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TMI Blog2020 (7) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication on merits. 3. The Revenue pleads the following substantive grounds in its instant appeal:- "1. The Ld. CIT(A) erred in law in allowing Long Term Capital Loss of Rs. 109,80,30,873/- on transfer of Government Securities after applying Cost Inflation Index cost on the sale of Government Securities. The Ld. CIT(A) erred in holding that Government Securities are not bond or debentures. 2. The Ld. CIT(A) erred in law to allow set off of brought forward long term capital loss of Rs. 2,79,36,337/- against the short term capital gain computed u/s 50 of the Act. 3. The Ld. CIT(A) has erred in law in deleting the addition of Rs. 67,56,925/- u/s 14A disallowance as proportionate interest of Rs. 67,56,925/- was computed under Rule 8D(2)(ii) read with Rule 8D of the I.T. Rule. 4. The Ld. CIT(A) has erred in law in deleting the addition of Rs. 8,93,88,975/- u/s. 14A as administrative expenses of Rs. 8,93,88,975/- was computed under Rule 8D(2)(iii) read with I.T. Rule. 5. The Ld. CIT(A) has erred in law in deleting the addition of Rs. 10,19,816/- u/s 40(a)(ia) of the IT Act on account of failure to deduct TDS from payments to several parties which violates the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment) for the purpose of raising a public loan, and having one of the following forms, namely: (i) stock transferable by registration in the books of the Bank; or (ii) a promissory note payable to order; or (iii) a bearer bond payable to bearer; or (iv) a form prescribed in this behalf; (b) any other security created and issued by the Government in such form and for such of the purposes of this Act as may be prescribed" The Government securities which were sold during the year were stocks being of the nature described in clause (i) to section 2(a) of the Public Debt Act, I 944. The third proviso to section 48 of the Act restricts the indexation in the case of long term capital assets, being bonds or debentures other than Capital Indexed Bonds issued by the Government. The term debenture has been defined in section 2(30) of the Companies Act, 2013 which reads as "debenture" includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not" From the above definitions, it is clear that Debenture includes Bond but it does not include Government Securities. One of the fundamental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g appellate proceedings that the Learned PCIT in his order u/s 263 dated 19.03.2015 had not discussed any of the contentions of the assessee claiming that Government Securities are not Bonds and Debentures. In the said order, he has not given any finding either accepting or denying the contentions of the assessee. On the other hand, in the said order passed u/s 263, he had concentrated only on the technical aspect that the assessment order for AV 201011 was erroneous and prejudicial to the interest of the Revenue since the Learned AO had not examined this question of indexation on transfer of Government Securities at the assessment stage and hence Sec.263 of the Act was applicable in the present case. He btherefore set aside the assessment order for the limited purpose of examining whether on the divestment of the Government Securities the assessee was entitled to the benefit of indexation. The assessee thereafter filed an appeal against the Learned Pr. CIT's order V/s 263 before the Hon'ble Tribunal. The assessee raised several grounds pointing out the difference between Bonds and Debentures on one hand and Government Securities on the other. The Hon'ble Tribunal did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Government Securities are Bonds & Debentures. The facts of the said case and conclusion is given below: "Facts of this case: Capital gains indexation benefit on debt instruments Assessee reported loss on conversion of units of UTI MIP 99 which were converted by UTI into tax free bonds prior to the actual date of redemption, after claiming benefit of indexation Tenns "bonds" and "debentures" are not defined in IT Act in case of premature withdrawal, interest already paid is deducted from capital in that sense, UTI, MIP99 is also a bond as per definition of bond Third proviso to s.48 excludes bonds and debentures other than capital indexed bonds issued by the Government from the list of capital assets eligible for the benefit of indexation CIT(A) has erred in allowing indexation on such bonds" "UTI bonds himself to pay to the bolder ofMIP99, a fixed sum @ 11.3 per cent per annum in each month and to pay back the investment/capital amount after the lapse of full term of 5 years. However, in case of premature withdrawal by the assessee, there is no guarantee of protection of capital and the same will be repaid as per NAV. This is similar to FD and NSC because in case of FD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities. indexation benefit was not allowed CIT(A) deleted addition placing reliance on Explanation2 to Section 2(42A) r/w Securities Contracts Regulation Act, 1956 and allowed appeal of assessee Revenue in appeal was related to indexation benefit on capital gains u/s 48Held, from definition of capital asset, government securities were not excluded from definition of capital asset As per Section 2(42A) expression 'security' should had meaning assigned to Clause 11 of Securities Contracts Regulation Act, 1956 which includes government securities Bonds could not be equated with securities Assessee had made investments in government securities and sold securities after bold period of more than 12 months to treat securities as long term capital assets Capital gains arose on transfer of long term company assets were entitled for benefit of indexation as per Section 48From plain reading of 3rd proviso section 48 government securities were not excluded for indexation benefit only bond or debenture included in third proviso to Scc.48. Therefore, tribunal did not find any infirmity in order of CIT(A) and same upheld Revenue's appeal dismissed. Held: "From the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g term capital loss of Rs.2,79,36,337/- against short term capital gains computed u/s 50 of the Act. There is no dispute about the basic fact that the assessee's long term capital loss in issue arose on sale / transfer of the relevant block of assets i.e. its that building only. It had also claimed depreciation thereupon in the preceding assessment years. Its computation of the consequential capital gains came to be covered u/s 50 of the Act resulting in short term capital loss as a special provision arising on sale of depreciable assets. The Revenue's only plea during the course of hearing is that such capital gains or loss; which are computed u/s 50 of the Act are not eligible for set off against long term capital gains brought forward. We find no merit in the Revenue's instant stand. Hon'ble Bombay high court's decision in Commissioner of Income Tax vs. Ace Builders (2006) 281 ITR 210 (Bom); as upheld in hon'ble apex court in Commissioner of Income Tax vs. V.S.Dempo Company Ltd. (Civil Appeal No(s) 4797/2008) dated 05.09.2016 holds that the impugned deeming fiction treating long term capital gains / losses as short once are applicable in specified circumstances only u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments made to various parties. We notice from a perusal of the case file as well as in CIT(A)'s appellate order's detailed discussion that the assessee's impugned payments pertain to either outright purchases of raw material or without involving any contractual relationship nor they exceeds amounts exceeding threshold limit of Rs.30,000/- for deducting TDS. This tribunal's co-ordinate bench decision in assessment year 2013-14 involving ITA No.1469/Kol/2019 decided on 05.12.2019 has declined the Revenue's similar argument as well. We thus adopt judicial consistency qua this issue in absence of any distinction on facts or law pinpoint as Revenue's behest. 9. Lastly comes educational cess disallowance of Rs.1,23,28,752/- made in the course of assessment and deleted in the lower appellate proceedings. We notice that hon'ble Bombay high court's decision in Sesa Goa Limited vs. Joint Commissioner of Income Tax ITA No. 17 and 18 of 2013 dated 28.02.2020 as well as hon'ble Rajasthan high court in Chambal Fertilisers and Chemicals Ltd. vs. Commissioner of Income Tax ITA No.52 of 2018 dated 31.07.2018 hold that the clinching expression "cess" does not form part of sec. 40(a)(ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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