Commissioner Of Income-Tax Delhi-Xv, New Delhi v. Vibhu Bakhru, J

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 31.05.2013 +ITA 279/2013 COMMISSIONER OF INCOME-TAX DELHI-XV, NEW DELHI .....Appellant versus SMT. NEENU DUTTA .… Respondent Advocates who appeared in this case:For the Appellant:Mr Kiran BabuFor the Respondent:Mr Salil Aggarwal with Mr Ravi Pratap Mall CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE VIBHU BAKHRU VIBHU BAKHRU, J. JUDGMENT 1.This is an appeal filed on behalf of the revenue under Section 260A of theIncome Tax Act, 1961 (hereinafter referred to as the "Act"). The appellant hereinhas challenged the order dated 20.07.2012 passed by the Income Tax AppellateTribunal in ITA No. 215/Del/2012 for the assessment year 2008-09. Thecontroversy in the present case relates to levy of penalty by the Assessing Officerunder Section 271(1)(c) of the Act. 2.The assessee filed a return under the Act for the assessment year 2008-09on 30.09.2008 declaring an income of ` 78,83,303/-. The assessee did not includecapital gains of ` 86,98,461/- that had resulted on account of the assesseeexercising of stock options and the sale of the shares vested with the assesseepursuant the exercise of the Employees Stock Option (ESOP). The assessee didnot include the said amount as gains were claimed to be long term capital gains. 3.The assessee was a senior executive with Citi Bank N.A. and had beengranted the employee stock options by the employer on various dates fromJanuary 1998 to January 2004 during the course her of employment. The firstemployee stock option was granted to the assessee on 20.01.1998 and on the lastoption the stock option was granted on 20.01.2004. The employee stock optionsthat were granted to the assessee were exercised by her on various dates. Theemployee stock option granted to the assessee on 20.01.1998, 2.11.1998,13.02.2002, 12.02.2003 and 13.02.2002 was exercised by the assessee on30.04.2007, 03.05.2007, 19.04.2007, 23.04.2007 and 13.07.2007 for 2680, 3431,514, 600 and 128 nos. of shares respectively. The employee stock options grantedto the assessee were cashless options and the shares vested with the assesseepursuant to the exercise of the options were liable to be sold and the net proceedsthereof remitted to the assessee. The shares vested with the assessee pursuant tothe options exercised were sold on the date of exercise of options and afterdeducting the price at which the options were granted and the expenses for sale ofshares, the balance proceeds were remitted to the assessee. 4.The return filed by the assessee was taken up for scrutiny and theAssessing Officer made an addition of ` 86,98,461/- to the income of theassessee on account of short term capital gains. The said addition was made bythe Assessing Officer as he held that the gains arising out of exercising of optionsand sale of the shares of Citi Bank were not long term capital gains but short termcapital gains inasmuch as shares were sold on the very same day on which theassessee exercised her ESOP. The date of grant of ESOP was not considered bythe Assessing Officer as the date of acquisition of the capital asset sold by theassessee. The assessee contended that although the assessment raised werecontentious she decided not to contest the assessment order in order to avoidlitigation and to buy peace. The assessee also wrote a letter dated 06.12.2010 accepting the view of the department and surrendering her right to contest theissue on the condition that no penalty under Section 271(1)(c) of the Act wouldbe imposed on her. 5.The Assessing Officer thereafter commenced penalty proceedings andpassed an order dated 29.06.2011 imposing a penalty of ` 29,56,610/- which wascalculated on 100% of the incremental tax payable on the addition made by theAssessing Officer. accepting the view of the department and surrendering her right to contest theissue on the condition that no penalty under Section 271(1)(c) of the Act wouldbe imposed on her. 5.The Assessing Officer thereafter commenced penalty proceedings andpassed an order dated 29.06.2011 imposing a penalty of ` 29,56,610/- which wascalculated on 100% of the incremental tax payable on the addition made by theAssessing Officer. 6.The assessee preferred an appeal before CIT (Appeals) challenging thelevy of penalty under Section 271(1)(c) of the Act. It was contended by theassessee that the assessee considered the gains arising out of the exercise ofESOP as long term capital gains taking the date of grant of ESOP as the date ofacquisition of the asset sold. The assessee invested ` 1 crore in October 2007with Cedarhills Hospitality Pvt. Ltd and showed the entire amount received bythe assessee as having been invested in construction of a residential house. Theassessee thus, claimed the capital gains to be exempted under Section 54F of theAct. The assessee contended that she was advised that the amount received forsales by her on account of exercise of option was not taxable as the gains werelong terms capital gains and the same had been invested in acquiring a residentialhouse. 7.It was contended on behalf of the assessee that making a wrong claimwould not be a ground for imposing penalty under Section 271(1)(c) of the Act asthe same did not amount to furnishing inaccurate particulars or concealment ofincome as the assessee had disclosed all material facts and had claimedexemption under section 54F of the Act based on legal advice that gains fromexercise of options would not be taxed. The CIT (Appeals) accepted thecontentions of the assessee and set aside the order of penalty dated 29.06.2011. 8.The revenue preferred an appeal before the Income Tax AppellateTribunal. The Tribunal relying on the decision of the Supreme Court in the caseofCommissioner of Income Tax v. Reliance Petro Product Pvt. Ltd.: [2010]322 ITR 158 upheld the decision of CIT (Appeals) that merely making a wrongclaim could not be a ground for imposing a penalty under Section 271(1)(c) ofthe Act. 9.We are in complete agreement with the decision of the CIT (Appeals) andthe Income Tax Appellate Tribunal that this is not a case which would attractpenalty under Section 271(1)(c) of the Act. The question whether gains arisingout of exercise of cashless options was long term capital gains or short termcapital gains could have been a contentious issue at the material time. Further thefacts of this case do not indicate that the assessee had furnished inaccurateparticulars or concealed income. 10.This court has also considered the issue of penalty in a similar situation inthe case ofCommissioner of Income Tax v. Jaswinder Singh Ahuja: ITA No.81/2013 decided on 08.02.2013. 11.Following the aforesaid judgements, we do not find that any substantialquestion of law is raised in the present appeal.Consequently, the appeal isdismissed. There shall be no order as to costs. VIBHU BAKHRU, J BADAR DURREZ AHMED, J MAY 31, 2013rk