SANDEEP GHOSH, MUMBAI V. ADDL CIT 26(1), MUMBAI

ITA 2031/MUM/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0691 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 12-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: I P RATHI
• Keywords: Capital asset; Salary income; Difference of opinion
• Section: 54F; 54

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 2031 /MUM/20 11 , / ASSESSMENT YEAR - 2007 - 08 MR. SANDEEP GHOSH UNIT 601 & 602, 6TH FLOOR, RAHEJA TITANIUM, OFF WESTERN EXPRESS HIGHWAY GOREGAON (E) MUMBAI - 400 063. PAN: AEAPG 6907 J V S ADDL. CIT - 26(1) CHARNI ROAD MUMBAI . ( / A PPELLANT ) ( / RESPONDENT ) /ASSESSEE BY :SHRI I.P. RATHI / REVENUE BY :SHRI SANJAY PUN GLIA - DR / DATE OF HEARING : 11 - 0 5 - 2015 / DATE OF PRONOUNCEMENT : - 0 5 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT. 14.1.2011 OF THE CIT(A) - 28 ,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITIONS OF RS.20,04,367/ - AS SHORT TERM CAPITAL GAIN ON SALE OF ESOP (A PART OF RS.23,15,896/ - ), IGNORING THE PERIOD OF HOLDING, AS THE COST OF THOSE SHARES WAS RECOVERED OU T OF SALES PROCEEDS. AND CONSEQUENTLY THE LD. COMMISSIONER OF INCOME TAX(APPEALS) HAD ERRED IN REJECTING OUR CLAIM U/S. 54F FOR INVESTMENT OF SUCH LTCG IN RESIDENTIAL PROPERTY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERR ED IN CONFIRMING THE ADDITIONS OF RS.3,11,529/ - AS SHORT TERM CAPITAL GAIN ON SALE OF RESTRICTED SHARES (SECOND PART OF RS.23,15,896/ - ), IGNORING THE COST OF SUCH SHARES, THEREBY TAXING THE ENTIRE SALES PROCEEDS AS SHORT TERM CAPITAL GAIN, AS AGAINST ACTU AL GAIN OF RS.42,474/ - . ASSESSE,AN INDIVIDUAL, DERIVING INCOME FROM SALARY , CAPITAL GAINS AND OTHER SOURCES FILED H IS RETURN OF INCOME ON 27.7.2007 , DECLARING TOTAL INCOME AT RS . 1.35 CR ORES . THE ASSESSING OFFICER ( AO ) COMPLETED THE ASSESSMENT U/S.143(3) OF T HE ACT ON 31.12.2009 ,DETERMINING THE INCOME OF THE ASSESSEE AT RS. 1,64,67,920 / - . 2. FIRST G ROUND OF A PPEAL IS ABOUT ADDITION 20.0 4 LACS. DURING THE ASSESSMENT P ROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD SOLD MANY SHARES AND MUTUAL FUNDS ,THAT HE HA D NOT OFFERED ANY CAPITAL GAIN, THAT HE HAD SOLD THE STOCK OPTION SHARES OF CITI BANK, THAT CAPITAL GAIN ON THOSE SHARES WAS NOT OFFERED IN THE RETURN OF INCOME. HE CONFRONTED THE ASSESSEE ABOUT THE TRANSACTION.IN HIS RESPONSE, THE ASSESSEE CLAIMED THAT HE HAD EAR NED NET LONG TERM PROFIT OF RS.2.08 LACS. AS PER THE AO, PROFIT WORKING OF THE ASSESSEE WITH REGARD TO STOCK OPTION SHARE WAS NOT CORRECT, THAT THERE WAS A CONTRADICTION IN ASSESSEES OWN VALUE THAT HE GAVE THE WORKING IN ITA/2 03 1/MUM/2011,AY.2007 - 08,SG 2 INDIAN RUPEES AGAINST THE WORKING I N USD, THAT THE WORKING IN INDIAN RUPEES WAS WORKED OUT AT RS.2,08,759/ - , THAT THE PROFIT AS PER THE WORKING IN USD WAS 6,73,237 THAT THE DIFFER E N CE OF RS. 4.65 LACS WAS NOT EXPLAINED BY THE ASSESSEE, THAT THE PROFIT ON STOCK OPTION WAS CLEARLY SHORT TERM C APITAL GAINS( STCG ) AND NOT LONG TERM CAPITAL GAINS( LTCG ).F ROM THE BAN K ACCOUNT OF THE ASSESSEE, IT WAS FOUND THAT THE ASSESSEE HAD RECEIVED SALE PROCEED OF ESOP ON 15.6.2006, 6.10.2006, 2.3.2007 AND 6.3.2007 AMOUNTING TO RS.23,15,896/ - . THE AO HELD THAT THE ABOVE WERE THE NET PROCEEDS RECEIVED BY ASSESSEE ON THE SALE OF ESOPS , FROM THE ESOP THE PURCHASE PRICE HAS BEEN RECOVERED, THAT IT WAS COMMON PROCEDURE ADOPTED BY ALL COMPANIES WHERE THE PURCHASE PRICE WAS RECOVERED FROM THE SALE PROCEEDS, THAT NOTHING WAS PAID AT THE TIME OF GRANT OF ESOP, THAT THE PROFIT ON THE SALE OF ESOP WAS TO BE TAKEN AT RS. 23.19 LACS AND AT THE RATE OF 30% . 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM I T WAS CONTENTED THAT , THE AO HAD ERRED IN TAKING THE DATE OF DISPOSAL OF THE UNITS AS ALSO THE DATES OF GRANT, THAT BECAUSE OF THE MISTAKE COMMITTE D BY THE AO THE INCOME WAS CONSIDERED AS STCG, THAT THE AO HAD FAILED TO CONSIDER THE PERIOD OF HOLDING OF THE STOCK UNITS CONCERNED. THE ASSESSEE FURNISHED SOME DOCUMENTS IN THAT REGARD, THEREFORE THE FAA CALLED FOR A REMAND REPORT FROM THE AO.AFTER CONSIDERING THE REMAND REPORT AND THE REJOINDER OF THE ASSESSEE TO THE REMAND REPORT THE FAA HELD THAT THE ASSESSEE WAS GRANTED ESOPS BY HIS FORMER EMPLOYER AND THAT THE SAME WAS SOLD IN THE YEAR UNDER REVIEW AFTER THE OPTION WAS EXERCISED BY THE ASSESSEE, THAT THE PURCHASE PRICE OF THE ESOPS WAS RECOVERED OUT OF SALE PRICE, THAT NET AMOUNT RECEIVED BY THE ASSESSEE OF RS.23.15 LACS WAS CREDITED TO ASSESSEES ACCOUNT, THAT THE PURCHASE PRICE OF THE SHARES SHOULD BE TAKEN AT THE RATE ON WHICH THE SHARES WERE ALLOTTED TO THE ASSESSEE IN THE MONTHS OF JAN. 2002 AND JAN.2003, THAT THE PURCHASE PRICE HAD TO BE REDUCED FR O M TH E SALE PRICE ON THE DT. OF SALE, THAT THE AO HAD CORRECTLY COMPUTED THE GAIN ON ESOPS AS STCG. FINALLY , HE HELD THAT AO HAD RIGHTLY TAXED THE DISPUTED AMOUNT @ 30% IN ABSENCE OF NON - PAYMENT OF STT. HE FURTHER HELD THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S .54 OF THE ACT AMOUNTING TO RS.3.11 LACS OUT OF THE CAPITAL GAIN, THAT THE SHARES WERE NOT IN POSSESSION OF THE ASSESSEE FOR MORE THAN 3 YRS THAT THE GAIN REALIZATION OF RS. 3.11 LACS WAS CORRECTLY TREATED AS STCG BY THE AO, THAT NO EXEMPTION WAS ALLOWABLE U /S. 54 OF THE ACT AS THE EXEMPTION WAS ALLOWABLE OUT OF LTCG ONLY . 4. BEFORE US ,AUTHORISED REPRESENTATIVE (AR) STATED THAT ESOPS WERE OFFERED TO THE ASSESSEE LONG BACK, THAT THE DATE OF ACQUISITION WAS THE ASSESSEE HAD ACCEPTED THE OFFER,THAT DATE OF SALE C ANNOT BE DETERMINED IGNORING THE INITIAL ALLOTMENT,THAT THE ASSESSEE HAD RIGHTLY OFFERED LTCG.HE RELIED UPON THE CASES OF DR.DHURAJATI GUPTA(33DTR,TRIB - 27) AND AMBRISHKUMAR JHAMB(150TTJ240) AND REFERRED TO THE PAGE NO.6,9 AND 14 OF THE PAPER BOOK. DEPARTMEN TAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE WAS GRANTED ESOPS BY HIS EMPLOYER,THAT HE SOLD THE STOCK UNITS DURING THE YEAR UNDER CONSIDERATION,THAT THERE WAS DIFFERENCE OF OPINION BETWEEN THE AO AND THE ASSESSEE ABOUT THE PERIOD OF HOLDING OF THE STOCK UNITS AND RESULTANT TAX LIABILITY,THAT THE FAA HAD CALLED FOR A REMAND REPORT FROM THE AO.THE AO AND THE FAA WERE OF THE OPINION THAT FOR THE PURPOSES OF HOL D ING OF SHARES FOR THE PURPOSE OF CALCULATION OF STCG/LTCG THE PERIOD OF HOLDING HAD TO BE RECKONED FROM THE DATE ON WHICH THE ACTUAL PRICE WAS DEDUCTED.IN OUR OPINION, DATE OF GRANT OF THE STOCK OPTION IN FAVOUR OF AN A SSESSEE IS THE DECIDING FACTOR FOR DETERMINING ITA/2 03 1/MUM/2011,AY.2007 - 08,SG 3 THE HOLDING PERIOD OF THE ASSETS DISPOSED.IT LEADS TO THE NATURAL CONCLUSION THAT THE DATES ON WHICH THE OPTION IS EXERCISED AND THE OPTION IS CONVERTED IN TO STOCK IS NOT MATERIAL.AN ASSESSEE BECOMES THE OWNE R OF THE ASSET IN QUESTION THE DAY HE ACCEPTS THE OPTION FROM ITS EMPLOYER.THE LATER DEVELOPMENTS DO NOT ALTER THE DATE OF ACQUISITION OF THE ASSET.IN OTHER WORDS,THE QUESTION OF TAXING THE PROFIT ARISING OUT OF THE SALE OF THE SHARES ON CONVERSION OF THE OPTION WOULD DEPEND ON THE FACT OF EACH CASE,BUT,THE DATE OF ACQUISITION WOULD REMAIN CONSTANT.IN THE CASE UNDER CONSIDERATION,THE DISPUTE HAS ARISEN AS THE FAA ENDORSED THE STAND TAKEN BY THE AO REGARDING DATE OF ACQUISITION.IF THE DATE OF ACCEPTANCE OF O PTION IS TAKEN AS DATE OF ACQUISITION THE PROFIT ARISING OUT OF THE TRANSACTION WOULD FALL UNDER THE HEAD LONG TERM CAPITAL GAINS.ONCE IT IS HELD THAT THE ASSESSEE HAD EARNED LTCG,ALL THE BENEFITS ATTACHED TO IT WOULD BE AVAILABLE TO HIM.HE HAD INVESTED TH E SALE PROCEEDS IN PURCHASING RESIDENTIAL PREMISES.THE DECISION S OF THE TRIBUNAL , RELIED UPON BY THE ASSESSEE, ALSO SUPPORT THE VIEW TAKEN BY US.SO,CONSIDERING THE FACTS OF THE CASE AND FOLLOWING THE ABOVE REFERRED TWO MATTERS RELIED UPON BY THE ASSESSEE ,WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE .WE ALSO HOLD THAT THE ASSESSEE WAS ENTITLED TO CLAIM THE DEDUCTION U/S.54 OF THE ACT WITH REGARD TO INVESTMENT MADE IN PURCHASING A RESIDENTIAL UNIT. 6. SECOND GROUND OF APPEAL DEALS WITH THE ADDITION OF RS.3.1 1 LAKHS AS STCG ON SALE OF SHARES. THE AO HELD THAT THE CAPITAL ASSETS I.E.SHARES WERE NOT HELD BY THE ASSESSEE FOR MORE THAN THREE YEARS,THAT CAPITAL GAIN OF RS.3,11,529/ - SHOULD BE ASSESSED AS STCG.IT WAS ALSO HELD THAT NO EXEMPTION U/S.54 WAS ALLOWABLE O N THE SALE OF 127 SHARES OF CITIGROUP STOCK UNITS, AS SAME WERE NOT LONG TERM ASSETS. IN THE APPELLATE PROCEEDINGS, THE FAA UPHELD THE ORDER OF THE AO . B EFORE U S, THE REPRESENTATIVES OF BOTH THE SIDES MADE THE ARGUMENTS THAT ARE PART OF PARAG RAPH 4 OF OUR ORDER. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN OUR OPINION, THE ASSESSING OFFICER AND THE FAA HAD NOT CALCULATED THE PERIOD OF HOLDING THE ASSET FROM THE DATE OF OFFER MADE BY THE EX - EMPLOYER OF THE ASSESSEE. WE HAVE, IN PARAGRAPH 5 OF THE OR DER, GIVEN A FINDING ABOUT CALCULATING THE HOLD I NG PERIOD OF THE ASSETS. FOLLOWING THE SAME, WE HOLD THAT THE ASSETS IN QUESTION WERE LONG TERM ASSETS AND THE ASSESSEE HAD RIGHTLY OFFERED THE TAX ON SALE OF SHARES AS LTCG,AMOUNTING TO RS,42,474/ - . REVERSING THE ORDE R OF THE FAA, WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH , MAY ,2015. 20 MAY , 2015 SD/ - SD/ - ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 20 .0 5 .2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / ITA/2 03 1/MUM/2011,AY.2007 - 08,SG 4 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.