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2019 (3) TMI 1856 - AT - Income TaxReopening of assessment - legality and validity of the notice u/s 148 - addition on the ground that Section 28(iv) of the Act cannot be invoked in this case - Allotment of Sweat Equity shares to the assessee - CIT(A) upheld the legality and validity of the reopening but deleted the addition on the ground that there is no relationship of employer-employee before the company and the assessee, which allotted the Sweat Equity shares to the assessee; that the equity allotted was not specified security and from such an angle it does not answer the description of perquisites u/s 17(2) of the Act; that the valuation of the equity at artificially jacked up prices without any economic basis would not help to sustain the addition - HELD THAT:- As rightly contended by the assessee, even before the issuance of the notice u/s 148, it was clear that the assessee did not receive any benefit whatsoever under the sweat Equity share Agreement. We find force in the submissions made on behalf of the assessee that the reversal of the share premium account pursuant to the orders of the Hon’ble High Court would relate back to the date of allotment. We are unable to consider the analogy drawn by the Ld. AO and the Ld. DR to say that subsequent/future event cannot affect the taxability in the year of its accrual, because in this matter certain factors which are stipulating constraints on the availment of benefit under the agreement. Firstly, there is a condition of 10 years’ association, which has failed; that secondly, the Hon’ble High Court directed the cancellation of the allotment and to reverse the entries which shall relate back to the date of agreement itself; that thirdly, there is no economic basis for the valuation of the shares to assess the income of the assessee. For these reasons, we are of the considered opinion that the learned CIT(A) rightly reached a conclusion that this is a case of hypothetical income of the nature of perquisite and more so, the very basis of the valuation is not scientific without any financial back up data to justify the valuation. We are in agreement with the submission on behalf of the assessee that the decision in the case of CIT vs Infosys Technology Ltd.[2008 (1) TMI 17 - SUPREME COURT] wherein the issue involved was that whether allotment of Sweat Equity Shares to an employee is a perquisite or not and it was held that where the lock in period was involved, the perquisite would be treated only in the year in which the lock in period ends. Since in this case the agreement came to an end, shares were surrendered and the entries were reversed long prior to the lock in period, no case of taxing the allotment as perquisite in the hands of the assessee in the AY 2007-08. In view of the conflict of opinion expressed by the Hon’ble Gujarat and Madras High Court, the view favourable to the assessee had to be accepted and while respectfully following the decision of the Hon’ble Apex court in the case of Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME COURT ] we find that the composite order cannot be sustained. We are of the considered opinion that either on facts or on law, there is no need to interfere with the findings of the learned CIT(A) in deleting the addition made by the learned AO on the premise that the allotment of shares to the assessee are to be taxed as perquisites or profession income.
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