2015 (7) TMI 779 - AT - Income Tax

Sale of shares - assessee has sold shares purchased in Stock Option Plan - whether the transaction is to be treated as in the nature of long term capital gain or short term capital gain - Held that - Assessee has filed his evidences before the revenue authorities for substantiating his claim before them and the revenue authorities has also gave their opinion which remained under appeal before the Tribunal, Hon ble High Court and the Hon ble Supreme Court of India. Finally, the Hon ble Supreme Court of India has directed the Tribunal to decide the matter on facts as well as on merit without influence by the observations made by the Hon ble High Court. We have thoroughly examine the issue in dispute alongwith finding given by the revenue authorities and we find that the issue in dispute require detailed examination at the level of the Assessing Officer. Therefore, in the interest of justice, the issue in dispute is remitted back to the file of the AO with the direction to examine the issue in dispute de novo, after giving full opportunity to the assessee of being heard. Appeal filed by the Revenue stands allowed for statistical purposes.

Issues Involved:
1. Classification of capital gains from the sale of shares acquired under the stock option plan as long-term or short-term capital gains.
2. Jurisdiction of the Assessing Officer (AO) in reassessing the issue on merits after the Tribunal's specific directions.
3. Admission and consideration of additional evidence by the Commissioner of Income Tax (Appeals) [CIT(A)].

Issue-wise Detailed Analysis:

1. Classification of Capital Gains:
The primary issue in this case revolves around whether the capital gains arising from the sale of shares acquired under the stock option plan of M/s Microsoft Corporation should be classified as long-term or short-term capital gains. The AO initially assessed these gains as short-term capital gains amounting to Rs. 94,12,649/-. The CIT(A), however, held that the shares were held for more than one year and thus should be treated as long-term capital gains, referencing the Delhi Tribunal decision in the case of Alok Kumar vs. JCIT 13 SOT 706. This decision was contested by the Revenue, leading to a series of appeals and remands between the Tribunal, the High Court, and the Supreme Court.

2. Jurisdiction of the AO:
The Tribunal, in its first round, remitted the case back to the AO solely for the verification of the dates of allotment of shares. The Tribunal's directive was clear: "If dates of allotment of shares are found to be correct, the AO is directed to accept the claim of the assessee relating to long term capital gain." However, the AO, in his subsequent order, reassessed the issue on merits, treating the gains as short-term based on the date of exercise of the option. The CIT(A) and the Tribunal both held that the AO exceeded his jurisdiction by reassessing the merits of the case, which was beyond the limited scope of verification directed by the Tribunal.

3. Admission and Consideration of Additional Evidence:
The Revenue claimed that the CIT(A) erroneously admitted additional evidence in violation of Rule 46A(3) of the Income Tax Rules, 1962, without providing the AO an opportunity to rebut the claim. The Tribunal, however, found that the dates of acquisition of bonus shares, which were crucial to the case, were part of the original evidence and were not newly introduced during the appellate proceedings. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not disputed the correctness of these dates in his reassessment.

Final Judgment:
The Supreme Court of India, while dismissing the Special Leave Petition, directed the Tribunal to decide the matter on the facts and merits of the case without being influenced by the observations made by the High Court. Upon re-examination, the Tribunal found that the issue required a detailed examination at the AO's level. Consequently, the Tribunal remitted the issue back to the AO for a de novo examination, ensuring that the assessee is given a full opportunity to be heard.

Conclusion:
The Tribunal's final decision emphasized the need for a thorough re-examination of the facts by the AO, particularly focusing on the dates of allotment and vesting of the shares to determine the correct classification of the capital gains. This decision underscores the importance of adhering to specific directives from appellate authorities and ensuring due process in the reassessment of tax matters.

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