No penalty can be levied under s 271(1)(c) when there was only the CBDT Circular on the taxation of ESOP shares and where the assessee offered certain income in a particular year and paid taxes bona fidely and the AO taxed the same in another year.
ACIT Vs Vijay Kumar Jindal (ITAT Delhi)- 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 bonafide belief that the same was taxable in the assessment year 1999-2000 has offered the same for taxation. In assessment year 1999-2000, he already paid taxes also on the same.
On different interpretation of law Assessing Officer has considered the accessibility of the income for A.Y. 2000-01. As such, the perquisites 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. Assessing Officer ‘s action has been rejected by the Ld. Commissioner of Income Tax (Appeals) but confirmed by the ITAT that the same is to be taxed in assessment year 2000-01. However, this would not lead to a conclusion that assessee has made any concealment or the explanation given by the assesseeis not bonafide. Thus, we find that issue was controversial and existence of two opinions cannot be ruled out, at the relevant time.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “E” NEW DELHI
Asst. Commissioner of Income Tax, Vs Sh. Vijay Kumar Jindal
I.T.A. No. 4237/Del/2009
A.Y. : 2000- 01
This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 06.8.2009 pertaining to assessment year 2000-01.
2. The issue raised is that Ld. Commissioner of Income Tax (Appeals) has erred in deleting the levy of penalty u/s. 271(1)(c) of the IT Act.
The assessee is an individual, who at the relevant time was working with M/s Zee Telefilms Ltd. While in service, he was given an option (ESSOP) to acquire 2,00,000 equity shares of M/s Zeee Telefilms Ltd. @ 212 per share. This offer was made vide letter dated 1.2.99 by his employer. As per the letter of offer ofwarrants, the assessee could not have converted the warrants into 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 7.72 crores for assessment year 1999-2000 at 386 per share, being the difference between the market value of 598 per share as on 1.2.1999 and 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 916.25 shares being the difference between the market value of 1128.25 per share as on 30.4.1999 (date of exercise of option) and 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 value of 916.25 per share in the assessment year 2001-01, instead of 598, declared by the assessee for the assessment year 1999-2000. Eventuality, after travelling through the Ld. Commissioner of Income Tax (Appeals), who deleted the addition, the matter was considered by the Honourable ITAT. In ITA No. 1668/Del/2003, in an order dated 29th August, 2008, the Honourable ITAT, ‘G’ Bench, restored the order of the Assessing Officer.
4. In the penalty proceedings, upon consideration of the assessee’s submissions, Assessing Officer held as under:-
“Now, assessee made submission in his support for non-levy of penalty. However, none of the submission of the assessee are acceptable. Assessee in his submission mentioned that ‘it is submitted that where the dispute is in relation to year of tax ability there can be no case of levy of penalty. Reliance is placed on C.I.T. vs. Manilal Tarachand – 254 ITR 630.’
However, in the case of the assessee dispute is not just of year of taxability. Assessee has paid taxes by considering lower value of sales consideration, considering wrong date even regarding the specific provisions of Act to charge to the perquisites in the form of specified security allotted at a concessional rate.
Assessee further submitted that ‘without prejudice to above, it is submitted that addition made merely on basis of difference of opinion no penalty is leviable in view of:’
C.I.T. vs, Harshvardhan Chemicals & Minerals Ltd.  259 ITR 212 (Raj).
‘Further, where the assessee’s explanation is bona fide and genuine, non penalty can be levied as per the following case:
a) 265 ITR 562 (SC) (Para 5)
b) 125 ITR 624 (SC) (Para 4)
c) 129 ITR 423 (MP) (Para 4)
However, it is never the difference of opinion. Assessing Officer has clearly in his assessment order use clear cut provisions of Income Tax Act, 1961. Difference of opinion or bonafide mistake can be claimed when there is dispute over the provisions of Act. Assessee preferred to overlook the provisions of the Act to reduce his tax liability. The same cannot be done under the garb of bonafide mistake or difference of opinion.
Assessee has further cited various case laws in his support claiming that before levying of penalty, entirety of circumstances must reasonably point to the conclusion that there has been concealment or furnishing 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 tax ability, 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 Honourable Supreme 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 Honourable 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 Dilip N. Shrof’s case has not considered the effect and relevance of section 276C of the Income Tax Act, 1961. Object behind enactment of section 271(1)(c) read with explanation indicate that the said section has been enacted to provide for a remedy for loss of Revenue. The penalty under that provisions is civil liability willful concealment is not an essentials ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income Tax Act, 1961’.
The assessee has clearly furnished inaccurate particulars, and ignorance of law is no excuse. Thus, I have reason to believe that the assessee has furnished inaccurate particulars of income to text of 14,79,39,290/- which attracts the consequently penalty under section 271(1)(c) of the Income Tax Act, 1961. I, therefore, impose a penalty of 4,88,19,965/- under section 271(1)(c) of the Income tax Act, 1961 @ 100% on the tax sought to be evaded.
5. Upon assessee’s appeal, Ld. Commissioner of Income Tax (Appeals) considered the issue held as under:–
“Now, I will proceed to test the facts of the case, on the touchstone of the above referred three ingredients of Explanation 1 to section 271(1). It is clear that the first element is not satisfied because the assessee has offered the explanation, vide letter dated 6.5.09 and more. This is evident from page 2 of the impugned order. The case of the assessee also does not fall in the second category, as the explanation is not false. At least there is no evidence to that effect in the impugned order. Thirdly, the assessee has offered an explanation, which necessarily will have to be considered as bona fide. It is undoubted that the assessee voluntarily disclosed the offer of ESOP shares in Assessment Year 1999-2000. He has voluntarily paid taxes for the Assessment Year 1999-2000, on the said transaction as per his calculation. This is evident from the computation of income filed for the Assessment Year 1999-2000 and available in the Paper Books. The Learned Assessing Officer, under the correct view, concluded that date of offer of ESOP shares (1.2.1999) will not be the determining factor for arriving at the perquisite value, as provided for in section 17 of the Act. The decision of the learned Assessing Officer has been confirmed by the Honourable ITAT, following the Apex Court decision in Infosys Technologies Ltd. 297 ITR 167. The Honourable 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 Honourable 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
‘Tax ability of the perquisite on shares issued to employees at less than market price
(i) Where the shares held by the Government has been transferred to the employee, there will be no perquisite because the employer-employee relationship does not exist between Government and the employee (transferor and the transferee);
(ii) Where the Company offers shares to the employees at the same price as have been offered to the other shareholders or the general public, there will be no perquisite;
(iii) Where the employer has offered the shares to its employees at a price lower than the one at which the shares have been offered to the other shareholders/ public, the difference between the two pries will be taxes as perquisite;
(iv) where the 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. Q
The very fact that the word ‘offer’ has been used, can lead to great confusion and a difference of opinion. In fact, when the matter was before the learned CIT(A)XXI, in appeal No. 125/2002-03, vide an order dated 24.1.2003, she was pleased to allow the appeal of the assessee. Importantly, there was an amendment in the Act, vide Finance Act, 1999, wherein section 17 of the Act was amended. This amendment was brought about ‘to remove any uncertainty on the tax ability of such benefits’. This aspect is clearly discernible from para 16.1 of Circular No 779 dated 14.09.1999 which is the Explanatory notes on provisions of Finance Act, 1999. This again manifests that there was uncertainty and scope for two or more opinions. As such, the assessee’s case does not fall within the parameter of third ingredient, as specified above. His explanation, in the circumstances of the case, would have to be considered as bona fide and this fact has not been refuted by the Assessing Officer. Simply, because the Assessing Officer chose to negative the assessee’s claim in entirety, which has also been upheld by the ITAT, it would not ipso facto mean that the explanation is not bona fide. Whether an explanation is bona fide or not depends on the cumulative effect of the attending circumstances prevailing in each case. No straight jack formula can be device for ascertaining whether or not the explanation offered by the assessee is bona fide.
Adverting to the facts of the case, the assessee has disclosed the transaction in Assessment Year 1999-2 000 (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 accessibility 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 Honourable 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 Honourable Tribunal in Veejay Service Station VS. ACIT  22 DTR (Del) (Trib) 527.
The Learned Assessing Officer has relied on the decision of the Hon’ble Supreme Court in Union of India & Others v. Dharmendra Textile Processors & Others  306 ITR 277 (SC) to bolster his case for levy of penalty. I am afraid that the decision of the Apex Court cannot justify levy of penalty in as much as it was held by the Supreme Court that penalty under section 271(1)(c) is a civil liability and the ‘wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income Tax Act, 1961’. It has further been held that the mens rea is not an essential ingredient for imposing penalty under this section. On the circumspection of this case, I find that it has been laid down that wilful concealment is not necessary and hence mens rea (guilty mind) is not essential for invoking provisions of section 271(1)(c). The Honourable Apex Court has not held that in all cases where addition is confirmed, the penalty shall mechanically follow.
The ratio decidendi of the judgement is confined to treating the wilful concealment as not vital for imposing penalty under section 271(1)(c). It is austere from the language of s. 271(1)(c) that the penalty is imposable for the concealment of the particulars of income or furnishing of inaccurate particulars of such income. The literal meaning of the word ‘conceal’ is to ‘hide’. Be that as it may, in order to be covered within the mischief of this section, the act (intentional or unintentional) of the assessee should result into the concealment of income. Where an assessee genuinely makes claim for a particular deduction by disclosing all the necessary facts relating to the same, that will not amount to concealment or filing of inaccurate particulars of income even if the assessee’s claim is rejected subsequently. There may be a situation in which the assessee earns income but unintentionally fails to disclose the same in the return. Such types of cases are covered by the judgement in Dharamendra Textile Processors & Ors. (supra). So, the scope of this judgement extends to roping in the cases of concealment of income even if the assessee did not have the guilty mind but still there is failure to disclose the income. For example, an assessee 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 in eventuality will expose him to the rigor of penalty. Obviously, such a proposition is beyond any recognised cannon of law.
In view of the above, it is held that the assessee did not conceal or file inaccurate particulars of income which would justify levy of penalty under section 271(1)(c) of the Act.
8. Ld. Departmental Representative supported the order of the Assessing Officer and placed reliance upon 328 ITR 44 in the case of C.I.T. vs Escorts Finance Ltd. (Delhi) and 327 ITR 510 in the case of C.I.T. vs. Zoom Communication P. ltd. (Delhi). Ld. Departmental Representative further submitted that law is applicable in the current year i.e. assessment year 2000-01 was very clear and unambiguous. The Circular No. 710 was also not relevant as a law was different. In these circumstances, he argued that there should not be any lapse on the part of the assessee for the current assessment year and assessee cannot be absolved of its liability in a particular year, if income is not disclosed properly in the earlier year.
8.1 Ld. Authorised Representative of the assessee on the other hand supported the order of the Ld. Commissioner of Income Tax (Appeals). He claimed that prior to assessment year 2000-01, there was no law leving tax on Esop shares. There was only Circular No. 710. He claimed that assessee was under bonafide belief in this regard and has offered the same for taxation in A.Y. 1999-2000, hence, penalty for it not sustainable. Further, ld. counsel of the assessee submitted that Honourable High Court has admitted the appeal, against the order of the tribunal in the quantum proceedings. Further, ld. counsel of the assessee relied upon the following case laws:-
(i) C.I.T. vs Arctic Investment P Ltd in ITA 264/2009 (Delhi High Court)
(ii) C.I.T. vs. Infosys Technologies Ltd. 297 ITR 167 (SC)
(iii) DCIT vs. BPL Sanyo Finance Ltd. 312 ITR 63 (Karnataka High Court)
(iv) KNB Investments P. Ltd. vs. ACIT 79 ITD 238 (Hyderabad, ITAT)
(v) Abbot vs Philbin 44 ITR 144
(vii) C.I.T. vs. Shahabad Coop. Sugar Mills 322 ITR 73 (P&H High Court)
(viii) C.I.T. vs. Vamchampigons & Agro Product 284 ITR 408 (Delhi High Court).
9. Ld. counsel of the assessee submitted the following chronological sequence of events as under:-
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 lock‑in 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: 598 per share|
|15.4.1999||Date of exercise of option||Prevailing MV: 850 per
|30.4.1999||Board of Directors accepted the exercise of option by the assessee||Prevailing MV: 1128.25 per share|
|30.10.1999||The assessee filed return of income for A.Y. 1999-2000 offering perquisite value of 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 period (which, as per the law laid down by the Honourable Supreme Court in Infosys Technologies Ltd. 297 ITR 167, had no perquisite value)||–|
|31.10.2000||Return for A.Y. 2000-01 filed offering capital gains on sale of 66,668 shares, taking the cost of acquisition as 598 per share (based on which perquisite value had been determined in A.Y. 1999-2000)||–|
|xxx||Return for A.Y. 2001-02 filed offering capital gains on sale of 66,668 shares, taking the cost of acquisition as 598 per share (based on which perquisite value had been determined in A.Y. 1999- 2000)The above treatment of computation of capital gains by adopting cost of acquisition as 598 per share was accepted by the Assessing Officer vide order dated 29.3.2004 under section 143(3) of the Income Tax Act, 1961.||–|
|xxx||Return for A.Y. 2002-03 filed offering capital gains on sale of 66,668 shares, taking the cost of acquisition as 598 per share (based on which perquisite value had been determined in A.Y. 1999-2000)The above treatment of computation of capital gains by adopting cost of acquisition as 598 per share was accepted by the Assessing Officer vide order dated 17.3.2003 under section 143(1) of the Income Tax Act, 1961.||–|
|22.7.2002||Order u/s 143(3) for A.Y. 2000-01, whereby the Assessing Officer held that the correct year of tax ability of perquisite was A.Y. 2000-01 (and not A.Y. 1999-2000, as offered by the assessee)||–|
|24.1.2003||Order of C.I.T.(A) for A.Y. 2000-01, whereby the Ld. Commissioner of Income Tax (Appeals) reversed the action of the Assessing Officer and held that the assessee had correctly offered perquisite to tax in A.Y. 1999-2000.||–|
|29.8.2008||Order of ITAT for A.Y. 2000-01, whereby the Tribunal restored the view taken by the Assessing Officer i.e. the correct year of tax ability of perquisite was A.Y. 2000-01||Refer, PB Pg.
|21.8.2009||The above order was rectified by the tribunal under section 254(2) in MA 510/Del/2010, whereby the tribunal held that taxes paid in the A.Y. 1999-2000 were required to be refunded/ adjusted against taxes due for A.Y. 2000- 01.||Refer, PB pg.
|18.3.2011||In appeal effect proceedings for A.Y. 2000-01, the tribunal held the assessee was entitled to adjustment of taxes for earlier and subsequent years.||Refer, PB pg.
|26.5.2009||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 tax ability 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 bonafide belief that the same was taxable in the assessment year 1999-2000 has offered the same for taxation. In assessment year 1999-2000, he already paid taxes also on the same. On different interpretation of law Assessing Officer has considered the accessibility of the income for A.Y. 2000-01. As such, the perquisites 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. Assessing Officer ‘s action has beenrejected by the Ld. Commissioner of Income Tax (Appeals) but confirmed by the ITAT that the same is to be taxed in assessment year 2000-01. However, this would not lead to a conclusion that assessee has made any concealment or the explanation given by the assesseeis not bonafide. Thus, we find that issue was controversial and existence of two opinions cannot be ruled out, at the relevant time.
10.1 Moreover, we find that for 213rd of the shares offered, were subject to lock in period, which as per law laid down by the Hon’ble Apex Court in Infosys Technology Ltd. 297 ITR 16 had no perquisite value.
10.2 We further find that appeal against the ITAT order has been admitted by the Hon’ble Jurisdictional High Court.
11. In the background of the aforesaid discussion, we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals). Hence, we uphold the same.
12. In the result, Revenue’s appeal stands dismissed.
Order pronounced in the open court on 27/05/2011.