TaxTMI 
TaxTMI 
2015 (4) TMI 1262
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....cquired by exercising a part of the stock options on 05.11.1996 (A.Y 1997-98) and other part on 30.06.1999 (A.Y 2000-01). 3. For A.Y 1997-98 and A.Y 2000-01, assessee was a resident of the USA as per its tax laws and was not present in India. At the time of exercise of the stock options, i.e. during A.Y 1997-98 and A.Y 2000-01, the income being the difference between the fair market value (FMV) of the shares as on the date of exercise and the grant price was taxed in the USA as salary income as per the tax laws of USA. 4. In the return of income filed for A.Y 2004-05 for the purpose of computation of the capital gains from the sale of shares acquired through exercise of Stock Options in A.Y 1997- 98 and A.Y 2001-01, assessee had considered FMV as cost of acquisition of such shares. 5. AO in the assessment order passed u/s 147 r.w. 143(3) of the Act recomputed the long term capital gains from sale of shares acquired under ESOP by considering the grant price as cost of acquisition as against FMV that was considered in the return of income, thereby increasing the amount of long term capital gains by Rs. 4,35,17,306. 6. Being aggrieved by the aforesaid order u/s 147 r.w.s. ....
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.... was considered as cost of acquisition of the shares on the basis of assessee's bonafide understanding of the provisions of the Act applicable during the relevant A.Y and the fact that federal taxes were already withheld/paid in the USA at the time of exercise of stock options on the difference between FMV and grant price. 13. It was submitted before the CIT (A) that in the return of income filed for relevant A.Y the particulars of computation of long term capital gains arising from sale of ESOP shares on 23.08.2003 was adequately disclosed by the assessee byenclosing a statement. The cost of acquisition of shares were considered as under: S.No No. of shares sold Date of exercise of shares FMV on date of exercise of shares (in US$) Cost of acquisition of shares (In US$) 1 20,285 05.11.96 8,087 1,78,603 2 17,450 30.06.99 4,49,063 7,83,615 14. During the course of assessment proceedings, assessee submitted the transaction detail statements vide submission dated 17.12.2007 as documentary proof of FMV of US$ 88,047 on 5.11.1996 and FMV of US$ 4,49,603 on 30.06.1999 respectively. In the said statements, the details of federal taxe....
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....d that the explanation offered by the assessee is bonafide and cannot be rejected. 17. It was pointed out by the ld AR before the CIT (A) that the penalty provisions of section 271(1)(c) of the Act can be invoked, if the assessee had either 'concealed' or furnished 'inaccurate particulars of its income'. In the penalty order, even the AO has not alleged concealment of income by the assessee. As per explanation (1) to section 271(1)(c) of the Act, in case the assessee had disclosed material facts to the income and the explanation offered by him is bonafide, the disputed addition cannot be treated as furnishing of inaccurate particulars of income and therefore, provisions of section 271(1)(c) of the Act will not apply. 18. It was again stressed that the assessee has not furnished any inaccurate particulars of his income as regards long term capital gains arising from sale of ESOP shares in the return of income filed for relevant A.Y. Also there was no failure on the aprt of the assessee to offer any necessary bonafide explanations in respect of the said transaction before the AO during the course of assessment proceedings. In this regard reliance was placed on the judicial pron....
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....e market value of shares at the time of exercising of options and the amount paid by the employee to acquire them should be considered as employment income. 21. It was submitted that at the time of exercise of stock options during A.Y 1997-98 and 2000-01 respectively, the assessee's residential status in India was that of a "Non Resident" as per section 6(6)(a) of the Act. Accordingly, any income accruing or arising to the appellant outside India was not liable to be taxed in India as per section 5(1)(c) of the Act. Therefore, the benefit arising from the exercise of stock options in the USA being the difference between the FMC and the grant price, was not taxable in India in the hands of the assessee. 22. It was submitted that aggrieved by the Tribunal's decision the assessee filed an appeal on this contentious matter (i.e. substantial question of law) before the Hon'ble jurisdictional High Court and the appeal has been admitted by the Hon'ble High Court on 10.08.2011. 23. In view of the above, it was submitted that admission of an appeal by the Hon'ble jurisdictional High Court confirms that the matter whether the cost of acquisition of shares in the instant ....
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....for the purpose of capital gains 'cost' to be taken was 'Actual Cost' and not the Fair Market Value and since the 'actual cost' incurred by the assessee was 'grant price', only this 'grant price' has to be taken as cost with reference to the computation of capital gains and dismissed this ground of the appellant". 27. Aggrieved, the assessee is in appeal before us. 28. We heard both the parties and perused the records. Penalty Proceedings are independent proceeding and the matter is to be considered afresh: It is an undisputed position that penalty proceedings are independent proceedings and the matter has to be looked into again as the assessment order is not the final word in the penalty proceedings. The decision of the Supreme Court in the case of Anantaram Veerasinghiah vs. CIT reported at 123 ITR 457 is the main decision on this issue. It is thus possible for the assessee during the course of the penalty proceedings for concealment to file documents as well as to give explanations which were not given in the assessment proceedings. Merely because an addition has not been contested, it cannot be presumed that the addition represents concealed income. It has been held by t....