THE DY CIT 26(2), MUMBAI V. M/S. UPENDRA UDAI, MUMBAI

ITA 2293/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0918 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 17-05-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 04-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA
• Assessee Lawyers: SHEETAL SH AH
• Keywords: Rectification of order; Salary income; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings; Capital Gains
• Section: 143(3); 54EC; 147; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI A.L. GEH LOT, AM I.T.A.NO.2293/MUM/2008 (ASSESSMENT YEAR: 2001-02) THE DEPUTY COMMISSIONER OF INCOME TAX -26(2), R.NO.609, K.G.MITTAL AYURVEDIC HOSP. BUILDING, CHARNI ROAD, MUMBAI-400 002. VS. MR. UPENDRA UDAI, C/O.M/S.NARKAR & ASSOCIATES, 216, T.V.INDUSTRIAL ESTATE, OFF. ANNIE BESANT ROAD, WORLI, MUMBAI-400 025. PAN:AAIPD0376R (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIRENDRA OJHA, DR RESPONDENT BY : MR. RAJAN VORA & MS.SHEETAL SHAH O R D E R PER R.V.EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE REVENUE AND IT RELATES TO THE ASSESSMENT YEAR 2001-02. IT A RISES OUT OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) RE AD WITH SECTION 147 OF THE INCOME TAX ACT ON 19.12.2006. 2. THE ASSESSEE WHO IS THE RESPONDENT IS AN INDIVID UAL AND AT THE RELEVANT TIME HE WAS EMPLOYED WITH M/S. COLG ATE PALMOLIVE INDIA LTD. (HEREINAFTER REFERRED TO AS C PIL). IN THE YEAR 1996, HE WAS GIVEN BY CPIL AN OPTION TO SUBSCR IBE TO 800 SHARES IN COLGATE PALMOLIVE COMPANY, NEW YORK (HERE INAFTER REFERRED TO AS CPNY). HE WAS OFFERED ANOTHER OPTIO N TO PURCHASE 1300 SHARES IN CPNY IN THE YEAR 1997. BOTH THE OPTI ONS WERE ACCEPTED BY THE ASSESSEE. ON ACCOUNT OF SUBSEQUENT STOCK SPLITS, THE NUMBER OF SHARES INCREASED TO 3200 AND 2600 RESPECTIVELY. THESE SHARES WERE SOLD BY THE ASSESSE E ON 5 TH FEBRUARY, 2001 UNDER THE CASHLESS METHOD PRESCRIBED BY THE RESERVE BANK OF INDIA. IN OTHER WORDS, THE ASSESSEE EXERCISED THE STOCK OPTIONS AND SIMULTANEOUSLY SOLD THE SHARE S ON THE ITA NO.2293/M/08 2 AFORESAID DATE. THE SHARES WERE SOLD FOR AN AGGREGA TE PRICE OF US $ 3,53,920 WHICH RESULTED IN CAPITAL GAINS OF US$ 2 ,08,118, WHICH WHEN CONVERTED TO INDIAN RUPEES @ RS.46.34 PE R DOLLAR, AMOUNTED TO RS.96,44,183/-. THE ASSESSEE INVESTED R S.50 LAKHS OUT OF THE SALE PROCEEDS IN BONDS ISSUED BY NABARD UNDER SECTION 54EC AND OFFERED TAXABLE CAPITAL GAINS OF RS.46,44,183/-. AS PER SECTION 112 OF THE ACT, THE CAPITAL GAINS TAX @ 10% CAME TO RS.4,64,418/-. THIS IS THE BASIS ON WHICH THE ASSESSEE FILED HIS RETURN FOR THE YEAR UNDER CO NSIDERATION. 3. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WROTE A LETTER DATED 20 TH DECEMBER, 2002 DRAWING THE ATTENTION OF THE ASSESSING OFFICER TO THE WORKING OF THE CAPI TAL GAINS ENCLOSED ALONG WITH THE LETTER AND STATED THAT HE H AD INVESTED RS.50 LAKHS IN NABARD BONDS AND OFFERED THE BALANC E AS CAPITAL GAINS WITHOUT AVAILING OF THE BENEFIT OF IN DEXATION. BY A LETTER DATED 19.08.2003, THE ASSESSING OFFICER CALL ED FOR THE DETAILS REGARDING THE LONG TERM CAPITAL GAINS EARNE D DURING THE YEAR SUCH AS DETAILS OF THE ASSETS SOLD, COPIES OF THE SALE BILLS, EVIDENCE OF ACQUISITION OF THE ASSETS SOLD, DETAILS OF PAYMENTS MADE, RECEIPT OF SALE PROCEEDS ETC. COPIES OF THE ASSESSEES LETTER DATED 20 TH DECEMBER, 2002 AND THE ASSESSING OFFICERS LETTER DATED 19.08.2003 ARE PLACED AT PAGES 211 TO 213 OF THE PAPER BOOK. ON 9 TH SEPTEMBER, 2003, THE ASSESSEE REPLIED TO THE ASSESSING OFFICERS LETTER DATED 19.08.2003 (PAGES 214 & 215 OF THE PAPER BOOK) AND STATED THAT HE WAS IN THE PROCE SS OF GETTING THE INVESTMENT PROOF FOR INVESTMENT IN THE BONDS A ND THAT THE LONG TERM CAPITAL GAINS WAS AS PER THE WORKING ATTA CHED. ANOTHER LETTER WAS ALSO WRITTEN ON 25 TH SEPTEMBER, 2003 FURNISHING PROOF FOR INVESTMENT IN THE BONDS AS ALS O THE COPY OF SAVINGS ACCOUNT WITH CITIBANK SHOWING DEPOSIT OF RS .50 LAKHS ON 2.8.2001. THE ANNEXURE TO THE AFORESAID LETTER REPRODUCED THE COLUMNAR DETAILS FILED WITH THE RETURN OF INCOM E FOR THE ITA NO.2293/M/08 3 WORKING OF THE CAPITAL GAINS. A PAPER CALLED CONF IRMATION OF EXERCISE WAS ALSO FILED ALONG WITH A LETTER BEFORE THE ASSESSING OFFICER WHICH CONTAINED THE DETAILS OF STOCK OPTION S IN RESPECT OF THE OPTIONS GRANTED BOTH IN 1996 AND 1997. THESE P APERS ARE PLACED AT PAGES 220 & 221 OF THE PAPER BOOK. THEY S HOWED THE DATE ON WHICH THE OPTION WAS GRANTED, THE DATE OF E XERCISE OF THE OPTION AND OTHER DETAILS ABOUT THE OPTION PRICE, MA RKET PRICE ETC. THE PAPERS FURTHER SHOWED THAT THE SALE WAS S AME DAY SALE IN THE SENSE THAT THE SHARES WERE SOLD ON THE VERY SAME DAY ON WHICH THE ASSESSEE EXERCISED THE OPTION TO P URCHASE THEM. CERTAIN OTHER DETAILS REGARDING REMITTANCE OF THE SALE PROCEEDS WHICH WERE CALLED FOR BY THE ASSESSING OFF ICER WERE SUBMITTED BY THE ASSESSEE BY LETTER DATED 30 TH SEPTEMBER, 2003, A COPY OF WHICH IS AT PAGE 222 OF THE PAPER BOOK. 4. AFTER GETTING THE AFORESAID DETAILS, THE ASSESSI NG OFFICER MADE AN ASSESSMENT UNDER SECTION 143(3) OF THE ACT AND COMPUTED THE TOTAL INCOME AT RS.71,50,120/- WHICH I S SUBSTANTIALLY THE SAME AS THE RETURNED TAXABLE INCO ME WHICH WAS RS.71,49,290/-, THE DIFFERENCE OF RS.810/- BEIN G SOME INTEREST WHICH WAS ADDED IN THE ASSESSMENT. 5. ON 10.03.2004, THE CIT ISSUED A NOTICE UNDER SEC TION 263 OF THE ACT PROPOSING TO REVISE THE ASSESSMENT ON TH E GROUND THAT THE CLAIM OF LONG TERM CAPITAL GAINS OF RS.96, 44,183/- AND THE EXEMPTION UNDER SECTION 54EC OF THE ACT AS SHOW N BY THE ASSESSEE IN THE RETURN WERE ACCEPTED BY THE ASSESSI NG OFFICER AND THAT THE ASSESSMENT WAS MADE BY HIM IN THE MANN ER WHICH WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THE GAINS ARISING ON SALE O F THE STOCK OPTIONS SHOULD NOT BE ASSESSED AS SHORT TERM CAPITA L GAINS SINCE THE PERIOD OF HOLDING WAS LESS THAN THREE YEARS. IT WAS ALSO STATED IN THE NOTICE THAT IN CASE THE CAPITAL GAINS WERE SHORT ITA NO.2293/M/08 4 TERM CAPITAL GAINS, THE ASSESSEE WOULD ALSO NOT BE ELIGIBLE FOR THE EXEMPTION UNDER SECTION 54EC. IN RESPONSE TO TH E SHOW CAUSE NOTICE, THE ASSESSEE FILED DETAILED WRITTEN S UBMISSIONS DATED 19.11.2004, COPIES OF WHICH ARE PLACED AT PAG ES 19 TO 31 OF THE PAPER BOOK. IT WAS STATED THAT THE ASSESSMEN T HAD BEEN COMPLETED AFTER A DUE ENQUIRY INTO THE RETURN AND P ARTICULARLY INTO THE CLAIM OF LONG TERM CAPITAL GAINS AND THE E XEMPTION UNDER SECTION 54EC AND AT ANY RATE THE ACCEPTANCE O F THE ASSESSEES CLAIM REFLECTS A POSSIBLE VIEW WHICH COU LD BE TAKEN BY THE ASSESSING OFFICER AND THEREFORE THE ASSESSME NT ORDER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F THE REVENUE. IT WAS ALSO CLARIFIED THAT THE SALE OF THE SHARES W AS EFFECTED UNDER THE CASHLESS METHOD AS ADVISED BY THE RESERVE BANK OF INDIA AND THEREFORE NO PRIOR PERMISSION WAS REQUIRE D SINCE NO OUTFLOW OF FOREIGN EXCHANGE WAS INVOLVED. IT WAS PO INTED OUT THAT THE OPTION TO PURCHASE THE SHARES WAS EXERCISE D BY THE ASSESSEE ON 5 TH FEBRUARY, 2001 AND SIMULTANEOUSLY THE SHARES WERE SOLD UNDER THE CASHLESS METHOD WHICH RESULTED IN CAPITAL GAINS. IT WAS POINTED OUT THAT IF THE ACQUISITION O F THE SHARES AND THE SALE THEREOF WERE CONSIDERED TO GIVE RISE TO SHORT TERM CAPITAL GAINS BEING SIMULTANEOUS, THEN THERE WOULD BE IN FACT NO SHORT TERM CAPITAL GAINS SINCE THE MARKET PRICE OF THE SHARES OF CPNY ON 5.2.2001 WOULD BE THE SAME AS THE SALE PRIC E OF THE SAME AND THUS THERE WOULD BE NO CAPITAL GAINS AT AL L. IT WAS SUBMITTED THAT THE CAPITAL GAINS HAD ITS ORIGIN AND GENESIS IN THE YEARS 1996 AND 1997 WHEN THE ASSESSEE ACCEPTED THE STOCK OPTIONS AND THEREFORE THE ASSESSEE MUST BE TAKEN TO HAVE HELD THE SHARES FOR A PERIOD EXCEEDING THREE YEARS. THE ASSESSEE ON THESE REASONS PLEADED THAT THE PROCEEDINGS UNDER SE CTION 263 SHOULD BE DROPPED. BY AN ORDER DATED 21.11.2005, TH E CIT ASKED THE ASSESSEE TO SHOW CAUSE WHY THE PROCEEDS RECEIVED ON SURRENDERING THE RIGHTS IN THE SHARES WHICH WERE RE CEIVED WHEN THE STOCK OPTION WAS EXERCISED BY HIM SHOULD NOT BE TREATED AS ITA NO.2293/M/08 5 PERQUISITES WITHIN THE MEANING OF SECTION 17(2) OF THE ACT. IN PARAGRAPH 2 OF THE LETTER, IT WAS STATED BY THE CIT THAT HE HAS CONSIDERED THE ASSESSEES SUBMISSIONS MADE BY LETTE R DATED 19.11.2004. THE ASSESSEE WOULD APPEAR TO HAVE SUBM ITTED THE DETAILS IN RESPONSE TO THE LETTER DATED 21.11.2005 ISSUED BY THE CIT. EVENTUALLY ON 31.01.2006, AN ORDER WAS PASSED BY THE CIT UNDER SECTION 263 OF THE ACT AS FOLLOWS:- ORDER UNDER SECTION 263 OF THE I.T.ACT, 1961 THE PROCEEDINGS U/S.263 WERE INITIATED IN THIS CASE VIDE NOTICE U/S.263 DATED 10.02.2004. IN RESPO NSE TO NOTICE U/S.263 SHRI F.V.IRANI AUTHORISED REPRESE NTATIVE OF THE ASSESSEE ATTENDED AND SUBMITTED THE DETAILS. IN VIEW OF THE ASSESSEES SUBMISSION, THE PROCEEDINGS U/S.263 ARE HEREBY DROPPED. SD/- COMMISSIONER OF INCOME TAX-XXVI, MUMBAI. 6. ON 30.03.2006, THE ASSESSING OFFICER ISSUED A NO TICE UNDER SECTION 148 OF THE ACT. IN THE DETAILED REASO NS RECORDED BY HIM ON 29.03.2006 (PAGES 35 TO 44 OF THE PAPER B OOK), THE ASSESSING OFFICER STATED THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO SUBMIT COMPLETE DETAILS ABOUT THE ACQUI SITION AND SALE OF THE STOCK OPTIONS AND THAT THE ASSESSEE SHO ULD BE ASSESSED UNDER SECTION 17(2)(III) IN RESPECT OF THE SALE PROCEEDS OF RS.96,44,183/- AND THAT THE ASSESSMENT OF THE AF ORESAID AMOUNT AS LONG TERM CAPITAL GAINS AND THE GRANT OF EXEMPTION UNDER SECTION 54EC WAS NOT CORRECT. THE ASSESSEE FI LED THE RETURN OF INCOME AND CONTENDED THAT NO INCOME CHARG EABLE TO TAX HAD ESCAPED ASSESSMENT. THE ASSESSEE ALSO FILED THE SUBMISSIONS FILED BY HIM IN WRITING BEFORE THE CIT IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 263 AND ALSO A C OPY OF THE ORDER OF THE CIT DATED 31.01.2006 DROPPING THE PROC EEDINGS UNDER SECTION 263. IT WAS SUBMITTED THAT SINCE THE CIT HAS ITA NO.2293/M/08 6 DROPPED THE PROCEEDINGS UNDER SECTION 263, THERE IS FINALITY TO THE QUESTION WHETHER THE SALE PROCEEDS SHOULD BE AS SESSED AS PERQUISITES UNDER SECTION 17(2)(III) OF THE ACT AND THEREFORE THE REASSESSMENT PROCEEDINGS SHOULD ALSO BE DROPPED AS THEY ARE BASED ON THE SAME REASONING. THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE. ACCORDING TO HIM, THE REAL NATURE OF THE TRANSACTION SHOWS THAT THE ASSES SEE WAS HAVING ONLY A RIGHT TO ACQUIRE THE SHARES IN CPNY W HICH AMOUNTED TO A PERQUISITE. HE ACCORDINGLY BROUGHT TH E ENTIRE AMOUNT OF RS.96,44,183/- TO TAX AS THE SALARY OF T HE ASSESSEE WITH THE NARRATION PERQUISITES ON ACCOUNT OF EXERC ISING OF OPTION...... 7. THE ASSESSEE FILED AN APPEAL AGAINST THE AFORESA ID REASSESSMENT ORDER TO THE CIT(A) AND QUESTIONED THE JURISDICTION OF THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT A ND ALSO THE ADDITION TO THE SALARY INCOME ON MERITS. THE CIT(A ) AFTER EXAMINING THE REASONS RECORDED FOR REOPENING THE AS SESSMENT, THE ASSESSEES OBJECTIONS AND THE FACTS OF THE CASE HELD THAT THE TAXABILITY OF STOCK OPTION BOTH AS SHORT TERM CAPIT AL GAINS AS WELL AS PERQUISITES WAS UNDER CONSIDERATION BY THE CIT IN PROCEEDINGS UNDER SECTION 263 WHICH WERE ULTIMATELY DROPPED. HE HELD THAT THIS AMOUNTS TO CIT AGREEING WITH THE ASSESSEE THAT THE ORDER OF ASSESSMENT PASSED UNDER SECTION 1 43(3) OF THE ACT ON 20.10.2003 WAS NOT ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE CITED THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF KUNHAYAMMED & ORS. VS. STATE O F KERALA & ANOTHER, 245 ITR 360, WHERE THE DOCTRINE OF MERGER OF THE ORDER OF A LOWER COURT WITH THE ORDER OF A HIGHER COURT A ND THE EFFECT THEREOF WAS DISCUSSED. THE CIT(A) NOTED THAT THE ASSESSING OFFICER AS WELL AS THE ADDITIONAL CIT, WHO HAD AUTH ORISED THE ISSUE OF NOTICE UNDER SECTION 148 WERE BOTH SUBORDI NATE TO CIT AND THEREFORE ONCE THE CIT HAD GIVEN A FINDING ON A N ISSUE, THE ITA NO.2293/M/08 7 SUBORDINATE AUTHORITIES WERE LEGALLY BOUND BY THE S AME AND CANNOT TAKE A DIFFERENT VIEW. THE CIT(A) FURTHER NO TED THAT UNDER SECTION 263 THE CIT HAD POWER TO MODIFY OR RE VERSE OR AFFIRM THE DECISION ON THE ISSUES BEFORE HIM AND ON CE HE TAKES A DECISION, THE DECISION OF THE SUBORDINATE INCOME-TA X AUTHORITIES MERGED WITH THE SAME. HE ACCORDINGLY HELD THAT BOTH LEGALLY AS WELL AS ADMINISTRATIVELY, THE SUBORDINATE AUTHORITI ES CANNOT TAKE A VIEW DIFFERENT FROM THEIR SUPERIOR AUTHORITI ES. HE ALSO FOUND THAT EVEN THOUGH THE ASSESSING OFFICER HAS RE FERRED TO CERTAIN MATERIALS WHICH WAS NOT BEFORE HIM WHEN HE COMPLETED THE ORIGINAL ASSESSMENT, SINCE THAT MATERIAL WAS BE FORE THE CIT WHEN HE DROPPED THE PROCEEDINGS UNDER SECTION 263, THE ASSESSING OFFICER CANNOT TAKE A DIFFERENT OPINION O N THE BASIS OF THAT MATERIAL AND PROCEED TO REOPEN THE ASSESSMENT. IN THIS VIEW OF THE MATTER, THE CIT(A) HELD THAT THE ASSESS ING OFFICER HAD NO JURISDICTION TO REOPEN THE ASSESSMENT. IN T HE VIEW HE HAD TAKEN HE FOUND IT UNNECESSARY TO RECORD ANY FIN DING ON THE MERITS OF THE ASSESSEES CASE. HE ACCORDINGLY ALLOW ED THE ASSESSEES APPEAL ON THE ISSUE OF JURISDICTION TO R EOPEN THE ASSESSMENT ITSELF. 8. IT IS AGAINST THE AFORESAID DECISION OF THE CIT( A) THAT THE REVENUE HAS PREFERRED THE APPEAL BEFORE THE TRIBUNA L. THE MAIN SUBMISSION OF THE LEARNED CIT DR WAS THAT SECTIONS 147 AND 263 WERE INDEPENDENT AND WERE NOT CONTROLLED BY EAC H OTHER AND THEREFORE IRRESPECTIVE OF THE FINDINGS OF THE C IT IN THE PROCEEDINGS UNDER SECTION 263, IT IS OPEN TO THE AS SESSING OFFICER TO REOPEN THE ASSESSMENT, IF THE CONDITIONS PRESCRIBED BY SECTION 147 ARE SATISFIED. HE SUBMITTED THAT IN THE PRESENT CASE THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO FURNISH FULL AND TRUE PARTICULARS AT THE TIME OF THE ORIGINAL AS SESSMENT AND THIS HAS BEEN BROUGHT OUT IN THE REASONS RECORDED B Y THE ASSESSING OFFICER FOR REOPENING THE ASSESSMENT AND ACCORDINGLY ITA NO.2293/M/08 8 THE REASSESSMENT PROCEEDINGS WERE FULLY WITHIN THE JURISDICTION OF THE ASSESSING OFFICER. HE CITED THE JUDGEMENT OF THE MADYA PRADESH HIGH COURT IN THE CASE OF CIT VS. GULAM RAS OOL & OTHERS (1997) 225 ITR 904 IN SUPPORT OF THE AFORESA ID SUBMISSIONS. HIS OTHER SUBMISSION WAS THAT THE ADDI TIONAL MATERIAL FILED BY THE ASSESSEE BEFORE THE CIT CONST ITUTES TANGIBLE MATERIAL TO REOPEN THE ASSESSMENT AND IN THIS CONNE CTION DREW OUR ATTENTION TO PAGES 40 & 41 OF THE PAPER BOOK WH ICH IS PART OF THE REASONS RECORDED BY THE ASSESSING OFFICER. H E DREW OUR ATTENTION TO THE ASSESSING OFFICERS OBSERVATION IN THE REASONS RECORDED THAT THE FOLLOWING FACTS WERE BROUGHT OUT BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE CIT IN THE P ROCEEDINGS UNDER SECTION 263:- A) THAT OPTIONS WERE GRANTED TO THE ASSESSEE, B) THAT THE ASSESSEE HELD THOSE OPTIONS, & C) THAT THE ASSESSEE COULD NOT HAVE HELD ANY SHARES. IT IS THE SUBMISSION OF THE LEARNED CIT DR, THAT TH ESE FACTS WERE NOT BEFORE THE ASSESSING OFFICER IN THE ORIGINAL AS SESSMENT PROCEEDINGS AND THEREFORE IT CANNOT BE SAID THAT TH E NOTICE ISSUED UNDER SECTION 148 WAS WITHOUT JURISDICTION. HE CONTENDED THAT THE CIT(A) HAD OVERLOOKED THIS ASPEC T OF THE MATTER AND HAD DECIDED THE ISSUE ON THE BASIS OF TH E MERGER THEORY WHICH DID NOT APPLY TO THE PRESENT CASE SINC E THE CONDITIONS OF SECTION 147 WERE FULLY SATISFIED. 9. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT ALL THE RELEVANT FACTS AND INF ORMATION NECESSARY FOR COMPLETING THE ASSESSMENT WERE AVAILA BLE TO THE ASSESSING OFFICER AT THE TIME OF THE ORIGINAL ASSES SMENT PROCEEDINGS AS CAN BE SEEN FROM THE ENQUIRY MADE BY THE ASSESSING OFFICER AND THE ASSESSEES REPLIES THERET O. HE INVITED OUR ATTENTION TO VARIOUS LETTERS WRITTEN BY THE ASS ESSING OFFICER TO THE ASSESSEE AND THE ASSESSEES REPLIES THERETO FILED IN THE ITA NO.2293/M/08 9 PAPER BOOK TO WHICH WE HAVE EARLIER REFERRED. IT WA S ALSO POINTED OUT THAT THE PAPERS TITLED CONFIRMATION OF EXERCIS E FILED BEFORE THE ASSESSING OFFICER IN THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS ALSO BROUGHT OUT THE RELEVANT FACTS AND SINCE THE COMPLETE FACTS NECESSARY FOR COMPLETING THE ASSESSM ENT WERE AVAILABLE TO THE ASSESSING OFFICER, THE NOTICE ISSU ED UNDER SECTION 148 WAS PROMPTED ONLY BY A MERE CHANGE OF O PINION AS TO THE HEAD UNDER WHICH THE SALE PROCEEDS OF THE SH ARES WERE TO BE TAXED. HE CONTENDED THAT EVEN ON THE FACTS MADE AVAILABLE TO THE ASSESSING OFFICER AT THE TIME OF THE ORIGINAL A SSESSMENT PROCEEDINGS, IT WAS OPEN TO THE ASSESSING OFFICER T O DRAW AN INFERENCE, IF HE SO WISHED, THAT THE SALE PROCEEDS WERE ASSESSABLE AS PERQUISITES UNDER THE HEAD SALARY A ND THE FAILURE TO DRAW AN INFERENCE FROM THE FACTS MADE AV AILABLE CANNOT BE ATTRIBUTED TO THE ASSESSEE IN ORDER TO CL UTCH AT THE JURISDICTION TO REOPEN THE ASSESSMENT. IT WAS POIN TED OUT THAT THE ONLY ADDITIONAL MATERIAL WHICH WAS FILED BY THE ASSESSEE BEFORE THE CIT IN PROCEEDINGS UNDER SECTION 263 WAS THE CLARIFICATION ISSUED BY THE RESERVE BANK OF INDIA, IN ITS LETTER DATED 22.04.2000 (PAGE 50 OF THE PAPER BOOK) TO THE EFFECT THAT THE SALE OF SHARES SHOULD BE CASHLESS AND THAT THIS LETTER WAS NOT IN ANY WAY RELEVANT TO THE QUESTION WHETHER THE SALE PROCEEDS OF THE SHARES WERE ASSESSABLE AS CAPITAL G AINS OR SALARY. IN OTHER WORDS, THE SUBMISSION OF THE LEARN ED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE CLARIF ICATION ISSUED BY THE RESERVE BANK OF INDIA WOULD NEVER HAVE INFLU ENCED THE DECISION RELATING TO THE QUESTION WHETHER THE SALE PROCEEDS WERE ASSESSABLE AS SALARY OR CAPITAL GAINS AND THEREFORE THE NON-FILING OF THE SAME BEFORE THE ASSESSING OFFICER AT THE TIM E OF THE ORIGINAL ASSESSMENT PROCEEDINGS CANNOT AMOUNT TO A FAILURE ON THE PART OF THE ASSESSEE TO FURNISH FULL AND TRUE P ARTICULARS RELATING TO HIS INCOME SO AS TO PERMIT THE ASSESSIN G OFFICER TO REOPEN THE ASSESSMENT ATTRIBUTING THE ALLEGED ESCAP EMENT OF ITA NO.2293/M/08 10 INCOME CHARGEABLE TO TAX TO SUCH FAILURE ON THE PA RT OF THE ASSESSEE. 10. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE MAD E A FURTHER POINT TO THE EFFECT THAT EVEN THE PROPOSAL TO ISSUE NOTICE UNDER SECTION 263 HAD COME ONLY FROM THE ASSESSING OFFICER HIMSELF AND IN DOING SO, IT IS QUITE REASONABLE TO INFER THAT ALL THE FACTUAL INFORMATION PUT UP BEFORE THE CIT WOULD HAVE COME ONLY FROM THE MATERIAL ALREADY AVAILABLE WITH HIM, WHICH IN TURN IMPLIED THAT THERE WAS NO FAILURE ON THE PART OF TH E ASSESSEE TO FURNISH FULL AND TRUE PARTICULARS NECESSARY FOR THE COMPLETION OF THE ASSESSMENT. OUR ATTENTION WAS ALSO DRAWN TO TH E REASONS RECORDED BY THE ASSESSING OFFICER WHERE HE HAS OBSE RVED THAT THE SALE PROCEEDS OUGHT TO HAVE BEEN ASSESSED AS PE RQUISITES UNDER THE HEAD SALARY AND IT WAS CONTENDED THAT IN THAT CASE THE YEAR OF TAXABILITY CANNOT BE THE ASSESSMENT YEA R 2001-02 ACCORDING TO THE STATUTORY PROVISIONS AS THEY STOOD AT THE RELEVANT TIME AND THUS THE VERY FORMATION OF THE BE LIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT IN THE ASSESSMENT YEAR UNDER APPEAL IS CONTRARY TO LAW AND FOR THIS REASON ALONE THE REASSESSMENT SHOULD BE HELD TO BE INVALID. IN THIS CONNECTION, STRONG RELIANCE WAS PLACED ON THE ORDER OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S . ASEA BROWN BOVERI LTD. VS. ADDL. CIT, 2010-TIOL-190. 11. IN HIS BRIEF REPLY, THE LEARNED CIT DR POINTED OUT THAT THERE WAS NO DISCUSSION AS TO THE TAXABILITY OF THE SALE PROCEEDS AS CAPITAL GAINS OR SALARY IN THE ORIGINAL ASSESSME NT ORDER WHICH INDICATES THAT THERE WAS NO APPLICATION OF MIND AT THAT STAGE BY THE ASSESSING OFFICER WHICH MERITED THE REOPENING O F THE ASSESSMENT. ITA NO.2293/M/08 11 12. ON A CAREFUL CONSIDERATION OF THE RIVAL SUBMISS IONS, WE ARE OF THE VIEW THAT THE ULTIMATE CONCLUSION OF THE CIT(A) THAT THE NOTICE ISSUED UNDER SECTION 148 IS WITHOUT JURI SDICTION REQUIRES TO BE UPHELD THOUGH FOR DIFFERENT REASONS . THE CIT(A) HAS SUPPORTED HIS DECISION ON THE BASIS OF THE DOCT RINE OF MERGER. HE HAS HELD THAT THE ORDER PASSED BY THE CI T DROPPING THE PROCEEDINGS UNDER SECTION 263 FORBIDS THE ASSES SING OFFICER FROM REOPENING THE ASSESSMENT. WE ARE UNABLE TO SUB SCRIBE TO THIS REASONING BECAUSE THE NATURE OF THE PROCEEDIN GS UNDER SECTION 263 ARE DIFFERENT FROM THE NATURE OF PROCEE DINGS FOR REASSESSMENT UNDER SECTION 147. BOTH THE SECTIONS A RE INDEPENDENT OF EACH OTHER AND ARE NOT CONTROLLED BY THE OTHER. SECTION 147 AS IT STANDS NOW EMPOWERS THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT, IF HE HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR. THE PROVISO SAYS THAT NO ACTION FO R REASSESSMENT CAN BE TAKEN AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS THE ESCAPEMENT OF INCOME IS ATTRIBUTABLE TO THE FAILURE ON THE PAR T OF THE ASSESSEE, INTER-ALIA, TO FILE A RETURN OF INCOME O R DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSME NT. IN THE PRESENT CASE, THE NOTICE UNDER SECTION 148 HAS BEEN ISSUED ON 30.03.2006 WHICH IS WITHIN THE PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. IT IS OPEN TO THE ASSES SING OFFICER TO REOPEN THE ASSESSMENT WITHIN THE AFORESAID PERIOD F OR ANY REASON, INCLUDING THE REASON THAT THE ASSESSEE HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT. IN THE PRESENT CASE, THIS IS WHAT THE A SSESSING OFFICER HAS ALLEGED IN THE REASONS RECORDED BY HIM FOR REOPENING THE ASSESSMENT. THE QUESTION BEFORE US IS WHETHER T HE ASSESSEE FAILED TO DISCLOSE ANY MATERIAL FACT NECESSARY FOR HIS ASSESSMENT IN THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDING S. SECTION 263, ON THE OTHER HAND, EMPOWERS THE CIT TO REVISE THE ITA NO.2293/M/08 12 ASSESSMENT OR ANY OTHER ORDER PASSED BY THE ASSESSI NG OFFICER IF HE FINDS THAT THE SAME IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE TWO JURISDICTIONS ARE DIFFERENT AND THE BASIC CONDITIONS REQUIRED TO BE COMPLIED WITH B EFORE ACTION CAN BE TAKEN UNDER THEM ARE ALSO DIFFERENT. THE SUP REME COURT HAS HELD IN THE CASE OF A.L.A. FIRM VS. CIT , (1991 ) 189 ITR 285 WHICH WAS CITED BY THE LEARNED CIT DR BEFORE US TH AT THERE MAY BE SOME OVERLAPPING OF DIFFERENT JURISDICTIONS GIVEN BY DIFFERENT SECTIONS OF THE INCOME TAX ACT BUT ULTIMA TELY IF THE CONDITIONS OF SECTION 147 ARE SATISFIED, THE FACT T HAT ACTION COULD ALSO HAVE BEEN TAKEN UNDER ANOTHER SECTION TO DISTU RB THE FINALITY OF THE ASSESSMENT IS NO GROUND TO HOLD THA T THE ACTION TAKEN UNDER SECTION 147 IS INVALID. IN FACT, THERE IS A DIRECT JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT WHICH IS CIT VS. D.R. NAIK, (1939) 7 ITR 362. IN THIS JUDGEMENT IT W AS HELD THAT THE FACT THAT THE ASSESSMENT MIGHT HAVE BEEN RECTIF IED UNDER SECTION 35 OF THE ACT IS NO REASON WHY THE ASSESSM ENT SHOULD NOT BE ALTERED UNDER SECTION 34, IF THE CASE FALLS WITHIN THAT SECTION. I SEE NO REASON FOR SUPPOSING THAT SECTION S 34 AND 35 ARE MUTUALLY EXCLUSIVE. SECTION 35 OF THE 1922 ACT DEALT WITH RECTIFICATION OF MISTAKES APPARENT FROM RECORD AND SECTION 34 DEALT WITH REOPENING OF THE ASSESSMENTS, AKIN TO SE CTION 147 OF THE INCOME TAX ACT, 1961. SIMILAR ARGUMENT ADVANCE D ON BEHALF OF THE ASSESSEE NAMELY THAT IF THE CASE IS C OVERED BY SECTION 35, NO PROCEEDINGS CAN BE TAKEN UNDER SECTI ON 34 TO REOPEN THE ASSESSMENT WAS REJECTED BY THE MADRAS HI GH COURT IN SALEM PROVIDENT FUND SOCIETY VS. CIT, (1961) 42 ITR 547 AND IN THIS CASE REFERENCE WAS MADE TO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT CITED ABOVE. IN THE LIGHT OF THE SE JUDGEMENTS CITED ABOVE, IT IS NOT POSSIBLE TO HOLD THAT MERELY BECAUSE THE PROCEEDINGS UNDER SECTION 263 WERE DROP PED BY THE CIT IN THE PRESENT CASE, THE ASSESSING OFFICER DID NOT HAVE JURISDICTION TO REOPEN THE ASSESSMENT UNDER SECTION 147. IF ITA NO.2293/M/08 13 ACTION IS TO BE TAKEN UNDER SECTION 263, IT IS REQU IRED OF THE CIT TO DEMONSTRATE THAT THE ASSESSMENT OR OTHER ORDER P ASSED BY THE ASSESSING OFFICER IS NOT ONLY ERRONEOUS BUT IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. HOWEVER , WHAT THE ASSESSING OFFICER HAS TO SHOW BEFORE REOPENING THE ASSESSMENT UNDER SECTION 147 IS THAT THERE IS PRIMA-FACIE A CA SE TO INDICATE ESCAPEMENT OF INCOME CHARGEABLE TO TAX AND AT THAT STAGE HE HAS TO ONLY SHOW THE FORMATION OF A TENTATIVE OPIN ION AND INDICATE REASONS ON WHICH THE TENTATIVE BELIEF IS B ASED. HE IS NOT REQUIRED TO DEMONSTRATE AT THAT STAGE THAT THE EARL IER ASSESSMENT MADE BY HIM WAS ERRONEOUS. THUS BOTH THE JURISDICTIONS ARE BASICALLY SEPARATE AND DIFFERENT AND THE CONDITIONS REQUIRED TO EXERCISE THE SAME ARE ALSO D IFFERENT. THAT TAKES US TO THE QUESTION WHETHER IN THE PRESENT CAS E THE CASE CAN BE SAID TO BE GUILTY OF FAILURE TO FURNISH FULL AND TRUE PARTICULARS NECESSARY FOR HIS ASSESSMENT. WE HAVE A LREADY REFERRED TO THE MATERIAL ADDUCED BY THE ASSESSEE BE FORE THE ASSESSING OFFICER IN THIS BEHALF AT THE TIME OF TH E ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER HAD E NQUIRED INTO THE RETURN FILED BY THE ASSESSEE AND HAS ALSO RAISED SPECIFIC QUERIES REGARDING CAPITAL GAINS DECLARED BY THE ASS ESSEE. THE ASSESSEE HAD FURNISHED ALL THE RELEVANT DETAILS INC LUDING THE FACT THAT THE CAPITAL GAINS AROSE ON SALE OF SHARES FOR WHICH HE HAD THE OPTION TO SUBSCRIBE. THIS HAS BEEN BROUGHT OUT IN SUFFICIENT DETAIL IN ANNEXURE I TO THE LETTER DATED 25 TH SEPTEMBER, 2003 WRITTEN BY THE ASSESSEE TO THE ASSESSING OFFICER (P AGES 216 TO 219 OF THE PAPER BOOK). IN PARAGRAPH 6 OF THIS LETT ER ALSO THE RELEVANT DATES AND OTHER PARTICULARS HAVE BEEN GIVE N. SIMILARLY THERE ARE OTHER LETTERS WRITTEN BY THE ASSESSEE IN WHICH HE HAS DRAWN THE ATTENTION OF THE ASSESSING OFFICER TO THE RELEVANT FACTS UPON SPECIFIC BEING QUERIED. THE ASSESSING OFFICER WAS THUS FULLY AWARE, WHILE MAKING THE ORIGINAL ASSESSMENT T HAT THE SHARES WERE GIVEN TO THE ASSESSEE BY HIS EMPLOYER A S A STOCK ITA NO.2293/M/08 14 OPTION IN THE YEARS 1996 AND 1997 AND THE SAME WAS LATER EXERCISED BY THE ASSESSEE AND SIMULTANEOUSLY THE S HARES WERE SOLD. IT WAS THE ASSESSEES CASE THAT IN THOSE CIR CUMSTANCES, THE SURPLUS WAS ASSESSABLE AS CAPITAL GAINS. IT WAS OPEN TO THE ASSESSING OFFICER, WHILE COMPLETING THE ORIGINAL AS SESSMENT, TO REJECT THE ASSESSEES CLAIM AND PROCEED TO HOLD THA T THE PROVISIONS OF SECTION 17(2)(III) WERE APPLICABLE A ND THEREFORE, THE SURPLUS WAS ASSESSABLE NOT AS CAPITAL GAINS BUT UND ER THE HEAD SALARY. IN OTHER WORDS, ALL THE BASIC FACTS WERE FED TO THE ASSESSING OFFICER FROM WHICH IT WAS OPEN TO HIM TO DRAW THE INFERENCE, IF HE SO WISHED, THAT THE AMOUNT WAS TAX ABLE AS PERQUISITES. HE HOWEVER FORMED THE OPINION THAT THE ASSESSEES CLAIM WAS RIGHT AND THAT THE SURPLUS WAS RIGHTLY SH OWN AS LONG TERM CAPITAL GAINS AND THAT THE EXEMPTION CLAIMED U NDER SECTION 54EC WAS ALSO ALLOWABLE. ON THE VERY SAME FACTS, IT IS NOT OPEN TO THE ASSESSING OFFICER TO CHANGE HIS OPI NION WITHOUT ANY FURTHER FACTS OR INFORMATION AND COME TO THE CO NCLUSION THAT THE SURPLUS ON THE SALE OF SHARES WAS TAXABLE AS PE RQUISITE UNDER THE HEAD SALARY. IT MUST BE REMEMBERED THA T IN THE REASONS RECORDED BY THE ASSESSING OFFICER FOR REOPE NING THE ASSESSMENT, THE RELEVANT PORTION FROM WHICH HAS BEE N EXTRACTED IN THE IMPUGNED ORDER, HE HAS STATED THAT INCOME CH ARGEABLE TO TAX HAD ESCAPED ASSESSMENT ON ACCOUNT OF FAILURE O N THE PART OF THE ASSESSEE TO SUBMIT THE COMPLETE DETAILS ABO UT THE TRANSACTION, THE AMOUNT SO RECEIVED AS SHOWN BY THE ASSESSEE UNDER CAPITAL GAINS REQUIRES TO BE EXAMINED ONCE AG AIN IN VIEW OF THE DEFINITION OF SALARY AND ITS TAXABILITY AS PERQUISITES. FURTHER IN SUCH A CASE NO DEDUCTION UNDER SECTION 5 4EC WILL BE AVAILABLE(PAGE 42 OF THE PAPER BOOK). IT IS CLEAR FROM THE REASONS RECORDED BY THE ASSESSING OFFICER THAT WHAT PROMPTED THE REOPENING OF THE ASSESSMENT WAS THE ALLEGED FAI LURE OF THE ASSESSEE TO SUBMIT THE COMPLETE DETAILS ABOUT THE T RANSACTION WHICH, AS SHOWN BY US ABOVE, IS CONTRARY TO FACTS. FURTHER THE ITA NO.2293/M/08 15 ASSESSING OFFICER HAS STATED THAT THE FACTS HAVE TO BE EXAMINED ONCE AGAIN IN THE LIGHT OF THE DEFINITION OF THE WO RD SALARY WHICH INCLUDES PERQUISITES ALSO. THERE WAS NOTHING WHICH PREVENTED THE ASSESSING OFFICER FROM CARRYING OUT T HIS EXERCISE AT THE TIME OF THE ORIGINAL ASSESSMENT PROCEEDINGS SINCE HE HAD ALL THE NECESSARY EVIDENCE BEFORE HIM. IT THEREFORE APPEARS TO US TO BE A CASE WHERE NOTICE ISSUED UNDER SECTION 148 IS PROMPTED BY MERE A CHANGE OF OPINION WITHOUT ANY FURTHER FAC TS OR INFORMATION RELATING TO THE LEGAL POSITION. THE CAS E IS THUS COVERED DIRECTLY BY THE JUDGEMENT OF THE SUPREME CO URT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD., (2010) 32 0 ITR 561. IN THIS JUDGEMENT, IT HAS BEEN HELD THAT WHERE THE ORI GINAL ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE A CT, IT CAN BE REOPENED ONLY IF THERE IS TANGIBLE MATERIAL TO C OME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME. IT WAS OBSERVED THAT THE CONCEPT OF CHANGE OF OPINION ON T HE PART OF THE ASSESSING OFFICER DOES NOT STAND OBLITERATED EV EN UNDER THE NEW PROVISIONS OF SECTION 147. IN THE PRESENT CASE THERE IS NO TANGIBLE MATERIAL BEFORE THE ASSESSING OFFICER AUTH ORIZING HIM TO REOPEN THE ASSESSMENT ON THE GROUND THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO FURNISH FULLY AND TRULY ALL NECESSARY FACTS RELEVANT TO HIS ASSESSMENT. 13. THE LETTER OF THE RESERVE BANK OF INDIA DATED 2 2.04.2000 WHICH IS SAID TO HAVE BEEN FILED ONLY BEFORE THE CI T IN THE PROCEEDINGS UNDER SECTION 263 AND THEREFORE TO CONS TITUTE ADDITIONAL MATERIAL ENABLING THE REOPENING OF THE A SSESSMENT IS REALLY NOT RELEVANT FOR THE CONTROVERSY BEFORE US. THE COPY OF THE SAID LETTER IS AT PAGE 50 OF THE PAPER BOOK. IT ON LY ADVISED THE ASSESSEE THAT NO FORMAL APPROVAL FROM THE RBI IS NE CESSARY FOR EXERCISING STOCK OPTIONS, IF THE OPTIONS ARE EXERCI SED BY THE CASHLESS METHOD I.E. SIMULTANEOUS PURCHASE AND SALE WITHOUT INVOLVING ANY OUTFLOW OF FOREIGN EXCHANGE AND WITHO UT ANY SHARE ITA NO.2293/M/08 16 CERTIFICATES BEING ISSUED TO THE EMPLOYEES BY THE P ARENT COMPANY. IT IS ALSO A CONDITION IMPOSED BY THE RESE RVE BANK OF INDIA THAT THE SALE PROCEEDS SHOULD BE REMITTED TO INDIA BY NORMAL BANKING CHANNELS. THIS LETTER DOES NOT IN AN Y WAY IMPINGE UPON THE QUESTION AS TO WHETHER THE SALE PR OCEEDS IS ASSESSABLE AS CAPITAL GAINS OR AS SALARY. THE FACT THAT THIS LETTER WAS FILED ONLY BEFORE THE CIT IN PROCEEDINGS UNDER SECTION 263 IS THEREFORE NOT RELEVANT AS THIS LETTER ALONE COULD N OT HAVE IN ANY WAY INFLUENCED THE ASSESSING OFFICER TO COME TO THE FIRM DECISION THAT THE SALE PROCEEDS WERE ASSESSABLE AS SALARY. THE ASSESSEE HAD EVEN OTHERWISE INFORMED THE ASSESSING OFFICER ABOUT THE GRANT OF STOCK OPTIONS, THE EXERCISE OF T HE SAME AND THE SIMULTANEOUS SALE OF THE SHARES IN HIS LETTERS WRITTEN TO THE ASSESSING OFFICER ON BEING QUERIED BY THE LATTER. THE ASSESSING OFFICER WAS THEREFORE AWARE OF THE EMPLOYER-EMPLOYE E RELATIONSHIP THAT EXISTED BETWEEN THE CPIL AND THE ASSESSEE AND ALSO THE FACT THAT THE EMPLOYER HAD GRANTED STOCK O PTIONS TO THE ASSESSEE. ON THESE FACTS DISCLOSED TO HIM, HE ACCE PTED THE ASSESSEES CLAIM THAT THE SALE PROCEEDS WERE ASSESS ABLE AS CAPITAL GAINS. THERE WERE NO FURTHER OR NEW FACTS OR A CHANGE IN THE LEGAL POSITION AFTER THE COMPLETION OF THE ORIG INAL ASSESSMENT WHICH COULD ENABLE THE ASSESSING OFFICER TO HOLD EV EN PRIMA- FACIE, THAT INCOME CHARGEABLE TO TAX HAD ESCAPED A SSESSMENT BY REASON OF THE ASSESSEES FAILURE TO FURNISH FULLY A ND TRULY ALL MATERIAL FACTS RELATING TO THIS ASSESSMENT. WE HAV E ALREADY REFERRED TO THE ASSESSING OFFICERS OBSERVATION IN THE REASONS RECORDED THAT FOR THE FIRST TIME THE ASSESSEE BROUG HT TO THE NOTICE OF THE COMMISSIONER THAT (A) STOCK OPTIONS W ERE GRANTED TO HIM (B) THAT HE HELD THOSE OPTIONS & (C) THAT HE COULD NOT HAVE HELD ANY SHARES. THIS IS NOT AN ACCURATE STAT EMENT IF REGARD IS HAD TO THE ASSESSEES LETTER DATED 25 TH SEPTEMBER, 2003 WRITTEN TO THE ASSESSING OFFICER. IN PARAGRAP H 6 OF THIS LETTER, THE ASSESSEE HAS CLEARLY STATED AS UNDER:- ITA NO.2293/M/08 17 6. THE POSITION OF DATES OF CAPITAL GAIN REALIZATI ON AND THE INVESTMENTS IN 54EC BONDS ARE AS FOLLOWS:- A) DATE OF ACQUISITION OF THE SHARES UNDER OPTION RIGHT FOR 2600 SHARES 11.09.07 DATE OF EXERCISE AND SALE THEREOF 05.02.01 B) DATE OF ACQUISITION OF THE SHARES UNDER OPTION RIGHT FOR 3200 SHARES 05.09.96 DATE OF EXERCISE AND SALE OF SHARES 05.02.91 FURTHER DETAILED WORKING OF LONG TERM CAPITAL GAINS IS ENCLOSED AS PER ANNEXURE VI. ANNEXURE-VI MR. UDAI UPENDRA ASSESSMENT YEAR 2001-02 ANNEXURE I SCHEDULE SHOWING WORKING OF CAPITAL GAIN PURCHASE (GRANT)DATE NO. OF SHARES OPTION PRICE DA TE OF SALE SALE PRICE PER SHARE NET SALE CONSIDERATION CAPITAL GAINS 5/9/96 3200 $65,000 5/2/01 $61.0209 $195,266.88 $130,266.88 11/9/97 2600 $80,803.32 5/2/01 $61.0209 $158,654.34 $77,851.02 $208,117.90 CAPITAL GAIN CONVERTED @ RS.46.34 96441 83 LESS:INVESTED IN NABARD BONDS ON 2.8.01 U/S.54EC TAXABLE LONG TERM CAPITAL GAIN U/S.112 TAX ON ABOVE CAPITAL GAIN U/S.112 @ 10% OF 4 644183 5000000 4644183 464418 IN ANNEXURE I THERE IS A COLUMNAR STATEMENT WHICH S HOWS THE WORKING OF THE CAPITAL GAINS IN ACCORDANCE WITH THE AFORESAID DETAILS. THIS STATEMENT MADE BY THE ASSESSEE IN THE ABOVE LETTER CONTRADICTS THE OBSERVATION OF THE ASSESSING OFFICE R IN THE REASONS RECORDED BY HIM FOR REOPENING THE ASSESSME NT TO THE EFFECT THAT IT WAS FOR THE FIRST TIME BEFORE THE CI T THAT THE ASSESSEE MADE IT KNOWN THAT HE HAD BEEN GRANTED STO CK OPTIONS BY HIS EMPLOYER, THAT HE HELD THEM AS OPTIONS AND T HAT HE DID NOT HOLD THEM AS SHARES. THE DETAILS FURNISHED BY THE ASSESSEE IN THE ABOVE LETTER ARE UNEQUIVOCAL IN SAYING THAT HE GOT AN OPTION FOR SUBSCRIBING TO THE SHARES AT AN EARLIER DATE WHICH OPTION WAS LATER EXERCISED AND THE SHARES WERE SIMU LTANEOUSLY ITA NO.2293/M/08 18 SOLD AT A LATER DATE. IN OTHER WORDS, THESE DETAILS CLEARLY DISCLOSED TO THE ASSESSING OFFICER THAT THE ASSESSE E WAS GRANTED STOCK OPTIONS, THAT HE HELD THE SAME AS STOCK OPTIO NS AND NOT AS SHARES TILL THE DATE ON WHICH HE EXERCISED THE OPTI ONS AND SIMULTANEOUSLY SOLD THEM. THE REASONS RECORDED BY T HE ASSESSING OFFICER THUS HAVE NO NEXUS TO THE FORMATI ON OF BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMEN T BY THE REASON OF THE ASSESSEES FAILURE TO FURNISH FULLY A ND TRULY MATERIAL PARTICULARS RELATING TO HIS ASSESSMENT. 14. WE ACCORDINGLY HOLD, THOUGH FOR DIFFERENT REASO NS, THAT THE DECISION OF THE CIT(A) THAT THE REOPENING OF TH E ASSESSMENT WAS WITHOUT JURISDICTION IS NOT REQUIRED TO BE DIST URBED. WE UPHOLD HIS ORDER AND DISMISS THE APPEAL FILED BY TH E REVENUE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2010. SD/- ( A.L. GEHLOT ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 30 TH JULY, 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-29,MUMBAI. 4. THE CIT(A)-XXIX, MUMBAI 5. THE DR F BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI