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2014 (8) TMI 843 - AT - Income TaxReopening of assessment u/s 148 - Rectification of order u/s 154 – Held that:- The information was not in the possession of the AO prior to the passing of the order of rectification u/s 154 - the assessee neither opted for allotment of shares nor was allotted shares but has only sold rights ESOP, the AO has come to conclusion that income chargeable to tax has escaped assessment - the material has nexus with the reason to believe that income chargeable to tax has escaped assessment - there is no change of opinion as the original R.O.I. was processed u/s 143(3)(a) - The order passed u/s 154 of the Act cannot be a case of formation of an opinion. If it has to be held that the AO formed an opinion while passing an order u/s 154, Only mistakes apparent on record can be corrected u/s 154 of the Act - when the documents were not with the AO in any of the proceedings, prior to issue of notice u/s 148, the question of exercising one’s mind on these documents and forming of opinion does not arise - there was fresh material and as it has been held that there is no change in opinion – Decided against Assessee. Treatment of LTCG on sale of equity shares – Employee stock option scheme – Held that:- On the date of grant the assessee has acquired certain rights i.e. the right to purchase shares in Adobe System Inc., at a particular rate by exercising the option - This right to acquire shares is a capital asset - The date of acquisition of the right is the date of grant - The assessee has exercised the option to purchase the shares only on the date on which he choose to sell the shares - what was acquired by the assessee on the date of grant was a right, which was held by him until he exercised his option to purchase share - The period of holding of the capital amount would be the period of holding of the ESOP right, which is a capital assets, is from the date of grant to the date of exercising the option - The fact as to whether the capital gain in question is a short term or long term capital gain or not has to be decided based on the period of holding of this right - If the period of holding is more than 36 months then it is a long term capital gain - The right in question is not a share held by the assessee and hence the period of 12 months does not apply - the assessee has sold the shares on the date of exercising the option itself - the transaction of sale of shares is a short term capital gain. The assessee acquired certain rights on the date of grant, which is a capital assets and he transferred these rights on the date of exercise of option to purchase share and the date of sale, which is the same date in this case, and the period of holding of these rights being less than 36 months, the gain is to be assessed as short term capital gain - the contention of the assessee that the appeal against the order passed u/s 147 and the appeal against the order passed u/s 154 are separate proceedings and there is no question of merger - the AO has passed an ex-parte order, the issue of AO is set aside for fresh adjudication – Decided in favour of assessee.
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