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2015 (5) TMI 356 - ITAT LUCKNOW

2015 (5) TMI 356 - ITAT LUCKNOW - TMI - Demands raised by the A.O. u/s 201 (1) & 201 (1A) - CIT(A) deleted the addition as inter - alia of relevant F.Y. 2005-06 is barred by limitation as per the provisions of section 201(3) of the I.T. Act - Held that:- CIT (A) has followed the judgment of Hon’ble Kerala High Court rendered in the case of Traco Cable Co. Ltd. vs. CIT, [1987 (2) TMI 36 - KERALA High Court ] and held that no order u/s 201 (1) could be made after 31.03.2013 in respect of Financial .....

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f the financial year in which the statement is filed because it is not in dispute that these statements were filed by the assessee. - Decided in favour of assessee.

Recovery of interest u/s 201 (1A) - Held that:- When recovery of tax u/s 201 (1) is time barred, recovery of interest u/s 201 (1A) is also time barred. We find no infirmity in the order of learned CIT (A) on this aspect also because in our considered opinion, interest u/s 201 (1A) is consequential to default u/s 201 (1) an .....

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isted and dematerialized securities came into force from 01/06/2008. He has given a clear finding that the assessee had earlier deducted TDS from interest in respect of NCDs prior to this date and in fact up to 30/09/2009. He has also noted that the details of interest in respect of TDS deducted during financial year 2007-08 to 2009-10 and challan for deposit of tax are available on pages 129 to 140 of the paper book. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenu .....

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of CIT(A) also could not be controverted by Learned D.R. of the Revenue and since the interest on NCDs paid by the assessee were exempt from the requirement of TDS either on account of NCDs being listed and dematerialized or on account of held by LIC, TDS was not deductible and therefore, there is no reason to interfere in the order of CIT(A) on this issue also. - Decided in favour of the assessee.

Taxability of interest on FCCBs - CIT(A) holding that the demand raised by the AO in re .....

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onversion of debenture into share is considered as income at the time of conversion, this cannot be considered as interest and the liability of TDS cannot be fastened on the assessee. The CIT(A) has also referred to the provisions of section 115AC read with section 196C and observed that as per the scheme of taxation in respect of FCCBs, it has been provided that TDS is required to be deducted from interest payments on bonds until the conversion option is exercised. This scheme exempts the taxat .....

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f FCCBs and therefore, on this issue also, no reason to interfere in the order of CIT(A) - Decided in favour of the assessee.

Taxability of interest on FDRs - AO treated the entire non tax deducted interest as tax deductible interest on the ground that the assessee only gave the names of deposit holders and the amount of interest earned but their address, PAN, amount of deposit, rate of interest and period were not give - Held that:- CIT(A) noted that the assessee vide his letter date .....

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the assessee, the Assessing Officer in her impugned order has treated the entire non tax deducted interest as tax deductible interest on the ground that the assessee only gave the names of deposit holders and the amount of interest earned but their address, PAN, amount of deposit, rate of interest and period were not given. He has further noted that the Assessing Officer has rejected Forms 15G/15H cases on the ground that names and amounts of interest involved in 15G/15H forms could not be asce .....

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e. When the FDR interest paid by the assessee is partly below ₹ 5,000/- per payee or partly the payee has given Form 15G/15H and as a consequence, no TDS was required to be deducted by the assessee, it was not proper for the Assessing Officer to raise this liability of TDS on such FDR interest. No infirmity in the order of CIT(A) on this issue - Decided in favour of assessee. - ITA Nos. 845 to 852/LKW/2014 - Dated:- 28-4-2015 - Shri Sunil Kumar Yadav And Shri A. K. Garodia,JJ. For the Peti .....

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re reproduced from ITA No. 845/LKW/2014 being the appeal for A.Y. 2006 - 07. The grounds are as under:- 1. That the impugned order of the Ld. CIT (A) is invalid, illegal and void as the Ld. CIT (A) has not given any statutory notice u/s 250 (1) of the IT. Act to provide opportunity of hearing to the Assessing Officer and the appellate order is liable to be quashed solely on this ground itself. 2. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case by holdi .....

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der section 201 (3) of the I.T. Act. 4. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in holding that limitation u/s 201 (3) of the Act is applicable to both the situation i.e. in a case where whole of tax has been deducted or any part of tax has been deducted. 5. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in accepting assessee's proposition that if the recovery of tax is time barred u/s 201 (1) th .....

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in deleting the demand of ₹ 49,55,67,644/- (after AO's order u/s 154 of the IT Act, dated 26.05.2014) raised by the order u/s 201 (1) & 201 (1A) of the Act in respect of gains to the investor arising from conversion of FCCBs. 8. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in holding that conversion gain cannot be recognized and charged as interest payable in any manner. 9. That the Ld. CIT (A) has erred in law and on the facts and in .....

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ding that AO has also raised demand in respect of FCCBs for F.Y. 2005-06 & 06-07 as well, there being no notice for the said financial years. 12. The appellant craves leave to add, amend, alter, modify and / or withdraw any of the grounds of appeal. The appellant further craves leave to make written and oral submission at the time of hearing of appeal. 3. The chart of amount involved in each year is as under:- A.Y. ITA No. Amount in Dispute 2006 - 07 845/LKW/2014 24,27,27,009 2007 - 08 846/L .....

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. 77 of his order has stated that the assessee has raised 5 issues i.e. (1) General, (2) Limitation, (3) Taxability of Interest on NCDs, (4) Taxability of Interest on FCCBs and (5) Taxability of Interest on FDRs. He decided all these appeals on issue basis and both sides agreed that we can also decide these appeals on issue basis. We proceed accordingly. 6. First we reproduce the findings of learned CIT (A) from pages 77 to 90 of his order. The same are as under:- In all these appeals for differ .....

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paras of this appeal order and they do not require any separate adjudication as they have been incorporated in my findings ground wise. Findings grounds Nos 4 to 10 together (Limitation) I have perused the facts stated in the order u/s 201(1)/201(1A) as well as facts stated in statement of facts and assessee's submission as well as the Remand report of Assessing Officer dated 20-06-2014 and 25-07-2014 and the assessee's rejoinder/submission dated 30.06- 2014 and 30-07-2014 and 08-08-201 .....

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reas the Assessing Officer on her own has given implied meaning to the language of the section 201(3). The case law of CIT vs Meat Products of India Ltd. is correct and the assessee's reliance is also correct - if the recovery of tax is time barred u/s 201(1) then interest also will be time barred u/s 201(1A). Interest on tax has no separate existence without the principle demand being outstanding within the limitation period for recovery. This decision follows Traco Cable Co. Ltd. v. CIT 16 .....

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under section 201(3). Moreover substantial demand before financial year 2011-12 is also time barred on the date of the order under section 201(3). No order under section. 201(1) could be made after 31.3.2013 in respect of financial years 2005-06, 2006-07, 2007-08. 2008-09 & 2009-10. In respect of financial year 7010-11, an order under s. 201(1) could be made only in respect of the last quarter for which statement was filed m financial year 2011-12. Thus, the entire impugned demand in respect .....

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n as well as the Remand report of Assessing Officer dated 20/06/2014 and 25/07/2014 and the assessee's rejoinder/submission dated 30/06/2014 and 30/07/2014 and 08/08/2014, which are in the body of this Appellate Order (verbatim). The issue regarding the regular interest paid in respect of NCDs was never raised during the proceedings by the Assessing Officer and the details thereof were never called for from the assessee as evident from the Assessing Officer letter in the Index of the Paper B .....

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hese calculations based on the coupon rate of each NCD as available in the assessee's balance sheets. However, such calculations were bound to be incorrect because, owing to the multiple redemption points of each NCD the exact outstanding amount of the NCD and the period for which it was outstanding during the year would not be readily available from the balance sheet unless specifically asked tor. There is no provision in law which empowers the assessing officer to estimate the TDS liabilit .....

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ove noted list from (the) NSDL, the annual reports of the assessee company and assessee's written submission, It is found that some NCDs (as found in the annual reports) are not reflected in the list of active NCDs and redeemed NCDs as taken out from (the) NSDL website. Such NCDs which are not covered in the NSDL list are out of the purview of the exemption provided in clause (ix) of the proviso to section 193 of the Act because there is no evidence available on record to prove their demater .....

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of the Paper Book). Thus if any NCDs have been listed on the NSE or the BSE, they have to be necessarily in the demateriaiized form. Therefore, once the Assessing Officer was satisfied that the NCDs in question were listed NCDs, she should have under law concluded that they were also demateriaiized. The documentary evidence of dematerialization could not be filed by the assessee because she indicated this requirement for the first time in her letter dated 25.3.2014 (as evident from the letter me .....

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dematerialized securities came into force from 1/6/2008. The assessee had earlier deducted TDS from interest in respect of NCDs prior to that date and in fact up to 30.9.2009. Details of interest in respect of NCDs and TDS deducted there from during the financial years 2007-08 to 2009-10 and challans for deposit of tax are at pp. 129-140 of the Paper Book. Statement of all NCDs considered by Assessing Officer for each financial year is at Paper Book at pp. HI-115. It may be noticed that during t .....

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per Book pp. 115 ABC and list of debentures held by LIC is at paper book pp 147. The assessee has been filing the quarterly statements of TDS in accordance with section 200(3) of the Act read with Rule 31 A of the Rules. As per clause (i) of section 200(3) of the Act, no order under section 201(1) deeming a person to be an assessee in default shall be made after the expiry of two years from the end of the financial year in which the statement filed. No order u/s 201(1) could be made after 31/3/2 .....

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pellant as well as Assessing Officer during the Appellate proceedings and the paper book along with its Index and Certificate was sent along with written submission dated 30- 06-2014 to the Assessing Officer for comments she did not find anything contrary relating to assessee's submission regarding liability of NCD. She simply relied on her order as mentioned in Para 3 and 3,3 of her Remand Report dated 25- 07-2014 that 3. With regard to demand in respect of NCDs, FCCBs and FDs, your kind at .....

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me issue in comments dt. 20.06.2014. The amount of NCDs ore taken from the Annual Reports of the company only which are found on record. The year wise interest calculation on NCDs is given in Para 5.4 of the order and the undersigned relies on the same... With regard to Remand Report dated 20/06/2014 the Assessing Officer stated that SEBI Circulars are in the nature of additional evidence, in this regard, I am of the view that these are available in the Public domain and this was informed to the .....

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he assessee has a strong case on the facts as well as on the law. As such he wins on both the grounds. These grounds of appeal are allowed. Finding for Ground Nos. 18 to 21 together (FCCB) I have perused the facts in the order u/s 201(1)/201(1A) as well as facts stated in the statement of facts assessee s submission as well as the Remand report of Assessing Officer dated 20-06-2014 and 25-07-2014 and the assessee's rejoinder/submission 30-06-2014 and 30-07-2014 and 08-08- 2014. The Central G .....

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under the aforesaid scheme. The bonds, as their name suggests, were convertible at the option of the holder into shares of the issuing company at a predetermined price. The balance remaining after conversions, if any, were redeemed on the due redemption dates. The Finance (No.2) Act, 1991 inserted a clarificatory clause (x) in section 47 of the Act with retrospective effect from 1.4.1962 which excluded from the purview of capital gain any transfer by way of conversion of bonds or debentures, deb .....

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y way of conversion of debentures etc. 24. For the purposes of capital gains taxation, "transfer" in relation to a capital asset, includes, infer alia, the sale, exchange, or relinquishment of the asset. Doubts have been expressed in the recent past as to whether capital gain arises at the time of conversion of convertible debentures into shares. With a view to reiterating the legislative intention, a new clause (x) has been inserted in section 47 of the Income-tax Act to provide that .....

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bentures-stock or deposits certificate which has been appropriated towards the shares or debentures " (Emphasis supplied). Subsequent to the clarificatory amendment aforesaid, two new sections, namely 115AC and 196C were introduced in the Act with effect from 1.4.1993 and 1.6.1992 respectively by the Finance Act, 1992. The section 115AC did not provide for the taxation of gain arising on conversion. If the legislature intended, it could have expressly provided for the taxation of conversion .....

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slature did not do so. Doing so would have been a disincentive rather than an incentive for investment in FCCBs. The Assessing Officer cannot take this argument that notional gain arising on conversion is interest as interest is defined under section 2(28A) as under: "Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the .....

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r fictional income can only be taxed if there is specific provision providing for the same. There is no such specific provision to tax the impugned notional gain as interest and as such too the adverse inference as made is unlawful. Hence, in the absence of any specific and express deeming provision, the conversion gain cannot be recognized and included as interest payable in any manner. In fact, the legislature effectively excluded conversion gain from being taxed under any other head of income .....

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ers in the matter of taxation, would not leave the taxation of such a key event as conversion to interpretation. If the legislature wanted to recognize conversion gain for the purposes of taxation, it would have done so expressly for of the nonresident investors, it incorporated express provisions delimiting the taxation of FCCBs and used the mandatory expression 'shall' in every sub-section of section 8 thereof. The Scheme provides for deduction of tax at source from interest payments o .....

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h gain in the interest under sub-section (1) of section 8, there would have been in the scheme an appropriate inclusion clause instead of the exclusion clause. The Act and the Scheme provide for taxation of income by way of interest from FCCBs prior to conversion. They also provides for taxation of income by way of dividend from shares after conversion. However, they do not prescribe taxation on income arising from conversion. The Assessing Officer cannot give a new and additional incidence of t .....

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e assessee's submission rather she relied on assessment order and offered her comments as stated in her Remand Report dated 25/07/2014 Para 6.2 to 6.4 that... 6.2 The conversion rate and the market price of the shares have been taken from the company's annual reports for various years and the undersigned relies on the same. The shares of the company were split into 5:1 with record date of 26/12/2007 and ex-split date of 17/12/2007 for face value was ₹ 2/- per share. Due to the spli .....

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kind attention is invited to the discussion made under the head FCCBs in comments of the undersigned dt. 20.06.2014. The relevant portion of which is reproduced as follows- 6.3 "With regard to the issue raised in Para 6.3 of the Statement of Facts r.w. Annexure V, this is submitted that the details of conversion of FCCBs and dotes of issue of shares were taken from the Information Memorandum of the Assessee Company as available on the website of the Bombay Stock Exchange. The said Memorandu .....

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allotment of shares on amalgamation on 25.08,2006 and 14.06.2009, this is submitted that as evident from the Information Memorandum, the process of conversion of FCCBs and allotment of shares on amalgamation is going on simultaneously: and also the consideration for issue of shares on amalgamation is not given. It is understood that the conversion of FCCBs is also involved in the allotment of these shares on 25.08.2006 and 14.06.2009, and the entries on these two dates are in substance and effec .....

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r not will depend on the provision of law relating thereto and nor on the view which the assessee might lake of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The ratio supports the case of the Department, though context of the case may be different. " The working by the Assessing Officer is not correct as the conversion Rate was prefixed 6 years back when the bonds were issued in market. Alternatively, the Assessing O .....

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was ever anything payable or paid by assessee to payee which constitutes interest payable in respect of the impugned notional gain. As the notional gain has never been paid or credited to the payee there can be no question of any TDS thereon. From all of the above stated facts, it is clear that the demand raised by the assessing officer in respect of the notional gain arising from conversion of the FCCBs is contrary to the express provisions of the Act as well as of the notified Scheme of FCCBs .....

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s. 22 to 26 together (FDR) I have perused the facts stated in the order u/s 201(1)/201(1A) as well as facts stated in the assessee's submission as well as the Remand report of Assessing Officer dated 20-06-2014 and 25-07-2014 and the assessee's rejoinder/submission dated 30.06-2014 and 30-07-2014 and 08-08-2014. The Assessing Officer in her remand report dated 25-07-2014 has stated that the digitized details of the Fixed Deposits are in nature of additional evidence which may be admitted .....

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essing Officer did not contradict regarding the assessee s version regarding the details which were sent to her by email by the assessee on these dates i.e. 21/03/2014 and 29/03/2014. CD was also supplied with Paper book. In a way she agrees to the fact that she did receive the email. What the assessee has now given to me is the data in read-able format from which a conclusion can be drawn and the same is reproduced below...... (2) With a view to assist your honour, break up of tolal accrued int .....

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789904253 481137413 19774 3 583 111023257 49273625 2011-2012 99-]13307 58681194} 285094741 125206625 59688603 2012-2013 1053632159 581106081 363089164 109436913 58160355 204033312 Copies of First and last page of all the above years for interest on FDs, tax deductible cases, interest less than ₹ 5,000/- cases and interest accrued in 15G/15H cases are being enclosed. Notes: (i) That vide letter dated 07.03.2013, the Ld. A.O. asked the assessee to furnish the details of tax deducted at sour .....

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hat the assessee vide its letter 13.03.2014 furnished the details of difference between interest accrued and tax deductible interest by dearly demonstrating that the interest accrued was inclusive of interest for which forms 15G/15H were submitted before the CIT, Kanpur as well as the Interest below ₹ 5000/- on which no tax was to be deducted at source for the A.Y. 2007-2008, 2008-2009 and 2012-2013. (Pl. refer page 12-19 of the paper book) (v) That the Ld. A.O. vide her letter dated 20.03 .....

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her letter dated 25.03.2014 alleged that no documentary evidence were filed in respect of interest below ₹ 5,000/- as well as the interest accrued in respect of Forms 15G/15H for the A.Y. 2009-2010, 2010- 2011 and 2011-2012. (Pl. refer page 25-28 of the paper book) (viii) That the assessee vide its letter dated 27.03.2014 again made a detailed submissions in respect of interest below ₹ 5000/- as well as the interest in respect of Forms 15G/15H. Further below ₹ 5,000/- as well .....

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of interest below ₹ 5000/- as well as the interest in respect of Forms 15G/15H. (Pl. refer page 53-54 of the paper book) (xi) That the tax deducted on tax deductible accrued interest was deposited to the credit of the Central Government. Details and tax challans for deposit of tax on FDs interest for the F. Y. 2007-2008 to 2012-2013 are placed at pages 148 to 158 of the paper book. (xii) That besides above, a CD containing details of accrued interest on FDs is also enclosed with the paper .....

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ords, TDS records, assessment records of the tax department have duly accepted the deposits, interest thereon and TDS thereon including non deduction of TDS in the case of FORMs 15G/15H and interest below ₹ 5,000/-. Thus, in view of the facts of the present case and our submissions made above dully supported with the documentary evidences, your honour would find that the lax liability of ₹ 48,61,06,234/- wrongly created by the Ld. A.O. on account of alleged non deduction of tax on FD .....

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rectification petition made u/s 154 of the Act. But the Ld. A.O. did not appreciate the facts of the present case. Rectification petition as well as the order of the Ld. A.O. are placed at pages 172 to 191 of the paper book. The assessee vide its letter dated 13.3.2014 explained that the difference between the total interest and the taxdeductible interest was due to below ₹ 5000 (interest) cases as well as Form 15G/15H cases in both of which tax was not deductible. The details of total int .....

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he assessee furnished the details of below ₹ 5000 cases for FY 2009- 10, 2010-11 & 2011-12 in excel file, giving the name, Investor Code No. and interest earned in each case. The excel file was emailed to DCIT-TDS on 21.3.2014. Again, details of below ₹ 5000 cases for FY 2007-08, 2008-09 & 2012-13 were also furnished in excel file giving the name, Investor Code No. and the interest earned in each case. This file was emailed to the assessing officer on 29.3.2014. As regards th .....

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the requisition to furnish digitized copies of 15G/15H forms in respect of all the financial years from 2007-08 through 2012-13. In response, the assessee filed copies of letters/receipts under which the said forms for the financial years 2009-10, 2010-11 & 2011-12 were submitted to the office of the CIT as per Rules. As regards copies of receipts for the delivery of 15C/J5H forms in respect of financial years 2007-08 & 2008-09, the assessing officer was informed that the same will have .....

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sing officer has also rejected the Forms 15G/15H cases on the ground that names and amounts of interest involved in 15G/15H forms could not be ascertained from the copies of receipts for the delivery of these forms in the office of the CIT. Further the Assessing Officer did not issue any notice for these years F.Yrs. 2005-06 and 2006-07. The Assessing Officer gave no show-cause notice, and made no proposition, for holding the assessee in default in respect of tax-deducted cases. The assessee has .....

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ore deleted on merits of the case. Furthermore the entire demand in respect of financial years 2007-08, 2008-09 & 2009-10 and substantial part of the demand in respect of financial year 2010-11 is also barred by limitation. Hence assessee has a strong case on merits as well as on law and these grounds of appeal are allowed. In view of my findings above on different issues which are common in all the appeal for F.Yrs. i.e.2005-06 2006- 07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 and 2012- .....

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ould be made after 31.03.2013 in respect of Financial Years 2005 - 06 to 2009 - 10. In respect of Financial Year 2010 - 11, he held that an order u/s 201 (1) could be made in respect of last quarter for which statement has been filed in Financial Year 2011 - 12. In this regard, we reproduce the provisions of sub section (3) of section 201 as under:- No order shall be made under sub section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax fr .....

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Hence, as per the Proviso to section 201 (3) inserted by Finance Act 2009, for F.Y. 2007 - 08 and earlier years, the order u/s 201 (1) got time barred on 31.03.2011. For F.Y. 2008 - 09 to 3rd Quarter of F.Y. 2010 - 11 also, the order is time barred because of expiry of two years from end of the financial year in which the statement is filed because it is not in dispute that these statements were filed by the assessee. 9. There is one more aspect. It is noted by learned CIT (A) that this was an o .....

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also time barred. We find no infirmity in the order of learned CIT (A) on this aspect also because in our considered opinion, interest u/s 201 (1A) is consequential to default u/s 201 (1) and therefore, when action u/s 201 (1) is time barred, action u/s 201 (1A) is also time barred as a consequence and for that , specific mention of section 201 (1A) in section 201 (3) is not essential. 10. As per above discussion, we do not find any infirmity in the order of learned CIT (A) on second issue and h .....

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deducted during financial year 2007-08 to 2009-10 and challan for deposit of tax are available on pages 129 to 140 of the paper book. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue and hence, this has to be accepted that till 30.09.2009, TDS deduction was made by the assessee from interest on NCDs. 12. The CIT(A) has given further finding that all the NCD of the assessee were listed and dematerialized. He has also given a finding that NCDs held by LIC were exempt .....

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fore, there is no reason to interfere in the order of CIT(A) on this issue also. Accordingly issue No. 3 is also decided in favour of the assessee and the order of CIT(A) is confirmed on this issue. 13. The 4th issue is regarding taxability of interest on FCCBs. On this issue, CIT(A) has noted down the contents of CBDT Circular No. 621 dated 19/12/1991 as per which, capital gain is not chargeable on conversion of debenture or bonds in shares in view of clause (x) of section 47 of the Act. Hence, .....

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to be deducted from interest payments on bonds until the conversion option is exercised. This scheme exempts the taxation of capital gain arising from the transfer of bonds outside India among non residents. He has further noted that the scheme expressly forbids the taxation of any capital gain arising from the conversion of bonds into shares. Considering all these facts and in view of the above discussion, we are of the considered opinion that the Assessing Officer was not justified in fasteni .....

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etween the total interest and tax deductible interest was due to below ₹ 5,000/- interest cases as well as Form 15G/15H cases and in both of these cases, tax was not deductible. He has reproduced the details of total interest, tax deductible interest and non deductible tax interest in respect of financial years 2007-08, 2008-09 and 2012-13. Thereafter, a clear finding is given by CIT(A) that in spite of all these details and evidence furnished by the assessee, the Assessing Officer in her .....

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