ld. AO disallowed the claim. The Ld. AR submitted that the Ld. CIT(A), after appreciating the facts of the case, has rightly allowed the claim of the assessee. In support of the same, the Ld. AR invited our attention to the details of ESOP expenditure claimed during the year under consideration, which included vesting period pertaining to financial years 2017–18, 2019–20 and 2021–22, placed at page no. 102 of the paper book. The Ld. AR further invited our attention to the details of shares allotted to employees, including name of employees, address, number of shares allotted and amount paid towards such allotment, placed at page nos. 191 to 201 of the paper book. It was submitted that the assessee had furnished all primary

20 evidences before the Ld. AO, including details of employees, allotment of shares, bank statements evidencing receipt of share capital, and board resolutions approving such allotment. The Ld. AR further submitted that ESOP is a recognized mode of compensating employees and the difference between the fair market value and the exercise price constitutes business expenditure. It was contended that the claim of the assessee is fully supported by the decision of the Hon’ble Karnataka High Court in the case of CIT v. Biocon Ltd (Supra), wherein it has been held that ESOP expenditure is allowable under section 37(1) of the Act. It was further submitted that merely because certain documents were not furnished in a particular format, the claim cannot be denied when the expenditure is otherwise genuine and incurred for business purposes. Accordingly, the Ld. AR prayed that the order of the Ld. CIT(A) be upheld.

“6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under Section 37 of the Act. Before

21 proceeding further, it is apposite to take note of Section 37(1) of the Act, which reads as under: "Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, “Profits and Gains of Business or Profession”. 7. Thus, from perusal of Section 37 (1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or expended and does not contain a requirement that there has to be a payout. If an expenditure has been incurred, provision of Section 37(1) of the Act would be attracted. It is also pertinent to note that Section 37 does not envisage incurrence of expenditure in cash. 8. Section 2(15A) of the Companies Act, 1956 defines 'employees stock option' to mean option given to the whole-time directors, officers or the employees of the company, which gives such directors, officers or employees, the benefit or right to purchase or subscribe at a future rate the securities offered by a company at a free determined price. In an ESOP a company undertakes to issue shares to its employees at a future date at a price lower than the current market price. The employees are given stock options at discount, and the same amount of discount represents the difference between market price of shares at the time of grant of option and the offer price. In order to be eligible for acquiring shares under the scheme, the employees are under an obligation to render their services to the company during the vesting period as provided in the scheme. On completion of the vesting period in the service of the company, the option vest with the employees. 9. In the instant case, the ESOPs vest in an employee over a period of four years i.e., at the rate of 25%, which means at the end of first year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options. It is well settled in law that if a business liability has arisen in the accounting year, the same is permissible as deduction, even though, liability may have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a quantification of liability, which takes place at a future date. The tribunal has therefore, rightly placed reliance on decisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. 10. From perusal of Section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the

22 assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of Section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal, therefore, in paragraphs 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under Section 37(1) of the Act subject to fulfilment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of accounts, which has been prepared in accordance with Securities And Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.” 26. On perusal of the above, we find that the Hon’ble Karnataka High Court has clearly held that such expenditure, though not involving immediate cash outflow, represents an ascertained liability and is required to be spread over the vesting period. However, at the same time, it is equally settled that the assessee is required to substantiate the quantification of such expenditure on a scientific and reasonable basis by furnishing necessary supporting evidences such as valuation of shares, vesting schedule, and working of ESOP cost. On perusal of the material available on record, we find that though the assessee has furnished certain details such as list of employees, details of allotment, and bank statements, the complete set of evidences required for proper verification of the claim, including valuation report, vesting-wise working, and basis of computation of ESOP expenditure, has not been placed on record in a comprehensive manner. At the same time, it cannot be denied that the assessee has incurred expenditure on account of ESOP, which is in the nature of employee compensation. However, in the absence of necessary supporting documents, the quantum of expenditure claimed by the assessee cannot be correctly ascertained. We have also gone through the para no. 5.2.1 of the order of the Ld. CIT (A), which is to the following effect:

24 Vs. Biocon Ltd (Supra) after providing reasonable opportunity of being heard to the assessee. Accordingly, the ground nos.1 & 2 raised by the Revenue are allowed for statistical purposes. 28. Ground Nos. 3 to 6 raised by the Revenue are related to the deletion made by the Ld. CIT(A) of the addition of Rs.21,92,36,162/- made by the Ld. AO on account of loss on sale of investment in subsidiary company, namely M/s Payswiff Pte. Ltd., Singapore. The Ld. DR submitted that during the year under consideration, the assessee had claimed loss on sale of investment in subsidiary company amounting to Rs.21,92,36,162/- under the head “income from business”, which has been disallowed by the Ld. AO. Inviting our attention to the relevant portion of page no.4 of the assessment order, the Ld. DR submitted that the Ld. AO disallowed the claim on the ground that the assessee failed to furnish proper evidences to substantiate the said loss. The Ld. DR further invited our attention to para nos. 5.3.1 and 5.3.2 of the order of the Ld. CIT(A) and submitted that the assessee had filed a valuation report from an independent valuer before the Ld. CIT(A) with regard to determination of fair market value of the subsidiary company. It was contended that the said valuation report was not filed before the Ld. AO and therefore constituted additional evidence. It was submitted that the Ld. CIT(A), without calling for a remand report from the Ld. AO as mandated under Rule 46A of the Income Tax Rules, 1962 (“the Rules”), proceeded to allow the claim of the assessee, which is in violation of the provisions of Rule 46A of the Rules and the principles of natural justice. The Ld. DR further submitted that the Ld. CIT(A) allowed the claim of the assessee by relying upon judicial precedents including the decision of Hon’ble Bombay High Court in the case of CIT Vs. Colgate Palmolive (India) Ltd.(2015) 59 Taxmann.com 139, without verifying whether the investment made by the assessee in the subsidiary company was in

25 the nature of commercial expediency or not. It was contended that the question whether the investment was made for commercial expediency is a matter of factual verification, which has not been carried out by the Ld. CIT(A). Accordingly, the Ld. DR prayed that the issue be set aside to the file of the Ld. AO for proper verification. 29. Per contra, the Ld. AR submitted that the investment in the subsidiary company was made purely for business purposes and on account of commercial expediency. It was submitted that due to adverse market conditions and COVID disruptions, the subsidiary could not sustain its business operations and therefore the investment was disposed of resulting in loss. Inviting our attention to the annexure to show cause notice (“SCN”) dated 13.01.2024 issued by the Ld. AO placed at page no. 187 of the paper book, the reply filed by the assessee to such SCN placed at page no. 109, and further submissions of the assessee before the Ld. AO placed at page no. 100, along with copies of board resolutions placed at page no. 184 of the paper book, the Ld. AR submitted that the assessee had furnished all relevant details and documents including financial statements of the subsidiary company and board resolutions approving the sale of shares during the assessment proceedings. The Ld. AR further submitted that the Ld. CIT(A), after appreciating the facts and relying on the decision of Hon’ble Bombay High Court in the case of CIT vs Colgate Palmolive (India) Ltd. (Supra), has rightly held that the loss incurred on sale of investment made for business purposes is allowable as business loss. Further, with regard to the objection of the Ld. DR on admission of additional evidence, the Ld. AR fairly submitted that the valuation report filed before the Ld. CIT(A) was in the nature of additional evidence. However, inviting our attention to para 5.3.2 of the order of the Ld. CIT(A), it was submitted that the Ld. CIT(A) has not relied upon the said valuation report while allowing the claim of

26 the assessee. Accordingly, it was submitted that there is no infirmity in the order of the Ld. CIT(A). 30. We have considered the rival submissions and perused the material available on record including the case laws relied upon. In this regard, we have gone through para nos. 5.3.1 and 5.3.2 of the order of the Ld. CIT(A), which is to the following effect:

28 31. On perusal of the above, we find that the Ld. CIT(A) has recorded the fact that the assessee had submitted valuation report before him. Therefore, the contention of the Ld. AR that the Ld. CIT(A) has not considered the valuation report is factually not correct and the same is not acceptable. Further, we find that the valuation report, which constitutes additional evidence, was admittedly filed before the Ld. CIT(A). However, the Ld. CIT(A) has not called for a remand report from the Ld. AO as mandated under Rule 46A of the Rules. Thus, the Ld. CIT(A) has violated the statutory provisions contained in Rule 46A of the Rules as well as the principles of natural justice. Furthermore, there is no dispute with regard to the settled legal position that if the investment is made in a subsidiary company on account of commercial expediency, the loss arising on sale of such investment can be treated as allowable business loss under section 37(1) of the Act. However, in the present case, we find that the Ld. CIT(A) has failed to establish the existence of commercial expediency by verifying necessary evidences to demonstrate that the investment made by the assessee in the subsidiary company was for business purposes. In view of the present facts, we are of the considered opinion that the matter requires fresh examination at the level of the Ld. AO. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore the matter to the file of the Ld. AO with a direction to examine the additional evidence filed by the assessee and to verify whether the investment made by the assessee in the subsidiary company was in the nature of commercial expediency. The assessee is also directed to furnish necessary evidences before the Ld. AO to establish that the investment made in the subsidiary company was for business purposes and in the nature of commercial expediency. The Ld. AO shall examine the same and decide the issue afresh in accordance with law after providing reasonable opportunity of being

29 heard to the assessee. Accordingly, Ground Nos. 3 to 6 raised by the Revenue are allowed for statistical purposes. 32. In the result, appeal of the Revenue in ITA No.2361/Hyd/2025 is allowed for statistical purposes. 33. To sum up, the appeal of the assessee in ITA No.2170/Hyd/2025 is partly allowed for statistical purposes and the appeal of the Revenue in ITA No.2361/Hyd/2025 is allowed for statistical purposes. Order pronounced in the Open Court on 29th April, 2026. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 29th April, 2026. Vinodan/sps Copy to: S.No Addresses 1 Payswiff Technologies Pvt. Ltd, H.No.8-2-618/2, 5th Floor, Reliance Humsafar (Edifice) Road No.11, Banjara Hills, Hyderabad 500034 2 Assistant Commissioner of Income Tax Circle 5(1) IT Towers, Hyderabad 500004/DY.CIT Circle 5(1) Hyderabad 3 Pr. CIT - Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order

VADREVU Digitally signed by VADREVU PRASADA PRASADA RAO Date: 2026.04.29 RAO 15:21:12 +05'30'