TaxTMI 
TaxTMI 
2011 (5) TMI 1031
X X X X Extracts X X X X
X X X X Extracts X X X X
....nto shares before 31.3.1999, as the same was to be exercised within the period of 3 months from the announcement of financial results of the company for the year ending 31.3.1999. As per the letter of offer, it was also obligatory, on the part of the assessee to make full payment for conversion of warrants into shares. The assessee exercised his option on 30.4.1999 and was allotted the shares, accordingly. However, the assessee declared a perquisite of Rs.7.72 crores for assessment year 1999-2000 at Rs.386 per share, being the difference between the market value of Rs.598 per share as on 1.2.1999 and Rs.212 being the cost paid for the said 2,00,000 shares. In the order issued under section 143(3), the Assessing Officer assessed the perquisite at Rs.916.25 shares being the difference between the market value of Rs.1128.25 per share as on 30.4.1999 (date of exercise of option) and Rs.212. In other words, while the assessee declare the transaction in the assessment year 1999-2000, the Assessing Officer considered the transaction and the resultant income in the assessment year 2000-01. Secondly, the Assessing Officer enhanced the perquisite ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ishing of inaccurate particulars. Now even this contention of the case clearly reflects that assessee has deliberately furnished inaccurate particulars to reduce his tax liability. Even he is claiming that dispute is just about year of taxability, whereas in fact it is about right market value of the shares, which is rightly assessed by Assessing Officer as per provisions of law. Assessee has further relied upon the jd of Hon'ble Supeme Court given in the case of Dilip N. Shroff 291 ITR 519 and T. Ashok Pai, 292 and stated that if the mistake is bonafide, no penalty should be levied and stated that section 271(1)(c) remain a penal statute. However, even this contention of assessee is not acceptable as the mistake is not a bonafide one. It is a deliberate attempt to violate provisions of law to reduce the tax liability. In the judgement of Hon'ble Supreme Court in the case of Union of India vs. Dharmender Textile procession clearly states that, 'The explanation appended to section 271(1)(c) of the Income Tax Act, 1961 entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgement in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Technologies Ltd. 297 ITR 167. The Hon'ble ITAT concluded that the date of exercise of option, which is 30.4.1999 ( A.Y. 2000-01) would be the date of reckoning for calculating the perquisite value. It is undoubted that this issue was a debatable one, which is proven by the very fact that the matter had to travel to the Hon'ble Supreme Court for a decision, as has been done in the case of Infosys Technologies Ltd. (supra). The issue is further confounded by circular No. 710 dated 24.7.95, issued by the CBDT. The said circular (relevant portion) is reproduced below "Circular No. 710 'Taxability of the perquisite on shares issued to employees at less than market price 1. Chief Commissioner and corporate assessee have been seeking clarification regarding taxability of the perquisite on shares issued to the employees at less than market price. 2. The matter has been considered by the Board. The benefit does amount to a perquisite within the meaning of clause (iii) of sub-section (2) of section 17 of the Income Tax Act, 1961. The various situations in this regard have to be dealt with as under: (i) Where the shares held by the G....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee has disclosed the transaction in Assessment Year 1999-2000 (prior to the amendment brought about in the Act). He has voluntarily paid the taxes. On a different interpretation of law, the Learned Assessing Officer has shifted the assessibility of the income to Assessment Year 2000-01. As such, the perquisite value has also been enhanced, which was totally dependent on the market value of the shares at the stock exchange on the date of exercising of option. The order of the Learned Assessing Officer was considered by the learned CIT(A), who deleted the addition. Eventually, the Hon'ble ITAT restored the order of the Learned Assessing Officer by applying the decision of the Supreme Court in Infosys Technologies Ltd .. (supra). This itself suggests that the issue was extremely controversial and two opinions could be arrived at. It is crucial to observe that the decision of the Apex Court was rendered on 4.1.2008, which was much later than the date on which the assessee filed his return of income. When the matter is disputed and where there is a possibility of two or more opinions, penalty cannot be levied. This principle has also been recently affirmed by the Hon'ble T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee may have ten bank accounts from which interest income is received. The assessee files a return by declaring interest income from nine bank accounts but omits to include such interest income from the tenth bank account and further this omission is and not wilful. Such would be the cases caught within the sweep of the ratio laid down in the case of Dharamendra Textile Processors & Ors. (supra). In this case the concealment of income by not offering the interest income for taxation for taxation from the tenth bank account is there. But in a case where a genuine claim is made for deduction which is not accepted by the Revenue but all the necessary particulars are declared by the assessee in the return of income, ( as has been done in the case in hand) it cannot be said by any stretch of imagination that the assessee has concealed his income or furnished inaccurate particulars of income in respect of the claim which stands repelled by the authorities. If penalty is imposed under such circumstances also then probably there will remain no course open to the assessee for genuinely claiming a deduction which in his opinion is admissible, because the fear of such claim being rejected i....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Vamchampigons & Agro Product 284 ITR 408 (Delhi High Court). 9. Ld. counsel of the assessee submitted the following chronological sequence of events as under:- Date Event Remarks 01.02.1999 Offer and acceptance of offer to issue of 2,00,000 Equity Share Warrants for allotment of 2,00,000 shares of face value RS. 10 each, at the rate Rs. 212 per share - 1/3rd of shares (66,668 shares) issued against the above warrants were subject to a lockin period of one year - 1/3rd of shares issued (66,668 shares) against the above warrants were subject to a lock-in period of two years - Balance 1/3rd of shares (66,668 shares) issued against the above warrants were not subject to any lock-in period Prevailing MV : Rs.598 per share 15.4.1999 Date of exercise of option Prevailing MV : Rs.850 per Share 30.4.1999 Board of Directors accepted the exercise of option by the assessee Prevailing MV : Rs.1128.25 per Share 30.10.1999 The assessee filed return of income for A.Y. 1999-2000 offering perquisite value of Rs.7,72,00,000 to tax in respect of all the 2,00,000 shares, (i.e. including 1,33,332 shares subject to lock-in perio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9 The Assessing Officer passed the penalty order, imposing penalty under section 271(1)(c) for A.Y. 2000-01. - 6.8.2009 The C.I.T.(A) deleted the penalty imposed by the Assessing Officer (Pg. 50, Pr. 8) on the ground that the issue was a debatable issue and there was uncertainty on the year of taxability of perquisite arising from ESOP offer, therefore, bonafide. Further, as matter travelled to SC, this shows existence of debate of controversy - so no penalty. - 10. Upon careful consideration, we find that section 271(1)(c) postulates levy of penalty for furnishing of inaccurate particulars and concealment of income. In this case, we find that admittedly, there was no law on taxation of Esop shares for A.Y. 1999-2000. Only CBDT Circular no. 710 was there clause (iv) of the same provided that where shares have been offered only to the employees, the value of perquisite will be the difference between the market price of the shares on the date of acceptance of the offer by the employee and the price at which the shares have been offered. In this regard, assessee's contention is that offer & acceptance of shares took place on 1.2.1999. Assessee in its bonafi....