2013 (2) TMI 581 - HC - Income Tax

Penalty u/s 271(1)(c) - assessee sold stock options received as a part of employment declaring in his return as long term capital gains whereas revenue treated it as short term capital gains - Held that - Question whether the sale of the stock options would result in long term capital gains or short term gains was not very clear at the time when the assessee filed his return for the assessment year 2002-03. In fact the view taken by the AO in the quantum proceedings had been reversed by the CIT (Appeals) in the appeal filed by the assessee. The view taken by the CIT(Appeals) was ultimately reversed by the Tribunal and the view of the assessing officer was upheld in the quantum proceedings. This, in itself, is indicative of the fact that the issue was not very clear-cut. That being the position, the case of the assessee cannot be brought within the provisions of section 271(1)(c) of the said Act.

Summary

Issues:
Assessment of stock options as long term or short term capital gains, Penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:

1. Assessment of Stock Options: The respondent, an employee receiving stock options, sold them during the relevant year and declared the proceeds as long term capital gains. However, the assessing officer treated them as short term gains. The Commissioner of Income Tax (Appeals) initially ruled in favor of the respondent, but the Tribunal reversed this decision, holding that the gains were short term capital gains. The High Court agreed that the issue was not clear-cut, as evidenced by the differing decisions in the lower proceedings. The Court found that the respondent's treatment of the gains was a matter of opinion, not inaccurate particulars, leading to the dismissal of the appeal.

2. Penalty under Section 271(1)(c): The assessing officer imposed a penalty under section 271(1)(c) for the treatment of stock options as short term gains. However, the Commissioner of Income Tax (Appeals) and the Tribunal both ruled in favor of the respondent, stating that the issue was debatable at the time of filing the return. The Tribunal specifically highlighted that there was no concealment of facts or submission of incorrect information by the respondent. The High Court concurred with this view, emphasizing that the differing decisions in the lower proceedings indicated the lack of clarity on the issue, thereby dismissing the appeal.

In conclusion, the High Court found no substantial question of law in the appeal, leading to its dismissal without any costs. The judgment highlighted the importance of the debatable nature of the issue regarding the assessment of stock options and the penalty imposition under section 271(1)(c) of the Income Tax Act, 1961.