ORDER
B.R. Mittal, J.M.
1. These two appeals are filed by the Department against a common order of learned CIT(A), dated the 16th Nov., 2001 for the financial years 1998-99 and 1999-2000 disputing the cancelling the penalties of Rs. 22,90,050, and Rs. 13,38,683, respectively, levied under Section 271C of the IT Act.
2. Since the facts and the issue involved in both appeals are identical, we dispose of both the appeals by a common order for the sake of convenience.
3. The relevant facts giving rise to these appeals are that the assessee, a company registered under the Companies Act, approved an Employee Stock Option Scheme (hereinafter to be referred in short ESOS) and created a trust namely, senior professional trust for the welfare of the employees. The assessee-company through this trust transferred certain shares to its senior employees and directors. The AO stated that the assessee-company had not considered the value of these shares as perquisite in the hands of the recipients while deducting tax at shares, there was a short-deduction of tax. Therefore, the AO initiated penalty proceedings for the financial years under consideration for short-deduction of TDS and levied penalties under Section 271C of the IT Act of 22,90,050 for financial year 1998-99 and of Rs. 13,38,683 for the financial year 1999-2000. Being aggrieved, the assessee filed appeals before the first appellate authority.
4. The learned CIT(A) accepted the contention of the assessee that the assessee had not deducted tax at source on a bona fide belief as the assessee was advised that the shares had been allotted to the trust and no perquisite was involved. The learned CIT(A) has deleted the penalties for both the financial years under consideration. Hence, the Department is in further appeals before the Tribunal.
5. During the course of hearing, it was submitted before us that Bangalore Bench, Tribunal in ITA Nos. 818 to 820/Bang/2000 in the case of Mosys Technologies Ltd. v. Dy. CIT vide order dated the 28th June, 2002 [reported at (2003) 78 TTJ (Bang) 598-Ed.] has considered the similar facts. It has been held that before the amendment by the Finance Act, 1999 effective from 1st April, 2000 that benefits arising under ESOS were not taxable and only after inserting Clause (iiia) to Section 17(2), ESOS benefits are taxable and the said section is applicable prospective and not retrospectively. He submitted that the Bangalore Bench has held in the above case (supra) that the benefit arising out of ESOS were not taxable perquisites in the financial years under consideration. It was submitted that if the benefit arising out of ESOS were not taxable perquisites in the financial years under consideration, the question of levy of penalty under Section 271C does not arise. The learned Departmental Representative has not disputed the above facts save and except relying on the orders of the AO.
6. We have carefully considered the orders of the authorities below and have also considered the earlier order of Bangalore Bench, Tribunal, in the case of Mosys Technologies Ltd. (supra) and also the submissions of the learned representatives of the parties.
7. We agree that the Tribunal, Bangalore Bench in the above case (supra) has held that participation of employees in ESOS plan does not give benefit to the employees prior to insertion of Clause (iiia) to Section 17(2) by the Finance Act, 1999 effective from 1st April, 2000 and (as) such there is no question to deduct tax at source thereon. It has been held that shares given under ESOS are perquisites under Section 17(2)(iiia) only from asst. yr. 2001-02. Since the financial years under consideration before us are financial years 1998-99 and 1999-2000, we hold that no benefits had accrued to the employees on account of participation in the scheme of ESOS. Accordingly, we hold that no tax was to be deducted at source in the financial years under consideration. Therefore, we agree with the learned Authorised Representative of the assessee that the question of levy of penalty under Section 271C does not arise. In view of the above, we uphold the orders of the learned CIT(A) to cancel the penalties of Rs. 22,90,050 for financial year 1998-99 and of Rs. 13,38,683 for financial year 1999-2000 for the reasons mentioned hereinabove and not for the reasons as mentioned by the learned CIT(A).
8. Therefore, the grounds of appeal taken by the Department for both the assessment years are rejected. In the result, both the appeals filed by the Department are dismissed.