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TMI Blog2014 (6) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... are being disposed off by way of this common order for the sake of convenience. 2. First, we take up the appeal in the case of Smt. Punitaben K Patel for the assessment year 2002-03 in I.T.A.No. 1255/Ahd/2006. 2.1 Ground No.1 is general. 2.2 Grounds No.2 & 3 are interconnected as reproduced below: "2. In law and in facts and circumstances of the Appellant's case, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the action of Id. Assessing Officer in considering the long term capital gain of Rs.8,79,320/- on sale of 40 Deep Discount Bonds of Nirma Limited as short term capital gain. 3. In law and in facts and circumstances of the Appellant's case, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the action of Id. Assessing Officer in not allowing claim of deduction u/s.54EC of the Act on long term capital gain referred to in ground no. 2 above." 2.2.1 The brief facts of the case are that it is noted by the A.O. in para 4 of the assessment order that the assessee has shown long term capital gain (LTCG) of Rs.8,79,320/- in respect of purchase and sale of deep discount bonds (DDBs) of Nirma Ltd. He has also noted that the purchase cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only on 20.09.2001. Hence, the facts in the present case are identical. This issue was decided by the tribunal as per para 26 of the tribunal decision and for the sake of ready reference, the same is reproduced below: "For the aforesaid reasons, we are of the view that the assessee is right in claiming that the capital gains arising on the sale of the deep discount bonds should be assessed as long term capital gains on the footing that he held them for a period of more than 12 months starting form 23.09.2000 before they were sold on 2.03.2002. Consequently, we also hold that the assessee is entitled to the exemption u/s 54EC as claimed. Thus both grounds Nos. 2 and 3 are allowed." 2.2.4 From the above para of the Tribunal order, we find that it was held by the tribunal that the holding period has to be counted form the date of allotment till the date of sale and if the same is more than 12 months then, it has to be accepted that it is a LTCG and the assessee is entitled to deduction u/s 54EC also. Hence, in the present case also, by respectfully following the Tribunal decision, we decide both these issues in favour of the assessee and it is held that since period of holding was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee before the A.O. that the letter of board dated 12.03.1996 was applicable in the present case and therefore, the gain is LTCG. It was further submitted by the assessee before the A.O. that as per the press release of the Board dated 20.03.2002, the applicability of the circular is prospective and not retrospective and for this reason also, the gain in question is LTCG and the same cannot be considered to be STCG. The A.O. was not satisfied and he held that this gain of Rs.53.49 lacs is STSCG and the assessee is not eligible for deduction u/s 54EC also. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now, the assessee is in further appeal before us. 2.3.2 It was submitted by the Ld. A.R. that this issue is also covered in favour of the assessee by the tribunal decision rendered in the case of ITO Vs Kulgam Holdings Pvt. Ltd. in I.T.A.No. 3785 and 2574/Ahd/2004 dated 25.04.2007, copy of which is available on page 136-140 of the paper book II. He further submitted that on the same issue, another tribunal decision rendered in the case of Navin Associates Vs ACIT and Others in I.T.A.No. 1248, 1256 & 1266/Ahd/2006 is also in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided in favour of the assessee without referring the same to the Third Member although the Accountant Member was having some reservations about the view of the Judicial Member on some other aspects. Be that as it may but this is admitted position that on this aspect, i.e. Board's Circular No.2 dated 15.02.2002 is applicable only on those bonds which were acquired on or after 15.02.2002, there are several Tribunal decisions in favour of the assessee and no contrary decision was brought to our notice by the Ld. D.R. and since in the present case, the strip of TATA Finance Ltd. were acquired by the assessee on 23.03.2000 i.e. much prior to 15.02.2002, it has to be accepted that in the facts of the present case, this board's Circular No.2 dated 15.02.2002 is not applicable and therefore, the gain in question has to be assessed as LTCG and the assessee has to be allowed deduction u/s 54EC also. We hold accordingly. Grounds No.4 & 5 of the assessee are also allowed. 2.4 Ground No.6 is as under: "6. In law and in the facts and circumstances of the Appellant's case, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the Assessing Officer's action in levying inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and now, the assessee is in further appeal before us. 3.2.2 It was submitted by the Ld. A.R. before us that the assessee is following cash method of accounting. He further submitted that the method of accounting was taken as cash based on assessment year 2005- 06. He further submitted that in I.T.A.No. 1291/Ahd/2009 dated 08.04.2011 for assessment year 2005-06, in the Tribunal decision of departmental appeal, it was held that method of accounting followed by the assessee is cash method. He submitted copy of the Tribunal decision before us. He further submitted that the A.O. in assessee's own case for the assessment year 2004-05 has held that the method of accounting followed by the assessee is cash method of accounting and has submitted a copy of assessment order for the assessment year 2004-05. At this juncture, the bench wanted to see the balance sheet and P & L account along with computation of income of the present year to find out the method of accounting being followed by the assessee in the present year because the facts of the present year may be different than that of the facts in assessment year 2005-06 and 2004-05. The same were submitted by the Ld. A.R. Ld. D.R. supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the assessee has claimed to have made eligible investment of Rs.747.40 lacs u/s 54EC of the Income tax Act, 1961. We hold accordingly. Grounds No.3 & 4 are allowed. 3.4 Ground No.5 is regarding charging of interest of Rs.92,53,728/- u/s 234B of the Income tax Act, 1961. This ground is consequential and held accordingly. 3.5 Ground No.6 is regarding initiation of penalty proceedings u/s 271(1)(c) of the Act. This ground is rejected because the same is premature. 3.6 Ground No.7 is general. 3.7 The assessee has raised on additional ground which reads as under: "In law and in the facts of the appellants case, the addition of Rs.4,90,220/- being notional accrued interest on optionally fully convertible premium notes (OFCPNs) of Nirma Industries Ltd. miscellaneous application be deleted." 3.7.1 It was submitted by the Ld. A.R. that the decision on this ground is depending on the outcome of ground No.2 of the assessee's appeal and if it is held that the assessee is following cash system of accounting then this income of Rs.4,90,220/- of OFCPNs of Nirma Industries Ltd. cannot be taxed in the present year because the income of the assessee has to be assessed on cash basis onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion but since all other issues as per grounds no.2, 3 & 4 are depending on the decision on this aspect and the relevant facts beings the audited balance sheet and P & L account etc. are being furnished, this issue may be decided here itself. He also submitted that as per the computation of the total income filed by the assessee along with the return of income which is made available before the bench, it is submitted by the assessee on page 2 of the computation that the assessee is following cash method of accounting. He also submitted that as per the balance sheet and P & L account of the assessee, made available before the Bench, it cannot be seen that the assessee is maintaining its accounts on cash basis and not on mercantile basis. He submitted that merely because in assessment year 2001-02, no appeal was filed by the assessee against the assessment order as per which the A.O. held that the assessee is following mercantile system of accounting, it cannot be accepted that the assessee is in fact following mercantile system of accounting in that year i.e. assessment year 2001-02 because in spite of holding that the assessee is following mercantile system of accounting, the retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of accounting. This was submitted by the assessee before the A.O. as per the submissions dated 08.11.2005 also as has been reproduced by the A.O. in para 5.1 on page 3 of the assessment order. Thereafter, in para 5.13 of the assessment order, it is stated by the A.O. that the method of accounting in respect of DDBs has been defined by CBDT u/s 145(2) of the Income tax Act, 1961 and as per the provisions of Section 145(2) read with Circular No.2 of 2002, the assessee is not allowed to return the income from DDBs/NCD on cash basis. Hence, as per this finding of the A.O. in para 5.13 of the assessment order, it is seen that this is not a case of the A.O. that assessee is not following cash system of accounting and is following mercantile method of account but the case of the A.O. is this that in respect of declaring income from DDBs/NCD, there is a restriction on the assessee as per Circular No.2 of 2002 and Section 145(2) of the Income tax Act, 1961 that the same cannot be declared on cash basis. We are not satisfied with this contention of the A.O. because as per the provisions of Seciton145(2) of the Act, the Central Government may notify in the official gazette from time to ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as under: "6) In law and in facts and circumstances of the Appellant's case, the learned (Tf(A) has grossly erred in not dealing with following additional ground of appeal: ''In law and in the facts and circumstances of the Appellant's ease, it is submitted that if addition of Rs.8,94,601 on REC Bonds. Rs. 1.21.11.114 on DDBs of Nirma Limited and Rs.59,05,216 on OFCPNs of Nirma Industries Ltd. being made as notional interest, is accepted partially or completely, it is prayed that the same should not be taxed in the subsequent year." 4.3.1 It was submitted by the Ld. A.R. that this ground is an alternative argument if the assessee fails in respect of grounds No.2, 3 & 4. Since, we have already allowed the assessee's grounds No.2, 3 & 4, this ground of the assessee is rejected being redundant. 4.4 Grounds no.7, 8 & 9 are regarding charging of interest u/s 234A, 234B and 234C of the Act and the same are consequential and held accordingly. 4.5 Ground No.10 is regarding charging of interest u/s 234D of the Income tax Act, 1961. Regarding this issue, it was submitted by the Ld. A.R. that interest u/s 234D of the Income tax Act, 1961 cannot be charged because the la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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