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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 ..... 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 - Board’s Circular No.2 dated 15.02.2002 is applicable only on those bonds which were acquired on or after 15.02.2002 - 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 the board’s Circular No.2 dated 15.02.2002 is not applicable - the gain has to be assessed as LTCG and the assessee has to be allowed deduction u/s 54EC – Decided in favour of Assessee. Method of accounting – Use of Cash System instead of Mercantile system – Held that:- The method of accounting being followed by the assessee is cash and not mercantile - As per sub-section (1) of Section 145, the assessee can follow either cash or mercantile system of accounting regularly in respect of determination of income chargeable under the head 'profits & gains of the business and profession' or 'income from other sources' - the assessee can very much follow cash method of accounting for the purpose of declaring income in respect of DDBs/NCD if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T.A.No. 3133/Ahd/2007, I.T.A.No. 1082/Ahd/2010 - - - Dated:- 21-6-2013 - Shri D. K. Tyagi And Shri A. K. Garodia,JJ. For the Appellant : Shri S. N. Soparkar, Ms. Urvashi Shodhan, ARs For the Respondent : Shelley jindal, CIT DR Shri Rahul Kumar, Sr. DR ORDER Per Bench:- Out of this bunch of four appeals, there are two appeals of two different assessee s for assessment year 2002-03, in the case of Smt Punitaben K Patel and in the case of Shri Karsanbhai K Patel and these appeals are directed against two separate orders of Ld. CIT(A) I, Ahmedabad dated 06.03.2006 in the case of Shri Karsanbhai K Patel and dated 09.03.2013 in the case of Smt. Punitaben K Patel. The remaining two appeals are cross appeals filed by the assessee and the revenue in the case of Shri Hirenbhai K Patel directed against the order of CIT(A) II, Ahmedabad dated 08.05.2007. Since some common issues are involved, all these appeals were heard together and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is in further appeal before us. 2.2.2 It was submitted by the Ld. A.R. before us that in the case of Shri Karsanbhai P Patel (HUF) for the same assessment year i.e. assessment year 2002-03, this issue was decided in favour of the assessee in I.T.A.No. 1042/A/2006 dated 09.10.2009. He submitted that this decision is available on pages 62-87 of the paper book and the relevant para is para 26 of this Tribunal decision on page 85 of the paper book. Ld. D.R. supported the orders of authorities below. 2.2.3 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the Tribunal decision cited by Ld. A.R. From the facts noted by the tribunal in that case, we find that the dispute before the tribunal was regarding the same DDBs of Nirma Ltd. for which letter of allotment was issued by Nirma Ltd. on 23.09.2000 and debenture certificate was issued on 05.10.2001 and the same was listed in NSE 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on being Rs.549 lacs. In respect of this capital gain also, the assessee claimed deduction u/s 54EC of the Income tax Act, 1961 because the assessee had made investment in the bonds of Rural Electricity Corporation (REC) of Rs.62.20 lacs and the LTCG of only Rs.8320 had been offered by the assessee. The A.O. has further noted that the assessee has purchased 9 principle strips of Part A Series I of Tata Finance Ltd. of Rs.1 crores (face value) for a consideration of Rs.495.41 lacs on 23.10.2000 from Nirma Industries Ltd., which is a group concern of Nirma group and the same was sold by the assessee on 20.03.2002 at Rs.549 lacs to Nirma Industries Ltd. i.e. the same concern from which the assessee purchased these strips. The A.O. issued show cause notice to the assessee as to why the Board s Circular No.2 of 2002 dated 15.02.2002 is not applicable and why this capital gain should not be considered as STCG in the light of this Board s Circular. In reply, it was submitted by the assessee 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are acquired after this date. This decision of Ld. CIT(A) was approved by the tribunal in that case. Similarly in the case of Navin Associates (supra), similar issue was decided by the tribunal in favour of the assessee and while deciding this issue in that case, the Tribunal has followed a decision of SMC Bench of Ahmedabad Bench of the Tribunal rendered in the case of Navin associates (supra). This SMC Bench decision of the tribunal has followed a division bench decision of Ahmedabad Bench of the tribunal rendered in the case of Kisan Discretion Family Trust in I.T.A.No. 1850/Ahd/2007 dated 02.11.2007. This Tribunal decision is also available in the paper book-II on pages 141-195. In para 57 of this tribunal decision on page 194 (backside), it was held by the Accountant Member in that case that this Board s Circular dated 15.02.2002 is applicable only to DDBs acquired on or after 15.05.2002 and since Judicial Member in that case was also having the same view, the matter was 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that because of abundant precaution, the income is offered. It is further noted by the A.O. that assessee has purchased 16528 OFCPN of Nirma Industries Ltd. on 25.03.2002 of Rs.4132 lacs and the interest accrued on the same amounting to Rs.4,90,220/- was offered by the assessee as income by way of this letter dated 11.08.2004. The A.O. has not accepted the claim of the assessee that this Board s circular No.2 dated 15.02.2002 is not applicable in the case of the assessee because the same is related to DDBs only. The A.O. held that the nature of OFCPN is similar as that of DDBs and this Board s Circular is applicable to OFCPN also. Before Ld. CIT(A), the assessee raised an issue that the method of accounting adopted by the assessee is cash method of accounting and not mercantile method of accounting as has been held by the A.O. in the assessment order. But Ld. CIT(A) did not accept this contention and held that the method of accounting is rightly adopted by the A.O. as mercantile method of accounting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions, perused the material on record and have gone through the orders of authorities below. We find that similar issue is decided by us in the case of Ms. Punitaben K Patel as per para 2.2.3 2.2.4 above and it is held by us that the period of holding has to be counted from the date of allotment and not from the date of listing in NSE. In the present case also, the DDBs were sold by the assessee on 19.03.2002 and hence, the period of holding is more than 12 months when the same is worked out from the date of allotment i.e. 23.09.2000 and hence, in the present case also, this issue is decided in favour of the assessee on the same lines of our decision in the case of Ms. P K Patel as per para 2.2.3 2.2.4 above. In the present case also, we hold that the gain in question of Rs.7,47,35,955/- on sale of 3385 DDBs of Nirma Ltd. is taxable as LTCG and not STCG and the assessee is eligible for deduction u/s 54EC of the Income tax Act, 1961 to the extent of entire amount of such LTCG on sale of DDBs of Nirma Ltd. because 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Series B of Nirma Ltd. 4) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming addition of accrued interest Rs.59,05,216 on investment in Optionally Fully Convertible Premium Notes (OFCPNs) of Nirma Industries Ltd. 5) In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly-erred in not dealing with following ground of appeal No.2: 2. In law and in facts and circumstances of the Appellant's case, the learned Assessing Officer has grossly erred in considering the method of accounting as mercantile as against cash method of accounting regularly followed by appellant . 4.2.1 It was submitted by the Ld. A.R. that ground no.5 should be decided first as per which, it is the claim of the assessee that the assessee is following cash system of accounting. He submitted that although this issue is not decided by Ld. CIT(A) and, therefore, this may be an argument that this issue should go back to the file of Ld. CIT(A) for a decision 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 audite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee before Ld. CIT(A) that the assessee is following cash method of accounting and the A.O. is not correct in holding that the assessee is following mercantile system of account. This issue was not decided by Ld. CIT(A). Under these facts, generally, we restore back the issue to the file of Ld. CIT(A) for a decision on such undecided ground but considering these facts that the relevant material is available on record before us being the audited balance sheet and P L account as well as computation of income filed by the assessee along with the return of income and the order passed by the A.O. is not a speaking order regarding method of accounting being followed by the assessee, we feel it proper that we should decide this aspect of the matter in the facts of the present case. We, therefore, proceed to decide this issue after examining the computation of income and the audited accounts made available before us. In the computation of income, it is specifically stated by the assessee as per note that assessee is following cash method 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government in the official gazette as required u/s 145(2) of the Income tax Act, 1961 to make out an exception in respect of Section 145(1), we do not find any merit in this contention of the A.O. that even if the assessee is following cash method of accounting, the assessee is bound to follow mercantile method of accounting for the purpose of declaring income from DDBs/NCD. Hence, we hold that the assessee is following cash method of accounting in the facts of the present case in the present year and accordingly, ground no.5 of the assessee is allowed. Since this issue is decided in favour of the assessee and we have held that the assessee is following cash method of accounting, remaining grounds No.2, 3 4 are also to be allowed because the income of the assessee cannot be assessed on the basis of hybrid method of accounting by following mercantile method for assessing income in respect of DDBs/NCD and the remaining income on the basis of cash method of accounting. Hence, grounds No.2, 3 4 are also allowed. 4.3 Ground No.6 is 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax (A) - XI, Ahmedabad may be set aside and that of the Assessing Officer be restored. 5.2 Ld. D.R. supported the penalty order whereas the Ld. A.R. supported the order of Ld. CIT(A). 5.3 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this penalty of Rs.42,91,900/- was imposed by the A.O. in respect of addition made by him of Rs.1,21,11,114/- regarding interest accrued on DDBs of Nirma Industries Ltd. and interest income of Rs.8,94,601/- in respect of bonds of REC Ltd. Both these additions have been deleted by us while deciding the grounds of appeal of the assessee in para 4/2/2 above by way of allowing grounds No.2, 3 and 4 of the assessee s appeal in quantum proceedings. Since the quantum addition itself has been deleted by us, the penalty has no legs to stand and, therefore, we decline to interfere in the order of Ld. CIT(A) regarding deletion of penalty by him. 5.4 In the result, appeal of the revenue is dismissed. 6. In the combined result, all appeals of the assessee are partly allowed and that of the Revenue in penalty proceedings is dismissed. 7. Order pronounc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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