MR. RANJITH THAZHE KUNHAMBATH,ERNAKULAM vs. ITO, WARD 3(3), NON CORPORATE RANGE 2, KOCHI

Assessee was working as Associate Vice President in Dhanalakshmi Bank Limited, Ernakulam. Return of Income for the A.Y. 2011-12 was filed manually on 25-07-2011 u/s 139(1) declaring a total income of Rs. 6,47,597/-, as per details provided by the employer in Form 16 dated 30/04/2011. This return has been initially processed u/s 143(1) and notice u/s 143(2) dated 7/8/2012 was issued for scrutiny assessment. During the course of assessment, it was noticed that the previous employer M/s. HDFC Bank Limited had deducted tax Rs. 6,60,725/- on perquisite value Rs. 21,38,250/- on account of subscription to employee stock options (ESOP). However, the former employer has not issued any TDS certificate and hence, this income as well as TDS were inadvertently omitted to be included in the return filed u/s 139(1). As per Form No. 16 issued subsequently by M/s. HDFC Bank Limited, TDS has been remitted on 06-05-2010 to the Government Account as per challan no. 05194. During the course of hearing the assessee admitted the omission to offer the perquisite value of ESOP to tax. The accordingly concluded the u/s 143(3) assessing the total income at Rs. 28,50,939/- and demanded tax Rs. 8,97,240/- including interest. The AO while concluding the assessment brought to tax Rs. 25,935/- which the assessee had received as retirement benefit and also capital gain Rs. 27,710/- on sale of 1900 shares of Indian Company was not declared in the return of income. The assessee filed a rectification petition before the AO for the reason that while the perquisite value of ESOP is added to assessed income, the credit for the TDS on ESOP was not given by the AO. The AO passed a rectification order u/s.154 and accordingly the tax was reduced to Rs.292 and along with interest the final demand was computed at Rs.970.

Subsequently the AO initiated the penalty proceedings u/s 274 read with section 271(1)(c) considering the original demand on ESOP income not declared in the return. Assessee has submitted reply to penalty notice explaining the circumstances under which he did not offer the ESOP perquisite to tax.. However, penalty order dated 2407-2014 was issued demanding a penalty of Rs. 6,60,855/-.

The assessee has filed appeal against the penalty order before the CIT (Appeals), Kochi on 21.08.2014 and subsequently, the appeal was migrated to the National Faceless Appeals Centre. In response to the hearing notice dated 30-03-2022, the assessee has uploaded detailed hearing notes on 01- 04-2022 with supporting documents and case laws. Personal hearing was also requested by the assessee. However, the appeal was dismissed by the CIT (Appeal), NFAC without considering the detailed hearing notes submitted on 01-042022 and without allowing personal hearing.

We heard the parties and perused the material on record. We notice that the assessee has been working in Dhanalakshmi Bank during the year under consideration and while filing the return of income had declared the salary income received from Dhanalakshmi Bank. During the course of hearing, when the AO noticed that as per Form 26AS, there was a TDS deduction of Rs.6,60,725/- by HDFC Bank with whom assessee was earlier employed, the assessee admitted having omitted to include the perquisite value of ESOP and the same was added to the assessed income. The AO’s original tax demand got rectified by giving credit to the TDS deducted and the final tax demand as per the order under section 154 (page 33 of Paper Book) is Rs.292 and an interest on Rs.675/- resulting in a total demand of Rs.970/-. Before proceeding further, we will look at the provisions of section 271(1)(c) of the Act which reads as under :

From the above, it is clear that when the assessee furnishes inaccurate particulars or conceals the particulars of the income, then the AO can levy penalty under section 271(1)(c) of the Act. The contention of the Revenue is that the explanation offered by the assessee is not bonafide and the concealment is intentional. The assessee submitted before the lower authorities that he was not issued with the Form 16 from the previous employer and therefore he did not include the taxable perquisite value of ESOP in the return of income. We see merit in this contention of the assessee since the perquisite value of ESOP is charged when the options are vested and that the assessee being a salaried employee would come to know only when the Form 16 is issued in this regard. It is also submitted by the learned AR that the tax was deducted much later by HDFC Bank and hence the details of the same in Form 26AS was not available at the time of filing the return and therefore the assessee was not aware of the perquisite amount and the TDS on the same. We notice that once the above mistake has been brought to the notice of the assessee during assessment proceedings, the assessee has conceded the mistake and the addition.

In this regard, we notice that the Hon’ble Supreme Court in the case of PriceWaterHouse Coopers Pvt. Ltd., Vs. CIT (2012) 348 ITR 306 (SC) while considering the issue of levy of penalty under section 271(1)(c) of the Act held that even if the assessee was a reputed firm and had great expertise available with it, it was possible that it could make a ‘silly’ mistake. The Hon’ble Supreme Court in the said case further held that it was through a bonafide and inadvertent mistake that the assessee while filing the return failed to add the provision for gratuity to the total income.

In assessee’s case here, the assessee is not a professional and had inadvertently failed to add the perquisite value to the total income for the reason that the Form 16 from the previous employer was not available at the time of filing the return of income. In our view, the ratio laid down by the Apex Court in the case of PriceWaterHouse Coopers Pvt. Ltd (supra) is applicable to the assessee also. Further, the penalty can only be far the amount of tax sought to be evaded which in assessee’s case is only a meagre amount of Rs.292/-. Considering the facts of the assessee’s case and the decision of the Hon’ble Supreme Court in the case of PriceWaterHouse Coopers (supra), we are of the considered view that the levy of penalty is not warranted and accordingly we delete the same.

In the result, the appeal is allowed in favour of the assessee and the stay petition is dismissed as infructuous.