The ITAT in Bangalore has recently issued a judgement in the case of Biplab Adhya v. ITO, related to the assessment year 2019-20. In this case, the Assessee, an individual and a non-resident, filed their income tax return declaring an income of Rs. 3,16,670, which was subject to scrutiny. During the assessment, the Assessing Officer noted that the Assessee had allotted 73,235 ESOP of Wipro Ltd. under an employee stock option scheme (ESOP)and sold 73,200 shares during the relevant assessment year. The Assessee claimed the cost of acquisition of these shares to be Rs. 2,13,73,564, which was the market price of the shares on the date of exercise of the option as stated in the allotment certificate, as per Section 49(2AA) of the Income Tax Act.
However, the Revenue restricted the cost of acquisition to the amount of perquisite which was offered to tax in India in the previous assessment year (when the option was exercised), which was Rs. 72,27,660. The matter was then referred to the Dispute Resolution Panel (DRP), which directed the Revenue to verify the taxes paid with reference to the tax residency certificate (TRC) and to adopt the cost of acquisition of Rs. 2,13,73,564, if the tax residency certificate (TRC) was found to be in order.
The Assessing Officer noted that the Assessee failed to produce the tax residency certificate (TRC) as directed by the DRP, and as a result, adopted the cost of acquisition at Rs. 72,27,660 in the final assessment order, instead of the amount of Rs. 2,13,73,564 claimed by the Assessee. In response, the Assessee preferred the present appeal.
The ITAT noted that the Assessee had furnished proof that they had paid taxes in the USA, as perquisite, on Rs. 1,41,45,894 and in India on Rs. 72,27,660 for the earlier assessment year 2018-19, when the option was exercised. The ITAT also acknowledged the Assessee’s contention that the tax residency certificate (TRC) was not required for determining the cost of acquisition under Section 49(2AA), but out of abundant caution, the tax residency certificate (TRC) was submitted on the record.
However, the ITAT refrained from adjudicating whether the tax residency certificate (TRC) was mandatory for determining the cost of acquisition under Section 49(2AA) since the Assessee had already produced the tax residency certificate (TRC) as per the directions of the DRP. The ITAT confirmed the DRP direction and restored the matter back to the file of Revenue with a direction to examine the tax residency certificate (TRC) and to adopt the cost of acquisition of Rs. 2,13,73,564, as claimed by the Assessee in their return of income, if the tax residency certificate (TRC) is found to be in order.
In conclusion, this judgement partially favored both parties, with the ITAT affirming the DRP direction and restoring the matter back to the Revenue for further examination of the tax residency certificate (TRC). The cost of acquisition is to be taken at Rs. 2,13,73,564 if the tax residency certificate (TRC) is found to be in order, as per the Assessee’s claim in their return of income.
