ACIT, New Delhi V. Sh. Apurva Kaila, New Delhi

ITA 3451/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77709 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 30-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H G SEMA
• Keywords: Capital asset; Revised return
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO. 3451/DEL/2013 ASSESSMENT YEAR: 2007-08 ACIT, CIRCLE 46(1), NEW DELHI. VS. APURVA KAILA, W-3, GREATER KAILASH-II, NEW DELHI. AAJPK8126E (APPELLANT) (RESPONDENT) APPELLANT BY: H.G. SEMA, DR RESPONDENT BY: NONE O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A)-XXX, NEW DELHI, DATED 20.03.2013 FOR A.Y. 20 07-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D FILED ITS RETURN OF INCOME DECLARING AN INCOME OF RS. 1,11,45,973/-. T HE AO RECEIVED INFORMATION IN RESPECT OF SALE OF SHARES UNDER ESOP ALLOTTED TO THE ASSESSEE BY M/S CADENCE DESIGNS SYSTEMS INC USA. THE ASSESS EE HAD SOLD 18,155 SHARES ALLOTTED UNDER ESOP SCHEME DURING THE ASSESS MENT YEAR 2007-08 AND EARNED A CAPITAL GAIN OF RS. 45,15,285/-. ACCOR DINGLY, NOTICE U/S 148 WAS ITA NO. 3451/D/2013 2 ISSUED. THE ASSESSEE WAS REQUIRED TO FURNISH THE D ETAILS ALONG WITH NECESSARY EVIDENCES IN THIS REGARD. FROM THE DETAI LS FURNISHED BY ASSESSEE, IT TRANSPIRED THAT ASSESSEE HAD TREATED THE SALE CO NSIDERATION RECEIVED BY WAY OF FOREIGN INWARD REMITTANCE FROM THE PARENT CO MPANY AS LONG TERM CAPITAL GAIN AND TAX @ 20%. 2.1 THE AO WAS OF THE OPINION THAT SINCE THE SHARES WERE SOLD ON THE SAME DATE ON WHICH ASSESSEE EXERCISED ITS OPTION TO ACQUIRE THE SHARES BY MAKING PAYMENT, THEREFORE, THIS WAS A CASE OF SHORT TERM CAPITAL GAIN AND NOT LONG TERM CAPITAL GAIN. THE ASSESSEE HAD TREAT ED THIS AS LONG TERM CAPITAL GAIN BY RECKONING THE PERIOD OF HOLDING FRO M THE DATE OF GRANT OF ESOP IN EARLIER YEAR AND NOT FROM THE DATE ON WHICH HE EXERCISED THE OPTION OF ACQUIRING SHARES BY MAKING THE PAYMENTS. THE AO , IN VIEW OF THE DECISION OF BANGALORE TRIBUNAL IN THE CASE OF GIRDH AR KRISHNA VS. ACIT, 117 ITJ (2008) 965 (BANG.), REQUIRED THE ASSESSEE TO CL ARIFY AS TO WHY THE GAIN ON SALE OF SHARES UNDER ESOP SHOULD NOT BE TREATED AS SHORT TERM CAPITAL GAIN INSTEAD OF LONG TERM CAPITAL GAIN. THE ASSESS EE POINTED OUT THAT HE HAS ALREADY FURNISHED REVISED RETURN OF INCOME FOR AY 2 007-08 ON 20/02/2009 BASED ON THE JUDGMENT OF ITAT, BANGALORE IN CASE OF MUTHUSWAMI RAVI KUMAR VS. ACIT ON METHODOLOGY OF CALCULATING THE CA PITAL GAINS MADE ON SALE OF ESOPS ISSUED BY THE EMPLOYER. THE ASSESSE E FURTHER POINTED OUT THAT IN VIEW OF DECISION OF ITAT, BANGALORE BENCH I N THE CASE OF GIRDHAR ITA NO. 3451/D/2013 3 KRISHNA VS. ACIT (SUPRA) HE HAD NO OBJECTION IN TRE ATING THE WHOLE OF LONG TERM CAPITAL GAIN ON SALE OF SHARES UNDER ESOP AS S HORT TERM CAPITAL GAIN. 3. IN THE BACKDROP OF THESE FACTS, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) AND AFTER CONSIDERING THE ASSESSEES EXPL ANATION LEVIED PENALTY U/S 271(1)(C) REJECTING THE ASSESSEES CONTENTION THAT HE HAD SUOMOTO REVISED THE RETURN OF INCOME. 4. LD. CIT(A) ALLOWED THE ASSESSEES APPEAL OBSERVI NG IN PARA 4 AS UNDER: 4. I HAVE PERUSED THE PENALTY ORDER, GROUNDS OF A PPEAL, WRITTEN SUBMISSION AND DISCUSSED THE MATTER WITH TH E APPELLANT VERY CAREFULLY. THE APPELLANT HAS BORNE GREAT HARDSHIP BY THE INTERPRETATION ADOPTED BY THE AO AN D HAS HAD PAID AN ADDITIONAL TAX OF RS. 7,71,636/- SIMPLY TO AVOID FURTHER LITIGATION, ALTHOUGH THE STOCK OPTION S SOLD IN HIS HANDS HAD VESTED WITH HIM FOR MORE THAN 12 MONT HS AND WERE IN FACT LONG TERM IN NATURE. SINCE THE AP PELLANT HAD PAID AN ADDITIONAL TAX AND HAD NOT CONCEALED AN Y INCOME OR PARTICULARS WHATSOEVER, AND THE FINAL INC OME ASSESSED IN ASSESSMENT ORDER IS THE SAME AS THAT ORIGINALLY SUBMITTED BY THE APPELLANT, I DID NOT FI ND ANY MERIT IN IMPOSITION OF PENALTY. CONSIDERING THE FA CTS AND CIRCUMSTANCES OF THE CASE, I DELETE THE PENALTY IMP OSED OF RS. 5,29,663/- U/S 271(1)(C) ON THE APPELLANT. 5. BEING AGGRIEVED WITH THE LD. CIT(A) THE DEPARTME NT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: ITA NO. 3451/D/2013 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN: 1. DELETING THE PENALTY OF RS. 529633/- U/S 271(1)(C) RIGHTLY IMPOSED BY THE AO; 2. DELETING THE PENALTY IGNORING THE FACT THAT IT WAS THE AO WHO FIRST DETECTED THE DISCREPANCY THAT THE ASSESSEE HAD DELIBERATELY CLAIMED THE CAPITAL GAIN (TAX @ 20%) INSTEAD OF SHORT TERM CAPITAL GAIN (TAX @ 30%) WITH THE INTENTION TO EVADE THE TAX LIABILIT Y; 3. DELETING THE PENALTY THAT THE ASSESSEE HAD VOLUNTARILY OFFERED THE AMOUNT FOR ADDITION ON ACCOUNT OF SHORT TERM CAPITAL GAIN DURING THE COURS E OF ASSESSMENT PROCEEDINGS AS HE HAD NOTHING TO EXPLAIN. 6. WE HAVE CONSIDERED THE SUBMISSIONS ADVANCED BY L D. DR AND HAVE PERUSED THE RECORD OF THE CASE. 7. BEFORE LD. CIT(A) THE ASSESSEE SUBMITTED THAT TH E AO IN THE REASONS RECORDED AT THE TIME OF REOPENING THE CASE U/S 148 OF THE I.T. ACT, HAD QUESTIONED THE SALE OF 437 SHARES OUT OF THE GRANT OF 1400 SHARES WHICH WERE PROPOSED TO BE OF SHORT TERM NATURE. THE ASSE SSEE SUBMITTED THAT IN THE REVISED RETURN FILED, HE HAD ALREADY SHOWN 350 SHARES, OUT OF 437 SHARES AS SHORT TERM CAPITAL GAINS BUT THE BALANCE 87 WERE HELD FOR MORE THAN 12 MONTHS FROM THE DATE THEY WERE VESTED WITH THE ASSE SSEE AND WERE OF LONG TERM NATURE. IT WAS FURTHER EXPLAINED THAT THE AO ALSO QUESTIONED THE SALE OF OTHER SHARES WHICH HAD NOT FORMED THE PART OF THE R EASONS RECORDED FOR REOPENING THE CASE. HE SUBJECTED THE LONG TERM CAP ITAL GAIN DECLARED BY THE ITA NO. 3451/D/2013 5 ASSESSE AS SHORT TERM CAPITAL GAINS DUE TO WHICH AS SESSEE WAS REQUIRED TO MAKE THE PAYMENT OF 7,71,636/- AS ADDITIONAL TAX SI MPLY TO AVOID ANY FURTHER LITIGATION ALTHOUGH THE STOCK OPTIONS SOLD IN HIS H ANDS HAD VESTED WITH HIM FOR MORE THAN 12 MONTHS AND WERE IN FACT LONG TERM IN N ATURE. THEREFORE, THE MOOT POINT FOR CONSIDERATION IS WHETHER ASSESSEE HA D CONCEALED THE PARTICULARS OF ITS INCOME OR FURNISHED INACCURATE P ARTICULARS OF INCOME IN ORDER TO ATTRACT THE PENALTY PROVISION U/S 271(1)(C ). WE FIND THAT ASSESSEE HAD TREATED THE ENTIRE CAPITAL GAIN AS LONG TERM CA PITAL GAIN FOR THE REASON THAT ESOPS REMAINED VESTED WITH HIM FOR MORE THAN 1 2 MONTHS. THIS ASPECT IS NOT DISPUTED BY REVENUE AUTHORITIES. HOWEVER, T HE DATE OF ACQUISITION OF SHARES HAS BEEN CONSIDERED WITH REFERENCE TO THE DA TE OF WHICH ASSESSEE HAD EXERCISED THE OPTION BY MAKING PAYMENT FOR SHAR ES. THE AO RELIED ON THE DECISION OF ITAT BANGALORE BENCH IN THE CASE OF GIRDHAR KRISHNA (SUPRA) FOR COMING TO THE CONCLUSION THAT THIS WAS A CASE O F SHORT TERM CAPITAL GAIN AS THE DATE OF EXERCISE OF OPTION AND THE DATE SALE OF SHARES WAS SAME. THIS ISSUE IS HIGHLY DEBATABLE AS TO WHETHER DATE OF ACQ UISITION OF SHARES IS TO BE RECKONED FROM THE DATE WHEN THE ASSESSEE EXERCISED ITS OPTION TO ACQUIRE SHARES IN PURSUANCE TO THE RIGHTS VESTED IN HIM BY VIRTUE OF ALLOTMENT OF ESOP OR FROM THE DATE FROM WHICH THE RIGHT VESTED I N HIM BY ALLOTMENT OF ESOP ENTITLING HIM TO ACQUIRE THE SHARES, WHICH IS ALSO A CAPITAL ASSET. IN THIS REGARD WE MAY POINT OUT THAT THERE CAN BE TWO VIEWS ON THIS ISSUE AND, THEREFORE, IT CANNOT BE SAID THAT ASSESSEES ACTION IN RETURNING THE INCOME AS ITA NO. 3451/D/2013 6 LONG TERM CAPITAL GAIN WAS ILLEGAL. THE ASSESSEE H AD NOT CONCEALED ANY PARTICULARS OF ITS INCOME. THE FACTS WERE DULY DIS CLOSED BEFORE THE DEPARTMENT AND ONLY ON ACCOUNT OF DIFFERENT INTERPR ETATION, THE CAPITAL GAIN WAS TREATED AS SHORT TERM CAPITAL GAIN. UNDER SUCH CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). 8. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/04/2014 SD/- SD/- (A.T. VARKEY) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 28/04/2014 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR