IT APPEAL NOS. 5328,5329 & 5376 (DELHI) OF 2010
[ASSESSMENT YEARS 2001-02, 2004-05 AND 2005-06]

I.C. SUDHIR, JUDICIAL MEMBER 
AND J.S. REDDY, ACCOUNTANT MEMBER

Ashwani Taneja and Rohan Khare, Advocates for the Appellant. 
S.N. Bhatia, D.R. for the Respondent.

ORDER

J.S. Reddy, Accountant Member - ITA No. 5328/Del/ 2010 filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals), Ghaziabad dated 03.09.2010 for the A.Y. 2001-02. ITA No. 5329/Del/2010 is filed against the order of the ld Commissioner of Income Tax (Appeals), Ghaziabad dated 03.09.2010 for the A.Y. 2005-06. In both these appeals, the First Appellate Authority confirmed the order passed by the Assessing Officer under Section 144(1)/ 147 of the I.T. Act for the A.Y. 2001-02 and order under Section 143(3) for the A.Y. 2005-06. ITA No. 5376/Del/2010 is filed against the order of the ld. Commissioner of Income Tax (Appeals), Ghaziabad dated 03.09.2010 wherein he dismissed the appeal of the assessee against an order passed under Section 154 by the Assessing Officer on 21.03.2005 on the ground that the appeal is infructuous.

2. Facts in brief: The assessee is employed with M/s. Adobe Systems (India) Pvt. Ltd. The parent company M/s. Adobe Systems Inc has granted ESOP (Employees Stock Option Plan) to the assessee per terms of the employment. The assessee had sold the stock options in question on various dates. The details are given below:—

	"S. No.	Date of Grant	No. of Shares	Date of sale	capital gain
	(i)	01.10.1998	40	07.04.2000	178886
	(ii)	28.08.1999	66	21.09.2000	469370
	(iii)	01.10.1998	100	03.10.2000	675598
	(iv)	08.11.1999	255	08.12.2000	403233
	(v)	08.11.1999	150	08.12.2000	243378
		Total:			1970467"

3. The assessee filed his return of income for the A.Y. 2001-02 on 27.07.2001 showing taxable income of Rs.24,62,455/- which included long term capital gain of Rs.19,70,467/- on the alleged sale of the said shares, on which he paid at the rate of 10%. The Assessing Officer processed the return under Section 143(1) on 30.08.2002, wherein he treated the long term capital gain declared by the assessee at Rs.19,70,470/-, as short term capital gain, on the ground that, the said shares had not been listed in any of the recognized Stock Exchanges in India. The assessee filed an application under Section 154 and contended that the gain in question as long term capital gain. After considering the details submissions filed by the assessee, the Assessing Officer passed an order under Section 154 of the Act treating the gain in question as long term capital gain, which is taxable at the rate of 20% under section 112 of the I.T.Act.

4. Thereafter, notice under Section 148 of the Act was issued on 17.01.2006 reopening the assessment under Section 147 of the Act. The assessee objected to the reopening. The Assessing Officer completed the assessment under Section 144 read with Section 147 by computing the income of Rs.24,62,455/- on 25.07.2006. In this reassessment order, the Assessing Officer treated the gain in question a short term capital gain. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority rejected the contentions of the assessee on the issue of reopening, as well as on merits. He relied upon the decision of the Delhi Bench of the ITAT in the case of Ajay Pandey and held that the date of exercising option in the instant case was the same date as the date of sale of shares. He concluded that the period of holding is less then 12 months and hence the gain in question is short term capital gain. He further held that consequently, the assessee is not entitled for deduction under Section 54F and under Section 54EC. Aggrieved the assessee has filed appeal for the A.Y. 2001-02. The grounds of appeal are as follows:—

"1.	(i)The lower authorities had erred in not appreciating the facts and circumstances of the case or the submissions of the appellant and had further erred in treating the long term capital gain on the sale of the equity shares, which had been allotted under the Employees Stoci Option Plan to the employees of Adobe Systems of India Pvt. Ltd. by the parent company in the name of Adobe Systems Incorporated, USA at the then market rate as being the short term capital gain.
	(ii) The lower authorities had erred in not appreciating that the said shares had been granted in October, 1998 as well as in August and November, 1999 and had been sold after one year in April, September, October and December, 2000 and as such the capital gain therefrom represented the long term capital gain rather than being the short term capital gain.
2.	(i) The Assessing Officer had erred in issuing notice under section 148 of the Income Tax Act on 17.1.2006 without appreciating that his predecessor had held after appreciating the detailed submissions of the appellant to the effect that the capital gain on this account represented the long term capital gain liable to be taxed at the rate of 20% under section 112 of the Act vide his order dated 28.10.2002 under section 154 of the Act.
	(ii) The Assessing Officer had erred in issuing the notice under section 148 of the Act on a mere change of opinion and as such the said notice was illegal, null and void.
	(iii) The Assessing Officer had erred in issuing the notice under section 148 of the Act without there being any prima facie material in support thereof.
	(iv) The Assessing Officer had erred in issuing notice under section 148 of the Act contrary to the settled position in law in the light of a number of High Court and Supreme Court judgments.
	(v) The CIT (A) had erred without appreciating the true position in upholding the stand of the Assessing Officer.
3.	The Assessing Officer had erred in passing the order under section 1441147 of the Act on 25.7.2006 without disposing of the objections which the appellant had filed against the reasons recorded for the issue of the notice and as such the assessment order was illegal in the light of the judgment of the Supreme Court of India in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 UR 19 (SC).
4	(i) The CIT(A) had erred in passing the order on 03.09.2010 even when the appellant was required to file submissions in respect of the order of Delhi Bench 'A' of the Income Tax Appellate Tribunal in the case of Ajay Pandey within a week's time after the copy of that order was given to the appellant on 07.09.2010 even the page No.2 of the said appellate order was missing.
	(ii) The CIT(A) had erred in passing the order on 03.09.2010 even when the appellant prepared the detailed submissions in respect of the order in the case of Ajay pandey in his reply of 13.09.2010.
	(iii) The CIT (A) had erred passing the order without appreciating that Hyderabad Bench of the Tribunal in the case ofAssistant Commissioner of Income Tax v. Dr. Dhurjati Gupta [2010] 127 TTJ (Hyd.) 356 had held the stock option grants were capital assets and consequently capital gains therefrom after the period of four yeas were to be assessed as long term capital gains."

5. For the A.Y. 2005-06 grounds of appeal are as follows:—

1.	(i) The lower authorities had erred in not appreciating the facts and circumstances of the case or the submissions of the appellant and had further erred in treating the long term capital gain on the sale of the equity shares, which had been allotted under the Employees Stock Option Plan to the employees of Adobe Systems of India Pvt. Ltd. by the parent company in the name of Adobe Systems incorporated, USA at the then market rate as being the short term capital gain.
	(ii) The lower authorities had erred in not appreciating the tabular statement filed before them according to which the appellant had shown long term capital gains of Rs. 29,00,503 from the sale of the unlisted shares of Adobe Systems Incorporated of USA after the period of more than one year.
2.	(i) The lower authorities had erred in not appreciating that the shares had been allotted from 8.11.99 to 17.12.2003 and had been sold from 22.4.2004 to 23.7.2005 after more than one year in respect of each transaction and as such there were long term capital gains.
	(ii) The lower authorities had erred in not appreciating that the appellant had computed the long term capital gain after indexing the cost of the said shares in accordance with the provisions of the second proviso of section 48 of the Income Tax Act.
3.	(i) The lower authorities had erred in not appreciating that the appellant had made investment of Rs.14 lakhs in specified Bonds under section 54-EC of the Act to avail the exemption on this account in respect of the long term capital gains.
	(ii) The lower authorities had erred in not appreciating that the investment in the purchase of residential house had been made out of the long term capital gains and as such the exemption of Rs.5,30,841 was admissible under section 54F of the Act.
	(iii) The lower authorities had erred in not appreciating the true position and had further erred in not allowing exemptions of Rs.14,00,000 and Rs. 5,30,841 in respect of the long term capital gains ofRs. 29,00,503.
4.	The lower authorities had erred in not appreciating that the Assessing Officer had treated the long term capital gains from the sale of the said shares for the assessment year 2004-2005.
5.	The lower authorities had erred in not appreciating that the appellant on his own had shown short-term capital gain of Rs. 4,86,277 from the sale of the said shares which had been allotted from 30 .. 6.2004 to 31.12.2004 but had been sold in less than one year from 9th July, 2004 to 3rd February, 2005.
6.	(i) The Assessing Officer had erred in passing the order under section 144/147 of the Act on 30.11.2007 without disposing of the objections which the appellant had filed against the reasons recorded for the issue of the notice and as such the assessment order was illegal in the light of the judgment of the Supreme Court of India in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC).
	(ii) The CIT (A) had erred in overlooking this ground of appeal filed against the order of the Assessing Officer and had further erred in dismissing the appeal.
7.	(i) The CIT (A) had erred in passing the order on 3.9.2010 even when the appellant was required to file submissions in respect of the order of Delhi Bench 'A' of the Income Tax Appellate Tribunal in the case of Ajay Pandey within a week's time after the copy of that order was given to the appellant on 7.9.2010 even when the page No.2 of the said appellate order was missing.
	(ii) The CIT (A) had erred in passing the order on 3.9.2010 even when the appellant prepared the detailed submissions in respect of the order in the case of Ajay Pandey in his reply of 13.9.2010.
8.	(i) The CIT (A) had erred in passing the order without appreciating that Hyderabad Bench of the Tribunal in the case of Assistant Commissioner of Income Tax v. Dr. Dhurjati Gupta [2010] 127 TTJ (Hyd.) 356 had held the stock option grants were capital assets and consequently capital gains therefrom after the period of four years were to be assessed as long term capital gains.
	(ii) The CIT (A) had erred in not appreciating that Hyderabad Bench had relied on earlier two judgments of Bombay Bench and the judgment of Ahmedabad Bench.
	(iii) The CIT (A) had erred in not appreciating that the facts of the appellant were identical to the facts in the judgments of Hyderabad, Bombay and Ahmedabad Benches and as such the judgment of Delhi Bench in the case of Ajay Pandey and the judgment of Bangalore Bench in the case of Giridhar Krishna M. v ACIT (2008)307ITR (AT) 68 were distinguishable."

6. In ITA No. 5376/Del/2010 the assessee challenged the order of the ld. CIT(Appeals) wherein he dismissed an appeal filed against an order passed by the Assessing Officer under Section 154, withdrawing partly the deduction under Section 54F. The ld. CIT(A), Ghaziabad had dismissed the appeal on the ground that, the order under Section 154 passed by the A.O. has got merged with the later order under Section 147 dated 26.12.2008 and hence the appeal is infructuous. Aggrieved the assessee is in appeal on the following grounds:—

"1.	The lower authorities had erred in not appreciating the facts and circumstances of the case or the submissions of the appellant and had further erred in passing the orders, which were bad in law and on facts.
2.	(i) The Assessing Officer erred in not appreciating the sale proceeds of shares amounted to Rs. 27,72,576 as against the wrong figure of Rs. 22,41,210 assumed by the Assessing Officer in working out the exemption under section 54F on account of the purchase of the residential house for Rs. 3,55,828 out of the long term capital gain.
	(ii) The Assessing Officer had erred in computing deduction of Rs.1,17,732 under section 54F even when the correct deduction worked out to Rs. 66,469 shown by the appellant.
	(iii) The Assessing Officer had erred in computing the long-term capital gain of Rs, 6,23,816 as against the correct long term capital gain of Rs.4,51,452.
3.	(i) The Assessing Officer had erred in not appreciating that the appellant had filed the revised return on 3.5.2005 showing the correct long term capital gain of Rs. 4,51,452.
	(ii) The Assessing Officer had erred in passing the order under section 154 of the Act on 21.3.2005 showing the long term capital gain of Rs. 6,23,816 by overlooking the revised return filed on 3.5.2005 showing long term capital gain of Rs. 4,51,452.
4.	(i) The CIT (A) had erred in not appreciating the submissions of the appellant and had further erred in dismissing the appeal.
	(ii) The CIT (A) had erred in wrongly assuming that the appellant had reed to the effect that the order under section 154 dated 21.3.2005 had merged with the subsequent order under section 144/147 dated 26.12.2008 and as such the instant appeal had become infructuous.
	(iii) The CIT(A) had erred in not appreciating that the appellant had never agreed to the merger of the appeal against order under section 154 with the appeal against the order dated 26.12.2008 under section 144/147 of the Act, especially when there was an apparent mistake in the long term capital gain in the order under section 154 of the Act.
	(iv) The CIT(A) had erred in dismissing the appeal in the wrong assumption that the order under section 1441147 was valid even when it was apparently untenable.
5.	(i) The CIT (A) had erred in passing the order without appreciating that Hyderabad Bench of the Tribunal in the case of Assistant Commissioner of Income Tax v. Dr. Dhurjati Gupta [2010] 127 TTJ (Hyd.) 356 had held that the stock option grants were capital assets and consequently capital gain therefrom after the period of four years were to be assessed as long term capital gains.
	(ii) The CIT (A) had erred in not appreciating that Hyderabad Bench had relied on earlier two judgments of Bombay Bench and the judgment of Ahmedabad Bench.
	(iii) The CIT (A) had erred in not appreciating that the facts of the appellant were identical to the facts in the judgments of Hyderabad, Bombay and Ahmedabad Benches and as such the judgment of Delhi Bench in the case of Ajay Pandey and the judgment of Bangalore Bench in the case of Giridhar Krishna M. v. ACIT [2008] 307 ITR (AT) 68 were distinguishable."

7. Ld. counsel for the assessee, Mr. Ashwani Taneja represented the assessee. For the A.Y.2001-02 he challenged the validity of the reopening on the ground that it was made on the basis of mere change of opinion which is not permissible in law and also on the fact that the Assessing Officer has passed his order on 25.07.2006 without disposing the objection filed by the assessee against the reasons recorded for reopening, which act is against the procedure laid down by the Hon'ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963.

7.1 He argued that there was no fresh material based on which the Assessing Officer come to conclusion that the income has escaped assessment and hence the reopening is bad in law.

8. On merits, he submits that the decision of the ITAT in the case of Shri Ajay Pande does not apply to the facts of this case and that the issue is covered in favour of the assessee by the decision of Hyderabad 'B' Bench in the case of Asstt. CIT v. Dr. Dhurjati Gupta [2010] 127 TTJ 356. He relied upon the decision of the Hon'ble Supreme Court in the case of CIT v.Vegetable Products. Ltd. [1973] 88 ITR 192 for the proposition that in the event of difference of opinion, the decision which is in favour of the assessee should prevail and argued that hence the decision of the Bangalore 'B' Bench of the Tribunal in the case of Giridhar Krishna M V v. Asstt. CIT [2009] 118 ITD 177 should not be applied.

9. For the A.Y. 2004-05, he pointed out that the assessee has originally filed his return on 19.07.2004. As there was a mistake in the declaration of net long term capital gain as well as omission of indexation, the assessee had filed revised return of income on 03.05.2005.

10. He submitted that though the Assessing Officer issued notice under Section 154 in order to compute long term capital gain, the assessee has received the order passed under Section 154 dated 21.03.2005, after one and half years i.e. 09.09.2006. He contended that the long term capital gain computed by the A.O. is wrong. The assessee filed an appeal before the CIT(A) on 23.10.2006 and in the meanwhile the Assessing Officer issued a notice under Section 148 reopening the assessments.

11. The ld. counsel repeated the same arguments on the issue of merits in ITA No. 5376/Del/2010. Ld. counsel submitted that the revised return of income was filed within time and as the same valid as per law, the A.O. should have been directed to consider the same. He contended that the appeal against the order under section 154 and against an order under Section 143(3) r.w.s. 147 are separate and independent appeal and merger does not take place. He found fault with the order of the First Appellate Authority and prayed the appeal be allowed.

12. Ld. Departmental Representative, Mr. S.N. Bhatia, on the other hand relied heavily on the order of the Assessing Officer as well as the CIT(A). On the issue of reopening he submitted as under:

(a)	no opinion is formed while processing return of income under Section 143(1)(a) of the Act. Material has come into the possession of AO based on which he came to a conclusion that income has escaped amount.
(b)	Order passed under Section 154 is only to correct mistake apparent on record in the intimation under Section 143(1)(a) and subsequent reopening of the assessment does render the order passed under Section 154 as infructuous.
(c)	The information received is that the assessee had received ESOP and that he exercised the options only on the date of sale of the shares. It was submitted that it had come to the knowledge of the AO that the shares were never allotted to the assessee and only rights were sold.

13. On merits, he submitted that though the assessee was granted the ESOP on a particular date, he choose to exercise the option only on the date of sale and hence the period on holding of shares if any is less than one day and hence the gain in question is a short term capital gain. He pointed out that the period of holding the right in the form of ESOP is less than 36 months and hence the gain thereon is short term capital gain. He has relied upon the decision of Shri Ajay pandey (Supra).

14. We have heard rival contentions, on a careful consideration of the facts and circumstances of the case, a perusal of the papers on record and case law cited, we hold as follows.

15. The reasons recorded for reopening for the A.Y. 2001-02 are as follows:—
"REASONS

Return for the above assessment year was filed disclosing total income of Rs.24,62,455/- on 27.07.2001, which was processed u/s 143(1)(a) in August, 2002 treating the Gain of Rs.19,70,467/- from ESOP shares as short term capital gain. Thereafter assessee moved application u/s 154 contending that these are long term capital gain on the points raised in the application. During the course of proceedings the assessee accepted that the tax should be 20% instead of 10% as taxed by the assessee and treated the same as Long Term Capital Gain.

During the course of assessment proceedings u/s 143(2) in the cases of employees of M/s Adobe Systems India Pvt. Ltd., Noida and assessee is also one of the employee, it is found that M/s Adobe Systems India Pvt. Ltd., Noida has given the ESOP - shares of its parent company M/s Adobe Systems Inc., USA under Cashless Exercise Option Scheme. Under this scheme, the share of ESOP are purchased and sold simultaneously as the broker deducts the purchase cost of ESOP - shares out of sale proceeds and remits it to the parent company/Trust M/s Adobe Systems Inc., USA. Remaining amount thereof is given to the employee of the Adobe Systems India Pvt. Ltd., Noida. Thus the holding of the share is of short term nature.

During the course of proceedings u/s 154, the assessee misrepresented/ concealed the facts of acquisition of shares of ESOP, which resulted in treating these in the nature of Long Term whereas it actually in the nature of Short Term. Thus, due to treatment of nature of long term capital gain, the assessee has evaded tax by 10% being the difference between the tax on short term and long term.

Accordingly, I have reason to believe that the income of Rs.19,70,467/- chargeable to tax at 30% as short term capital gain instead of taxed at 20% has escaped assessment [explanation 2(c)(iii) of Section 147 of the LT. Act 1961] which requires initiation of proceedings u/s 147 for reassessment."

The notice u/s 143(2), 142(1) and questionnaire to provide the details are also enclosed herewith for necessary compliance for the purpose of which the date of bearing has been fixed on 08.03.2006.

(C.B. Singh)
Assistant Commissioner of Income Tax,
Circle, Noida"

16. A perusal of the reasons recorded demonstrate that the Assessing Officer, during the course of assessment proceedings, in the case of other employees of M/s Adobe System Pvt. Ltd. gathered information that the shares of the parent company M/s Adobe System Inc., USA are under cash less exercise option scheme and that under this scheme, the rights in the form of ESOP's is purchased and sold simultaneously as the broker deducts the purchase cost of ESOP, out of sale proceed and remits it to the present company/Trust and only the balance or difference amount is given to the employees. In other words, it has come to the knowledge of the AO, during the course of assessment proceeding of other employees of Abode Systems India Pvt. Ltd., that the assessee rights in ESOP is sold and the difference between the cost of acquisition and sale proceeds is credited to the assessee account and that it was not a case of purchase and sale of share.

17. This information, has come to the knowledge of the Assessing Officer, after processing of the return of income under Section 143(1)(a) and after rectifying the intimation under Section 154 of the Act. The said information was not in the possession of the A.O. prior to the passing of this order of rectification under Section 154. Based on this information that the assessee neither opted for allotment of shares nor was allotted shares but has only sold rights ESOP, the Assessing Officer has come to conclusion that income chargeable to tax has escaped assessment. It is not the case of the assessee that the agreements other documents evidencing grant of ESOP, sale of rights etc. were before the Assessing Officer. This is fresh material which came into the possession of the Assessing Officer during the course of assessment being made on other employees of M/s Adobe System India Pvt. Ltd. In our view, this material has nexus with the reason to believe that income chargeable to tax has escaped assessment. In our view there is no change of opinion as the original R.O.I. was processed under Section 143(3)(a). The order passed under Section 154 of the Act cannot be a case of formation of an opinion. If it has to be held that the A.O. formed an opinion while passing an order under Section 154, then we have to also hold that the order under Section 154 is bad in law. Only mistakes apparent on record can be corrected under Section 154 of the Act. Thus, when these documents were not with the Assessing Officer in any of the proceedings, prior to issue of notice under Section 148, the question of exercising one's mind on these documents and forming of opinion does not arise. Hence, the argument that there is changing an opinion is hereby dismissed.

18. The only argument that goes in favour of the assessee is that the A.O., as per the judgment of the Hon'ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. (supra), ITO, should have first disposed off the objection filed against the reopening of assessment by the assessee before passing the assessment order. This was not done. But this does not make the assessment illegal. At best the matter can be restored to the AO to follow the procedure laid down by the Hon'ble Supreme Court. In the case on hand such a remand will not serve any purpose as the AO has dealt with all the objection in the assessment order itself and this has been adjudicated in appeal by the ld. CIT(A). Hence as setting aside the matter would be an empty formality we do not do so. We have dealt with all the objections on merits.

19. Both parties relied upon on numbers of case in support of contention. The case laws relied upon by the ld. A.R. are for the proposition that, in the absence of fresh material, reopening is bad in law and also for the proposition that no reopening of assessments can be made on the change of opinion. As we have held that there was fresh material and as we have hold that there is no change in opinion we held that these decisions are distinguishable of fact suffice to say that we have gone through all the decision cited and applied the proposition laid down therein to the facts of the case wherever necessary..

20. In the result, we dismiss the ground of the assessee on reopening for the A.Y. 2001-02.

21. Coming to the merits of the case, the Assessing Officer is an order passed under Section 143 has held as follows:—

"It is to mention that as per the policy of the company, every employee of the assessee's employer i.e. M/s Adobe Systems India Pvt. Ltd was offered shares of parent company under various schemes including ESOP scheme. This offer is given at the time of appointment as well as from time during course of service. The scheme which is offered by the company, is narrated as below:—

Every employee who joints the company is offered the package beside the salary and other benefits to enter into agreement to participate in the Stock Option Plan and terms of participation subject of the approval of the Board of Directors of the company and subject to the terms and conditions of the stock option plan.

On the basis of the above, the interested employee is required to execute the agreement known as NONQUALIFIED STOCK OPTION AGREEMENT at the time of joining the company.

As per the scheme of the company, the employee is entitled to enter into that agreement and purchase the shares after giving consent in writing as described therein to the company/ trust. The employee of the company uses his exercise only when they intend to sell the shares on the basis of their entitlement in the scheme without making any payment in respect of cost value of the shares. After offering the sale of the shares, they direct to the broker to remit the difference amount between sale and purchase cost which is pre-decided, to the assessee/employee. The cost price is transferred to the Trust, who holds the share of the company. Thus the purchase and sale of the shares are made simultaneously on the same day. Therefore, the transaction made in respect of purchase and sale of ESOP shares become the short term transaction and gain thereon also becomes of short term capital gain. (Emphasis ours).

Since the assessee being the employee of the same company had also disclosed the profit on the sale made on ESOP shares as under:—

S.No.	Grant Date	Shares sold	Grant Rate	Date of sale	Exercise rate	Gain in $	Amount
1.	01.10.1998	40	16.4375	04.04.2000	120	4112.24	178886
2.	28.8.1999	66	0	21.9.2000	156.5	10288.7	469370
3.	1.10.1998	100	16.4375	3.10.2000	165	14815.75	675598
4.	8.11.1999	255	35.6875	8.12.2000	70	8709.14	403233
5.	8.11.1999	150	35.6875	8.12.2000	71	5256.56	243378
TOTAL GAIN							1970467"

22. These facts could not be controverted before us by the assessee.

23. A perusal of the above demonstrates 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 in this case has exercised the said option to purchase the shares only on the date on which he choose to sell the shares. Thus, 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. In this case, it is not in dispute that the assessee has sold the shares on the date of exercising the option itself. Hence the transaction of sale of shares is a short term capital gain.

24. This Bench of the Tribunal in the case of Asstt. CIT v. Ambrish Kumar Jhamb [2013] 57 SOT 40 (URO)/32 taxmann.com 210 para 9 as follows:

9. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, material on record and various case laws cited, we hold as follows:- The undisputed fact is that the assessee acquired the right in the form of employees stock option plan (ESOP) from Gillette Co. ESOP are cashless. The assessee surrendered these rights and obtained certain amount, being the difference of the price of shares between the date of grant and the date of surrender. On these facts, in our opinion the issues covered in favor of assessee by the decision of the Delhi Bench of the Tribunal in the case of Abhiram Seth v. JCIT in ITA no.2302 (Delhi) of 2010 for Assessment Year 2004-05 (supra) wherein at para 7 it was held as follows:—

"7. We have heard rival submissions and gone through the entire material available on record. The facts have been narrated in detail above. A perusal of the clauses of allotment clearly reveals that the particular number of shares were allotted to assessee in different years at different prices; only distinctive numbers were not allotted which has not been disputed by dept. The apparent benefit to assessee out of ESOPs scheme was that it had not to pay the purchase price immediately at the time of allotment but the same was to be deducted at the time of sale or redemption of shares. Since there was an apparent fixed consideration of ESOPs shares, the right to allotment of particular quantity of shares accrued to the assessee at relevant time. The benefit of deferment of purchase price cannot lead to an inference that no right accrued to assessee. The sales of such valuable rights after three years are liable to be taxed under the head long term capital gains and not short term capital gains. Commissioner of Income Tax (Appeals) out of conflicting ITAT judgements has preferred to rely on only favourable to revenue ie Jaswinder Singh Ahuja (supra), overlooking others and without commenting about the relevant facts. It has not been dealt on that acquisition of valuable rights in a property amounts to a capital asset. In case of Jaswinder Singh (supra), the shares were of the same company, whereas in this case there are group companies held through trustee and there were certain RBI guidelines about non payment of price of shares and the option being exercised by assessee on the date of sale of shares.

There was no trustee whereas in assessee's case there was a fixed price of allotment of rights to fixed quantity of shares and the indistinctive shares were held by a trust on behalf of assessee. Non-allotment of distinctive number of shares by trust cannot be detrimental to the proposition that assessee's valuable right of claiming shares was held in trust and stood sold by Pepsico. Therefore, there was a definite, valuable and transferable right which can be termed as a capital asset in favour of the assessee.

7.1. In our view, the assessee's claim of taxability of gains on the transfer of such rights under the head 'long term capital gains' is justified and deserves to be accepted. If we accept Assessing Officer's stand ,then there will be no capital gain, if the date of allotment of share and sale thereof is the same, the price of purchase of shares cannot be the price paid for right which is not held as purchase, which becomes unascertainable. According to Assessing Officer, the earlier right of allotment does not constitute a purchase of shares and thus leads to a presumptive situation. In that case, as rightly observed by the ITAT in the case of Bomi S. Billimoria (supra), the purchase price will be unascertainable. If we apply the case of Dhurjaii Gupta (supra), then allotment constitutes new right of purchase and the price will be same as the sale consideration. In both situations there will be no taxability.

7.2. In our view, these propositions are of no avail in so far as we have held that the assessee acquired a valuable and transferable right on these shares as on the respective dates in 1995-96 to 1999-2000, as mentioned above. The cases ofBomi S Billimoria (supra) and Dhurjati Gupta (supra), are squarely applicable in favour of assessee. The right of shares constitute capital assets and the gains should be taxed as long term capital gains as the holding period is more than 3 years. We reverse the orders of lower authorities on this issue, treating the gains as short term capital gains. The ground is allowed.'

25. Consistent with the view taken therein, we hold that 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 in question is to be assessed as short term capital gain. Thus, we uphold the order of the First Appellate Authority who in our view has rightly followed the decision of Coordinate Bench of the Tribunal in the case of Shri Ajay Pandey (Supra), who was employee of Adobe System Pvt. Ltd. and who has also received similar ESOP. In view of the above discussion, the issue on merits is decided in favour of the assessee and the order of the ld. CIT(A) is upheld. The issue on merits for the AY 2005-06 is the same as in the A.Y. 2001-02. Consistent with the view taken for A.Y. 2001-02 ITA No. 5329/Del/2010 hereby dismissed.

26. Coming to the ITA No. 5376/Del/2010 for A.Y. 2004-05 is on the issue of rectification order passed Section 154 by the A.O. on 21.03.2005 for withdrawal of excess exemption granted under section 54F of the Act. Notices under Section 154 were issued to the assessee. The assessee did not comply with the notices issued by the Assessing Officer under Section 154 of the Act. An ex-parte order was passed on 21.03.2005. This could be finally served on the assessee on 29.09.2006. The assessee in the meanwhile filed a revised R.O.I. on 03.05.2005.

27. After hearing rival contention, we agree with the contention of the assessee that the appeal against the order passed under Section 147 and the appeal against the order passed under Section 154 are separate proceedings and there is no question of merger. There should be disposed off separately.

28. As the A.O. has passed an ex-parte order, we deem it fit to set aside the issue to the A.O. for fresh adjudication in accordance with law after giving an opportunity to the assessee.

29. In the result, this appeal is allowed for statistical purposes.

30. In the result, ITA No. 5328 & 5329/D/2010 are dismissed and ITA No. 5376/Del/2010 is allowed for statistical purposes.