2014 (5) TMI 996 - AT - Income Tax

Deletion of penalty u/s 271(1)(c) of the Act LTCG claimed inspite of STCG Intention to evade tax - Held that - The assessee had treated the entire capital gain as long term capital gain for the reason that ESOPs remained vested with him for more than 12 months - the date of acquisition of shares has been considered with reference to the date of which assessee had exercised the option by making payment for shares - the issue is highly debatable as to whether date of acquisition 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 in him by allotment of ESOP entitling him to acquire the shares, which is also a capital asset - there can be two views on the issue and it cannot be said that assessee s action in returning the income as long term capital gain was illegal - The assessee had not concealed any particulars of its income - The facts were duly disclosed before the Department and only on account of different interpretation, the capital gain was treated as short term capital gain thus, there is no reason to interfere in the order of the CIT(A) Decided against Revenue.

Summary

Issues involved:
1. Determination of capital gain treatment on sale of shares under ESOP scheme.
2. Imposition of penalty under section 271(1)(c) for alleged concealment of income.

Issue 1: Determination of capital gain treatment on sale of shares under ESOP scheme:
The appeal was filed by the Revenue against the order of the ld. CIT(A)-XXX for A.Y. 2007-08 regarding the treatment of capital gains arising from the sale of shares under an ESOP scheme. The assessee had declared an income of Rs. 1,11,45,973, including a capital gain of Rs. 45,15,285 from the sale of 18,155 shares allotted under the ESOP scheme. The Assessing Officer (AO) contended that the gain should be treated as short-term capital gain, as the shares were sold on the same day the option to acquire them was exercised. The AO relied on a decision by the Bangalore Tribunal to support this view. However, the assessee argued that the gain should be treated as long-term capital gain based on the period the ESOPs remained vested with him. The ld. CIT(A) agreed with the assessee's position, noting that the assessee had paid additional tax to avoid further litigation and had not concealed any income. The Tribunal upheld the CIT(A)'s decision, emphasizing the debatable nature of the issue and the absence of concealment of income by the assessee.

Issue 2: Imposition of penalty under section 271(1)(c) for alleged concealment of income:
The AO initiated penalty proceedings under section 271(1)(c) against the assessee for allegedly concealing income by treating the capital gain as long-term instead of short-term. The ld. CIT(A) overturned the penalty, noting that the assessee had not concealed any particulars of income and had paid additional tax voluntarily. The Revenue challenged this decision, arguing that the AO had detected the alleged discrepancy and that the assessee had intended to evade tax liability. However, the Tribunal upheld the CIT(A)'s decision, highlighting that the assessee had disclosed all relevant facts to the department and that the treatment of the capital gain as long-term was based on a valid interpretation. Therefore, the Tribunal dismissed the Department's appeal, affirming the deletion of the penalty imposed under section 271(1)(c).

In conclusion, the Tribunal upheld the treatment of the capital gain as long-term and dismissed the penalty imposed under section 271(1)(c) against the assessee, emphasizing the absence of concealment of income and the debatable nature of the issue regarding the date of acquisition of shares under the ESOP scheme.