2013 (5) TMI 1051 - AT - Income Tax

Summary

Issues Involved:

1. Jurisdiction to levy penalty u/s 271(1)(c) of the IT Act.
2. Merits of the penalty levied for non-disclosure of income from ESOP shares.

Summary:

1. Jurisdiction to levy penalty u/s 271(1)(c) of the IT Act:

The department appealed against the CIT (A)'s order deleting the concealment penalty of Rs. 33,04,510/- levied on the assessee. The Ld. CIT (A) observed that the jurisdiction to record satisfaction and levy the penalty with respect to additions made in the order passed u/s 263 by the CIT-XVI, New Delhi, was with the CIT alone. The CIT (A) noted that the power to impose penalty was conferred upon the Commissioner by the Finance Act 2002 w.e.f. 01.06.2002. The CIT (A) held that the recording of satisfaction and the levy of penalty must be executed by the authority who made the addition. Since the CIT made the disallowance/addition, it was the CIT who had the jurisdiction to record satisfaction about concealment of income. The Assessing Officer (AO) merely gave effect to the CIT's order and was not empowered to initiate penalty proceedings. The CIT (A) concluded that the penalty order passed by the AO was without jurisdiction and null and void.

2. Merits of the penalty levied for non-disclosure of income from ESOP shares:

On merits, the CIT (A) found that the assessee's belief that the amount received from the sale of ESOP shares was not taxable was genuine and bonafide. The assessee relied on the Supreme Court judgment in 'CIT vs. B.C. Srinivasa Setty', 128 ITR 294 (SC), which held that capital gain could only be computed when the cost of acquisition of the asset sold is ascertainable. The CIT (A) noted that there was confusion regarding the taxability of the amount on the sale of ESOP shares, as evidenced by the Third Member decision in 'Garrick D'Silva vs. Jt. CIT', 105 TTJ 445 (Del) (TM). The Mumbai Bench in 'Bomi S. Billimoria vs. ACIT', 124 TTJ 960 (Mum) also held that no capital gain accrued when the date of exercise of option and the date of sale were the same. The CIT (A) concluded that the assessee's belief was not unfounded and that the penalty was not leviable on merits.

Conclusion:

The Tribunal found no error in the CIT (A)'s order. Since the addition was made by the CIT while passing the order u/s 263, it was for the CIT to record satisfaction and levy penalty, not the AO. The Tribunal confirmed the CIT (A)'s order, holding that the penalty order passed by the AO was without jurisdiction and that the penalty was not leviable on merits. The appeal filed by the Department was dismissed.