Ramamoorthy Sridharan, Hyderabad V. ITO,Ward 12(4), Hyderabad

ITA 181/HYD/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0334 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 06-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: SANJIV CHAUDHARY
• Keywords: Reopening of assessment; Residential status; Salary income; Double taxation relief; Bonafide belief; Question of law; Cost of acquisition; Fair market value; Wrong claim
• Section: 143(3); 147; 90

Judgement Text

ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 181/HYD/2014 (ASSESSMENT YEAR: 2004-05) SHRI RAMAMOORTHY SRIDHARAN PLOT NO.1060 A, ROAD NO:52 JUBILEE HILLS, HYDERABAD PAN: AETPR 5134 D VS. INCOME TAX OFFICER WARD 12(4) AAYAKAR BHAVAN HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SANJIV CHAUDHARY FOR REVENUE : SHRI RAMAKRISHNA BANDI, DR DATE OF HEARING : 24/02/2015 DATE OF PRONOUNCEMENT : 17 /04/2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT (A)-V HYDERABAD, DATED 30.10.2013 RELATING TO A.Y 2004-05. 2. BRIEFLY STATED, ASSESSEE IS AN EMPLOYEE OF MICRO SOFT INDIA (R&D) PRIVATE LIMITED, FILED HIS RETURN OF INCOME F OR A.Y 2004-05 ON 1.11.2004 UNDER THE RESIDENTIAL STATUS OF RESID ENT AND ORDINARILY RESIDENT AS PER SECTION 6(6) OF THE ACT . IN THE RETURN OF INCOME, HE DISCLOSED THE INCOME EARNED GLOBALLY DURING THE SAID YEAR. HE DISCLOSED CAPITAL GAINS FROM SALE OF MICROSOFT SHARES ACQUIRED BY HIM BY EXERCISING THE STOCK OPTI ONS GRANTED TO HIM UNDER EMPLOYEE STOCK OPTION PLAN (ESOP) BY HIS ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 2 OF 14 ERSTWHILE EMPLOYER MICROSOFT CORPORATION, USA. THE SHARES SOLD DURING A.Y 2004-05 WERE ACQUIRED BY EXERCISING A PA RT OF THE STOCK OPTIONS ON 05.11.1996 (A.Y 1997-98) AND OTHER PART ON 30.06.1999 (A.Y 2000-01). 3. FOR A.Y 1997-98 AND A.Y 2000-01, ASSESSEE WAS A RESIDENT OF THE USA AS PER ITS TAX LAWS AND WAS NOT PRESENT IN INDIA. AT THE TIME OF EXERCISE OF THE STOCK OPTIONS, I.E. DUR ING A.Y 1997-98 AND A.Y 2000-01, THE INCOME BEING THE DIFFERENCE BE TWEEN THE FAIR MARKET VALUE (FMV) OF THE SHARES AS ON THE DAT E OF EXERCISE AND THE GRANT PRICE WAS TAXED IN THE USA AS SALARY INCOME AS PER THE TAX LAWS OF USA. 4. IN THE RETURN OF INCOME FILED FOR A.Y 2004-05 FO R THE PURPOSE OF COMPUTATION OF THE CAPITAL GAINS FROM TH E SALE OF SHARES ACQUIRED THROUGH EXERCISE OF STOCK OPTIONS I N A.Y 1997- 98 AND A.Y 2001-01, ASSESSEE HAD CONSIDERED FMV AS COST OF ACQUISITION OF SUCH SHARES. 5. AO IN THE ASSESSMENT ORDER PASSED U/S 147 R.W. 1 43(3) OF THE ACT RECOMPUTED THE LONG TERM CAPITAL GAINS FROM SALE OF SHARES ACQUIRED UNDER ESOP BY CONSIDERING THE GRANT PRICE AS COST OF ACQUISITION AS AGAINST FMV THAT WAS CONSIDE RED IN THE RETURN OF INCOME, THEREBY INCREASING THE AMOUNT OF LONG TERM CAPITAL GAINS BY RS.4,35,17,306. 6. BEING AGGRIEVED BY THE AFORESAID ORDER U/S 147 R .W.S. 143(3) OF THE ACT, ASSESSEE PREFERRED APPEAL BEFORE THE LD CIT (A) AND BEFORE THE ITAT HYDERABAD. THE ITAT HAD HELD TH AT UNLESS ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 3 OF 14 THE INCOME BEING THE DIFFERENCE BETWEEN FMV AND GRA NT PRICE OF THE SHARES HAS BEEN RECOGNIZED UNDER SUB SECTION (2 ) OF SECTION 17 OF THE ACT, ONE CANNOT CONSIDER THE FMV AS COST OF ACQUISITION AS STIPULATED IN SECTION 49(2AA) OF THE ACT. 7. AGAINST THE ORDER OF THE ITAT, ASSESSEE HAS FILE D APPEAL BEFORE THE HON'BLE ANDHRA PRADESH HIGH COURT AND TH E HON'BLE HIGH COURT HAS ADMITTED THE ASSESSEES APPEAL ON TH IS ISSUE. 8. THE AO IN THE MEANTIME, PASSED PENALTY ORDER DAT ED 28.02.2011 LEVYING PENALTY OF RS.95,73,807 U/S 271( 1)(C) OF THE ACT, BEING 100% OF THE TAX IMPACT OF INCREASE IN TH E AMOUNT OF LONG TERM CAPITAL GAINS ON SALE OF MICROSOFT SHARES ACQUIRED UNDER ESOP BY ALLEGING THAT THE ASSESSEE HAD FURNIS HED INACCURATE PARTICULARS OF INCOME IN RESPECT OF CAPI TAL GAINS COMPUTED IN THE RETURN OF INCOME. 9. BEFORE THE CIT (A), THE ASSESSEE FURNISHED ALL F ACTS AND MATERIAL TO COMPUTATION OF CAPITAL GAINS AND EXPLAN ATIONS OFFERED BEING BONAFIDE, THE PENALTY PROCEEDINGS U/S 271(1)( C) OF THE ACT ARE NOT APPLICABLE. 10. IN THE INSTANT CASE, ASSESSEE WAS GRANTED 20,28 5 STOCK OPTIONS UNDER ESOP ON 17.11.1988 AT GRANT PRICE OF US$ 0.3194 PER SHARE AND 17,450 STOCK OPTIONS WERE GRANTED ON 25.07.1989 AT GRANT PRICE OF US$ 0.3611 PER SHARE. ASSESSEE EX ERCISED 20,285 STOCK OPTIONS ON 5.11.1996 AND 17,450 STOCK OPTIONS AS ON 30.06.1999. THE PREVAILING FAIR MARKET VALUE (FM V) OF ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 4 OF 14 MICROSOFT SHARES ON 5.11.1996 WAS US$ 8.8087 PER SH ARE AND ON 30.06.1999 WAS US$ 4,49,063 PER SHARE. 11. AT THE TIME OF EXERCISE OF STOCK OPTIONS ON 5. 11.1996 AND 30.06.1999 RESPECTIVELY THE ASSESSEE HAD PAID FEDER AL TAXES IN THE USA ON THE DIFFERENCE BETWEEN FMV OF SHARE AND GRANT PRICE OF SHARE. THE FACT OF PAYMENT OF TAXES BY THE ASSES SEE IN THE USA AT THE TIME OF EXERCISE OF STOCK OPTIONS WAS ACCEPT ED BY THE ERSTWHILE CIT (A) (IN CONTEXT OF ALLOWING FOREIGN TAX CREDIT) IN THE MODIFIED APPELLATE ORDER (DATED 06.05.2008). 12. LATER ON THE EXERCISE SHARES WERE SOLD BY THE A SSESSEE DURING THE RELEVANT A.Y ON 26.08.2003. WHILE COMPUT ING THE LONG TERM CAPITAL GAINS FROM SALE OF SAID SHARES, THE AS SESSEE HAD CONSIDERED THE FMV ON THE DATE OF EXERCISE OF SHARE S AS COST OF ACQUISITION OF SHARES. THE PREVAILING FMV ON THE DA TE OF EXERCISE OF STOCK OPTIONS WAS CONSIDERED AS COST OF ACQUISIT ION OF THE SHARES ON THE BASIS OF ASSESSEES BONAFIDE UNDERSTA NDING OF THE PROVISIONS OF THE ACT APPLICABLE DURING THE RELEVAN T A.Y AND THE FACT THAT FEDERAL TAXES WERE ALREADY WITHHELD/PAID IN THE USA AT THE TIME OF EXERCISE OF STOCK OPTIONS ON THE DIFFER ENCE BETWEEN FMV AND GRANT PRICE. 13. IT WAS SUBMITTED BEFORE THE CIT (A) THAT IN THE RETURN OF INCOME FILED FOR RELEVANT A.Y THE PARTICULARS OF CO MPUTATION OF LONG TERM CAPITAL GAINS ARISING FROM SALE OF ESOP S HARES ON 23.08.2003 WAS ADEQUATELY DISCLOSED BY THE ASSESSEE BYENCLOSING A STATEMENT. THE COST OF ACQUISITION OF SHARES WERE CONSIDERED AS UNDER: ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 5 OF 14 S.NO NO. OF SHARES SOLD DATE OF EXERCISE OF SHARES FMV ON DATE OF EXERCISE OF SHARES (IN US$) COST OF ACQUISITION OF SHARES (IN US$) 1 20,285 05.11.96 8,087 1,78,603 2 17,450 30.06.99 4,49,063 7,83,615 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSEE SUBMITTED THE TRANSACTION DETAIL STATEMENTS VIDE SU BMISSION DATED 17.12.2007 AS DOCUMENTARY PROOF OF FMV OF US$ 88,047 ON 5.11.1996 AND FMV OF US$ 4,49,603 ON 30.06.1999 RESPECTIVELY. IN THE SAID STATEMENTS, THE DETAILS O F FEDERAL TAXES WITHHELD/PAID BY THE ASSESSEE ON SAID DATES ON THE DIFFERENCE BETWEEN FMV AND GRANT PRICE WERE ALSO GIVEN. THE TR ANSACTION DETAIL STATEMENTS CONTAIN ALL DETAILS WHICH ARE REQ UIRED TO COMPUTE THE CAPITAL GAINS AND THERE IS NO ALLEGATIO N FROM THE AO THAT THERE ARE ANY INCORRECT PARTICULARS/FACTS SUBM ITTED BY THE ASSESSEE. 15. DURING THE COURSE OF PROCEEDINGS BEFORE THE CIT (A), ASSESSEE REITERATED HIS BONAFIDE UNDERSTANDING/EXPL ANATION, VIDE SUBMISSION DATED 24.12.2007 TO EXPLAIN AS TO WHY FM V ON THE DATE OF EXERCISE WAS CONSIDERED AS COST OF ACQUISIT ION FOR THE COMPUTATION OF LONG TERM CAPITAL GAINS IN THE RETUR N OF INCOME FILED FOR THE RELEVANT A.Y. THE LD AR SUBMITTED THA T THE ISSUE WHETHER THE DIFFERENCE BETWEEN GRANT PRICE AND EXER CISE PRICE IS TO BE SUBJECTED TO TAX AS EMPLOYMENT/SALARY INCOME OR AS CAPITAL GAINS ON SUBSEQUENT SALE OF SHARES HAS BEEN CONTROV ERSIAL AND THE PROVISIONS IN RESPECT OF THE SAME HAS BEEN DIFF ERENT FOR DIFFERENT A.YS. UPTO A.Y 2000-01 THERE WAS NO SPECI FIC PROVISIONS IN THE ACT TO DEAL WITH THIS ISSUE. HOWEVER, THE GE NERAL VIEW THEN ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 6 OF 14 WAS THAT THE DIFFERENCE BETWEEN GRANT PRICE AND EXE RCISE PRICE SHOULD BE TREATED AS TAXABLE PERQUISITE UNDER THE H EAD SALARY. THEREFORE, IF THE ASSESSEE WOULD HAVE BEEN RESIDEN T IN INDIA, SUCH INCOME IN RESPECT OF STOCK OPTIONS EXERCISED I N A.Y 1997-98 AND A.Y 2000-01 WOULD HAVE BEEN TAXED UNDER THE HEA D SALARY. HOWEVER, AS THE ASSESSEE WAS NON RESIDENT IN A.Y 1997-98 AND A.Y 2000-01, HE WAS NOT LIABLE TO INDIAN INCOME TAX , BUT WAS SUBJECT TO TAXATION ON THE DIFFERENCE BETWEEN GRANT PRICE AND EXERCISE PRICED BASED ON FMV ON THE SHARES IN THE U SA AND ACCORDINGLY PAID US FEDERAL TAXES. 16. IT WAS SUBMITTED THAT THE ABOVE CONCEPT OF TAXA TION BETWEEN GRANT PRICE AND EXERCISE PRICE OF ESOP AS P ERQUISITE UNDER THE HEAD SALARY AND CORRESPONDING COMPUTATI ON OF CAPITAL GAINS BY ADOPTING COST OF ACQUISITION AS FMV ON THE DATE OF EXERCISE WAS BROUGHT INTO FORCE BY AN AMENDMENT TO SECTION 17(2) AND SECTION 49(2AA) BY THE FINANCE ACT, 2000 W.E.F. A.Y 2001-02. IN IT WAS STATED THAT ASSESSEE WAS OF THE BONAFIDE VIEW THAT FOR COMPUTATION OF LONG TERM CAPITAL GAIN, FMV ON THE DATE OF EXERCISE IS TO BE CONSIDERED AS COST PARTICULARL Y WHEN THE ASSESSEE HAD ALREADY BEEN SUBJECTED TO TAXATION OF DIFFERENCE AMOUNT BETWEEN GRANT PRICE AND EXERCISE PRICE AS SA LARY INCOME IN THE USA. THEREFORE, IT WAS ARGUED THAT THE EXPLA NATION OFFERED BY THE ASSESSEE IS BONAFIDE AND CANNOT BE REJECTED. 17. IT WAS POINTED OUT BY THE LD AR BEFORE THE CIT (A) THAT THE PENALTY PROVISIONS OF SECTION 271(1)(C) OF THE ACT CAN BE INVOKED, IF THE ASSESSEE HAD EITHER CONCEALED OR FURNISHED INACCURATE PARTICULARS OF ITS INCOME. IN THE PENALTY ORDER, E VEN THE AO HAS ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 7 OF 14 NOT ALLEGED CONCEALMENT OF INCOME BY THE ASSESSEE. AS PER EXPLANATION (1) TO SECTION 271(1)(C) OF THE ACT, IN CASE THE ASSESSEE HAD DISCLOSED MATERIAL FACTS TO THE INCOME AND THE EXPLANATION OFFERED BY HIM IS BONAFIDE, THE DISPUTE D ADDITION CANNOT BE TREATED AS FURNISHING OF INACCURATE PARTI CULARS OF INCOME AND THEREFORE, PROVISIONS OF SECTION 271(1)( C) OF THE ACT WILL NOT APPLY. 18. IT WAS AGAIN STRESSED THAT THE ASSESSEE HAS NOT FURNISHED ANY INACCURATE PARTICULARS OF HIS INCOME AS REGARDS LONG TERM CAPITAL GAINS ARISING FROM SALE OF ESOP SHARES IN T HE RETURN OF INCOME FILED FOR RELEVANT A.Y. ALSO THERE WAS NO FA ILURE ON THE APRT OF THE ASSESSEE TO OFFER ANY NECESSARY BONAFID E EXPLANATIONS IN RESPECT OF THE SAID TRANSACTION BEFORE THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS. IN THIS REGARD R ELIANCE WAS PLACED ON THE JUDICIAL PRONOUNCEMENTS OF HON'BLE SU PREME COURT IN THE FOLLOWING CASES: RELIANCE PETRO PRODUCTS (P) LTD (322 ITR 158), IT H AS BEEN HELD AS UNDER: THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF THE EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES WERE NOT FOUND TO BE INACCUR ATE NOR COULD BE VIEWED AS CONCEALMENT OF INCOME ON ITS PART. IT WAS UPTO THE AUTHORITIES TO ACCEPT ITS CLA IM IN THE RETURN OR NOT. IF WE ACCEPT THE CONTENTION OF T HE REVENUE, THEN IN CAE OF EVERY RETURN WHERE THE CLAI M MADE IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C ). THAT IS CERTAINLY NOT THE INTENDMENT OF THE LEGISLA TURE IN THE CASE OF CEMENT MARKETING COMPANY OF INDIA LT D VS. ASSTT. CST (124 ITR 15 (1980) IT HAS BEEN OBSERVED THAT: ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 8 OF 14 WHERE THE ASSESSEE DOES NOT INCLUDE A PARTICULAR I TEM UNDER A BONAFIDE BELIEF THAT HE IS NOT LIABLE SO TO INCLUDE IT, IT WOULD NOT BE RIGHT TO CONDEMN THE RE TURN AS A FALSE RETURN INVITING IMPOSITION OF PENALTY . IN HINDUSTAN STEEL LTD VS. STATE OF ORISSA (83 ITR 26 (1972) IT HAS BEEN OBSERVED THAT: THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT, OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF TH AT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF HOE LEATHER GARMENTS LTD (2010) IN ITA NO.38/HYD/07 OBSERVED AS UNDER: WHENEVER INCOME RETURNED BY THE ASSESSEE IS ENHANCED BY THE AO, THE PENAL PROVISION IS NOT AUTOMATICALLY ATTRACTED. THE PENAL PROVISION IS APPLICABLE ONLY IF THE ENHANCEMENT IS ON ACCOUNT OF SOME INCOME WITH THE ASSESSEE IS FOUND TO HAVE EARNED AND CONCEALED. 19. THE LD AR RELIED ON CIRCULAR NO.14(XL-35) DATED 11 TH APRIL, 1955 WHEREIN IT WAS STATED THAT THE INCOME TAX OFFI CER MUST NOT TAKE ADVANTAGE OF IGNORANCE OF AN ASSESSEE. 20. AS REGARDS PAYMENT OF FEDERAL TAXES BY THE ASSE SSEE IN THE USA, AT THE TIME OF EXERCISE OF STOCK OPTIONS ON 5. 11.1996 ON 30.06.1999 RESPECTIVELY ON THE DIFFERENCE BETWEEN F MV AND GRANT PRICE, ATTENTION WAS INVITED TO THE REPORT OF OECD ON CROSS BORDER INCOME TAX ISSUES ARISING FROM EMPLOY EE STOCK OPTION PLANS WHERE IT HAS BEEN STATED THAT THE DIF FERENCE ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 9 OF 14 BETWEEN THE MARKET VALUE OF SHARES AT THE TIME OF E XERCISING OF OPTIONS AND THE AMOUNT PAID BY THE EMPLOYEE TO ACQU IRE THEM SHOULD BE CONSIDERED AS EMPLOYMENT INCOME. 21. IT WAS SUBMITTED THAT AT THE TIME OF EXERCISE O F STOCK OPTIONS DURING A.Y 1997-98 AND 2000-01 RESPECTIVELY , THE ASSESSEES RESIDENTIAL STATUS IN INDIA WAS THAT OF A NON RESIDENT AS PER SECTION 6(6)(A) OF THE ACT. ACCORD INGLY, ANY INCOME ACCRUING OR ARISING TO THE APPELLANT OUTSIDE INDIA WAS NOT LIABLE TO BE TAXED IN INDIA AS PER SECTION 5(1)(C) OF THE ACT. THEREFORE, THE BENEFIT ARISING FROM THE EXERCISE OF STOCK OPTIONS IN THE USA BEING THE DIFFERENCE BETWEEN THE FMC AND THE GRANT PRICE, WAS NOT TAXABLE IN INDIA IN THE HANDS OF THE ASSESSEE. 22. IT WAS SUBMITTED THAT AGGRIEVED BY THE TRIBUNAL S DECISION THE ASSESSEE FILED AN APPEAL ON THIS CONTENTIOUS MA TTER (I.E. SUBSTANTIAL QUESTION OF LAW) BEFORE THE HON'BLE JUR ISDICTIONAL HIGH COURT AND THE APPEAL HAS BEEN ADMITTED BY THE HON'BLE HIGH COURT ON 10.08.2011. 23. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT ADM ISSION OF AN APPEAL BY THE HON'BLE JURISDICTIONAL HIGH COURT CON FIRMS THAT THE MATTER WHETHER THE COST OF ACQUISITION OF SHARES IN THE INSTANT CASE SHOULD BE EITHER FMV ON THE DATE OF EXERCISE ( AS CONSIDERED BY THE ASSESSEE BASED ON HIS BONAFIDE UNDERSTANDING ) OR THE GRANT PRICE (AS CONSIDERED BY THE AO) HAS TWO DEBAT ABLE VIEW, WHICH WILL BE ADJUDICATED BY THE HON'BLE HIGH COURT EVENTUALLY. ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 10 OF 14 24. IT WAS FURTHER SUBMITTED BEFORE THE CIT (A) THA T NO TAX SOUGHT TO BE EVADED BY THE ASSESSEE IN THE INSTANT CASE FOR LEVY OF PENALTY U/S 271 (1)(C) OF THE ACT. 25. IN VIEW OF THE ABOVE AND WITHOUT PREJUDICE TO T HE ASSESSEES CONTENTION FOR NON LEVY OF PENALTY, IT WAS SUBMITTE D THAT AFTER CONSIDERING THE RELIEF U/S 90 OF THE ACT R.W. ARTIC LE 25(2) (A) OF THE DTAA BETWEEN INDIA AND USA, IN RESPECT OF FOREIGN T AX CREDIT OF FEDERAL TAXES PAID BY THE ASSESSEE AT THE TIME OF E XERCISE OF STOCK OPTIONS ON 5.11.1996 AND 30.06.1999 RESPECTIVELY, T HE TAX SOUGHT TO BE EVADED FOR LEVY OF PENALTY U/S 271(1)( C) OF THE ACT IS NIL. IN OTHER WORDS, AS PER THE EXPLANATION 4(E) TO SECTION 271(1)(C) OF THE ACT, THERE IS NO DIFFERENCE BETWEE N THE TAX ON THE ASSESSEE INCOME (AFTER GIVING FOREIGN TAX CREDIT) A ND THE TAX ON THE RETURNED INCOME (WHEREIN NO FOREIGN TAX CREDIT WAS CLAIMED). ACCORDINGLY THE TAX SOUGHT TO BE EVADED AS NIL. 26. THE CIT (A) HELD AS FOLLOWS: 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ITATS ORDER REFERRED TO ABOVE AND THE ASSESSMENT ORDER. IN THIS CASE, THE AO REOPENED THE ASSESSMENT U/S 147 AND COMPLETED THE ASSESSMENT ON 31.13.2007 AND AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT, DETERMINED THE LONG TERM CAPITAL GAI NS AT RS.4.35 CRORES ADOPTING THE GRANT PRICE AS THE CO ST PRICE OF 37735 SHARES ALLOTTED TO THE APPELLANT BY HIS EMPLOYER, M/S. MICROSOFT LIMITED UNDER STOCK OPTIO N SCHEME INSTEAD OF FAIR MARKET VALUE ADOPTED BY THE APPELLANT AS COST PRICE OF 37735 SHARES. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A)-II HYDERABAD ON ACCOUNT OF SALE OF ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 11 OF 14 EMPLOYEES STOCK OPTION SHARES. THE CIT (A)-II HYDERABAD, AFTER EXAMINING VARIOUS DETAILS SUBMITTE D BY THE ASSESSEE UPHELD THE ADDITION MADE BY THE AO. ON FURTHER APPEAL, THE HON'BLE ITAT A BENCH, VIDE I TS ORDER DATED 30.6.2010 IN THE APPELLANTS OWN CASE F OR A.Y 2004-05 HAS DISMISSED THE GROUNDS OF APPEAL OF THE ASSESSEE AGAINST THE VALIDITY OF REOPENING OF ASSESSMENT U/S 147 AND DETERMINATION OF LONG TERM CAPITAL GAINS. THE HON'BLE TRIBUNAL IN PARA 13.1 HE LD THAT FOR THE PURPOSE OF CAPITAL GAINS COST TO BE TAKEN WAS ACTUAL COST AND NOT THE FAIR MARKET VALUE AND SINCE THE ACTUAL COST INCURRED BY THE ASSESSEE WA S GRANT PRICE, ONLY THIS GRANT PRICE HAS TO BE TA KEN AS COST WITH REFERENCE TO THE COMPUTATION OF CAPITAL G AINS AND DISMISSED THIS GROUND OF THE APPELLANT. 27. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 28. WE HEARD BOTH THE PARTIES AND PERUSED THE RECOR DS. PENALTY PROCEEDINGS ARE INDEPENDENT PROCEEDING AND THE MATT ER IS TO BE CONSIDERED AFRESH: IT IS AN UNDISPUTED POSITION THA T PENALTY PROCEEDINGS ARE INDEPENDENT PROCEEDINGS AND THE MAT TER HAS TO BE LOOKED INTO AGAIN AS THE ASSESSMENT ORDER IS NOT THE FINAL WORD IN THE PENALTY PROCEEDINGS. THE DECISION OF TH E SUPREME COURT IN THE CASE OF ANANTARAM VEERASINGHIAH VS. CI T REPORTED AT 123 ITR 457 IS THE MAIN DECISION ON THIS ISSUE. IT IS THUS POSSIBLE FOR THE ASSESSEE DURING THE COURSE OF THE PENALTY PROCEEDINGS FOR CONCEALMENT TO FILE DOCUMENTS AS WE LL AS TO GIVE EXPLANATIONS WHICH WERE NOT GIVEN IN THE ASSESSMENT PROCEEDINGS. MERELY BECAUSE AN ADDITION HAS NOT BEE N CONTESTED, IT CANNOT BE PRESUMED THAT THE ADDITION REPRESENTS CONCEALED INCOME. IT HAS BEEN HELD BY THE SUPREME COURT IN TH E CASE OF SIR SHADILAL SUGAR & GENERAL MILLS LTD. REPORTED AT 168 ITR 705 THAT FROM THE ASSESSEE AGREEING TO ADDITIONS TO HIS INCO ME, IT DOES NOT FOLLOW THAT THE AMOUNT AGREED TO BE ADDED WAS CONCE ALED INCOME. THERE MAY BE A HUNDRED AND ONE REASONS FOR SUCH ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 12 OF 14 ADMISSION. HENCE IN THE PRESENT CASE, EVEN THOUGH T HE HONBLE ITAT HAS CONFIRMED THE APPEAL ON MERITS (THOUGH ADM ITTED BY THE HONBLE HIGH COURT) THE PENALTY PROCEEDINGS STAND U NDER A DIFFERENT FOOTING AND IS NOT AUTOMATIC. 29. PENALTY FOR CONCEALMENT IS NOT IMPOSABLE WHERE THERE ARE TWO VIEWS ON THE ISSUE: IF THE ISSUE IS A DEBATABLE ONE AND TWO VIEWS ARE POSSIBLE, PENALTY FOR CONCEALMENT CANNOT BE LEVIED. IT WAS HELD BY THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HARSHVARDHAN CHEMICALS & MINERALS LTD, REPORTED AT 259 ITR 212 THAT WHERE THE WRONG DEDUCTION HAS BEEN CLAIMED BY THE ASSESSEE BUT THE ISSUE IS DEBATABLE, IT COULD NOT B E SAID THAT THERE WAS CONCEALMENT OF INCOME. SIMILAR VIEW HAS B EEN EXPRESSED BY THE MADRAS HIGH COURT IN THE CASE OF C IT VS. CHAPLIN POINT LABORATORIES LTD REPORTED AT 293 ITR 524. FURTHER THE DECISION IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT (243 ITR 83 (S.C) AND CIT VS. MAX INDIA LTD (295 IT R 282 (S.C) SUPPORT THIS VIEW. IN THE PRESENT CASE, TWO VIEWS H AVE BEEN EXPRESSED WITH RESPECT TO THE COMPUTATION OF CAPITA L GAINS FROM THE SALE OF SHARES ACQUIRED THROUGH EXERCISE OF ST OCK OPTION IN AY 1997-98 AND 2000-01. 30. UNLESS THERE IS DELIBERATE DEFAULT, PENALTY FOR CONCEALMENT CANNOT BE LEVIED: IT HAS BEEN HELD BY THE HIGH COUR T IN THE CASE OF CIT VS. SIDHARTHA ENTERPRISES REPORTED AT 322 IT R 80 THAT FOR PENALTY FOR CONCEALMENT TO BE LEVIED, THERE MUST BE SOME ELEMENT OF DELIBERATE DEFAULT. PENALTY CANNOT BE LEVIED WHE RE A WRONG CLAIM IS MADE BY MISTAKE. SIMILARLY IT HAS BEEN HEL D BY THE HIGH COURT IN THE CASE OF CIT VS. SHAHBAD CO-OPERATIVE S UGAR MILLS LTD. REPORTED AT 322 ITR 73 WHILE DEALING WITH A WR ONG CLAIM OF ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 13 OF 14 DEDUCTION THAT PENALTY CANNOT BE LEVIED FOR A CLAIM MADE WHICH IS NOT ALLOWED. THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE CAN BE DESCRIBED AS INACCURATE COMPUTATION OF INCOME FO R WHICH PENALTY FOR CONCEALMENT CANNOT BE LEVIED. THE ABOVE DECISIONS ARE IN LINE WITH THAT OF THE SUPREME COURT IN THE C ASE OF CIT VS. RELIANCE PETROPRODUCTS LTD. REPORTED AT 322 ITR 158 WHERE IT WAS HELD THAT WHERE THE CLAIM OF DEDUCTION OF INTEREST WAS DISALLOWED, IT WOULD BE INSUFFICIENT FOR LEVY OF PENALTY FOR CO NCEALMENT AS AN INCORRECT CLAIM DOES NOT AMOUNT TO FURNISHING INACC URATE PARTICULARS. WHERE A CLAIM IS MADE IN THE RETURN OF INCOME IT IS UP TO THE AUTHORITIES TO ACCEPT THE CLAIM WHEN ALL PARTICULARS HAD BEEN FURNISHED. 31. TO CONCLUDE IN THE PRESENT CASE, THE ASSESSEE H AS DISCLOSED ALL THE MATERIAL FACTS BEFORE THE AO AND ALSO THE E XPLANATION OFFERED BY THE ASSESSEE AS TO WHY FMV ON THE DATE O F EXERCISE WAS CONSIDERED AS COST OF ACQUISITION FOR THE COMPU TATION OF LONG TERM CAPITAL GAINS IN THE RETURN OF INCOME FILED FO R THE RELEVANT A.Y.IS BONAFIDE. THE DECISION OF KANBAY SOFTWARE IN DIA LTD VS. DCIT (ITA NO.300/PN/2007) SUPPORT OUR VIEW AND WE S HALL EXTRACT THE RELEVANT PORTION AS FOLLOWS: 65. BE THAT AS IT MAY, EVEN ASSUMING THAT DEEMING FICTION UNDER EXPLANATION 1 TO SECTION 271 (1)(C) CAN BE TRIGGERED BY A WRONG LEGAL CLAIM, IT CANNOT BE THE CASE THAT MERELY BECAUSE THERE IS A WRONG CLAIM, EVEN IF THAT BE SO, PENALTY UNDER SECTION 271(1)(C) CAN BE IMPOSED. THIS DEEMING FICTION UNDER SECTION 271(1)(C) ONLY SHIFTS THE ONUS OF PROOF ON THE ASSESSEE, AS THIS EXPLANATION ITSELF PROVIDES THAT A PENALTY CAN ONLY BE IMPOSED (A) WHEN THERE IS NO EXPLANATION BY THE ASSESSEE, (B) WHEN THE EXPLANATION GIVEN BY THE ITA NO.181 OF 2014 RAMAMOORTHY SRIDHARAN HYDERABAD PAGE 14 OF 14 ASSESSEE IS FOUND TO BE FALSE, AND (C) WHEN THE ASSESSEE PROVIDES AN EXPLANATION WHICH HE FAILS TO SUBSTANTIATE AND HE FAILS TO PROVE THAT THE EXPLANATION WAS BONAFIDE AND THAT ALL THE FACTS NECESSARY FOR THE SAME AND MATERIAL FOR COMPUTATION OF INCOME HAVE BEEN DULY DISCLOSED BY THE ASSESSEE. 32. WE ALLOW THE ASSESSEES APPEAL. 33. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH APRIL, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 17 TH APRIL, 2015. VNODAN/SPS COPY TO: 1. SHRI RAMAMOORTHY SRIDHARAN, PLOT NO.1060 A, ROAD NO :52 JUBILEE HILLS, HYDERABAD 2. INCOME TAX OFFICER WARD 12(45) HYDERABAD 3. THE CIT(A) - V HYDERABAD 4. THE CIT I HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER