Shri Hirenbhai K.Patel, Ahmedabad V. The ACIT., Cent.Circle-1(1), Ahmedabad

ITA 1252/AHD/2006

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0311 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-12-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 17-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Earning of tax free income; Retrospective amendment; Cost of acquisition; Date of conversion; Fair market value; Block assessment
• Section: 234B; 14A; 69; 145; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO. 1252/AHD/2006 A. Y.: 2002-03 SHRI HIRENBHAI K. PATEL, NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD P. A. NO. AGGPP 2907 H VS THE A. C. I. T., CENT. CIR-1 (1), AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO. 1243/AHD/2006 A.Y.: 2002-03 NIRMA CREDIT & CAPITAL LTD., NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD AAACN 5351J VS THE A. C. I. T., CENT. CIR-1 (1), AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO. 1244/AHD/2006 A.Y.: 2002-03 NIRMA CHEMICAL WORKS LTD., NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD P. A. NO. AAACN 5353 L VS THE A. C. I. T., CENT. CIR-1 (1), AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO. 1247/AHD/2006 A.Y.: 2002-03 SMT. RAJALBEN H. PATEL, NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD P. A. NO. AFIPP 0507 N VS THE A. C. I. T., CENT. CIR-1 (1), AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 2 ITA NO. 1250/AHD/2006 A.Y.: 2002-03 BANIHAL HOLDINGS PVT. LTD., NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD P. A. NO. AAACB 4694 E VS THE A. C. I. T., CENT. CIR-1 (1), AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO. 1253/AHD/2006 A.Y.: 2002-03 LEH HOLDING PVT. LTD., NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD P. A. NO. AAACL 1985 G VS THE A. C. I. T., CENT. CIR-1 (1), AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO. 1254/AHD/2006 A.Y.: 2002-03 JETHIBEN K. PATEL DISCRETIONARY TRUST, NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD P. A. NO. AAATJ 0260 F VS THE A. C. I. T., CENT. CIR-1 (1), AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. N. SOPARKAR WITH SHRI HIMANSHU SHAH, AR RESPONDENT BY SHRI SHELLEY JINDAL CIT DR WITH SHRI RAHUL KUMAR, SR. DR DATE OF HEARING: 05-12-2012 DATE OF PRONOUNCEMENT: 15-02-2013 O R D E R PER A. MOHAN ALANKAMONY: ALL THESE SEVEN APPEALS INITIATED AT THE INSTANCE OF DIFFERENT ASSESSEES AR E DIRECTED AGAINST ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 3 THE IMPUGNED INDIVIDUAL ORDERS OF THE LEARNED CIT ( A)-I, AHMEDABAD PASSED ON DIFFERENT DATES. THE RELEVANT ASSESSMENT YEAR IS 2002-03 . 2. THE FACTS OF THE CASES BEING SIMILAR AND THE IS SUES INVOLVED IN THESE APPEALS WERE ALMOST IDENTICAL, TH EY WERE HEARD, CONSIDERED TOGETHER AND DISPOSED OFF BY THIS CONSOL IDATED ORDER FOR THE SAKE OF CONVENIENCE AND CLARITY. 3. SINCE THE ISSUES RAISED IN THE RESPECTIVE GROUN DS OF APPEALS BEING ALMOST IDENTICAL AND ALSO COMMON (EXC EPT THE FIGURES), FOR THE SAKE OF CLARITY , THE GROUNDS RAISED IN THE CASE OF SHRI HIRENBHAI KARSANBHAI PATEL [IN ITA NO.1252/AHD/06] ARE TAKEN UP FOR ADJUDICATION AND THE FINDINGS RECORDED HEREUNDE R IN THE SAID CASE WOULD BE APPLICABLE TO THE APPEALS OF OTHER AS SESSEES UNDER CONSIDERATION AS WELL. 4. THE FIRST AND THE LAST GROUNDS RAISED IN ALL TH ESE APPEALS BEING GENERAL IN NATURE AND NO SPECIFIC ISSUES INVO LVED, THEY HAVE BECOME INCONSEQUENTIAL. THE ISSUE OF CHARGING OF I NTEREST U/S 234B OF THE ACT IS NOT MAINTAINABLE AS IT IS MANDATORY A ND CONSEQUENTIAL IN NATURE. THE ISSUE OF INITIATION OF PENAL PROCEEDIN GS U/S 271(1)(C) OF THE ACT RAISED IN ALL THE APPEALS IS ALSO NOT MAIN TAINABLE AS IT WAS IN ITS INFANCY WHEN THE AO CONCLUDED THE ASSESSMENTS. THE REMAINING GROUNDS ARE REFORMULATED, IN A CONCISE MANNER, AS U NDER: THE LEARNED CIT (A) HAD ERRED IN (I) CONFIRMING THE STAND OF THE AO IN HOLDING THAT THE METHOD OF ACCOUNTING AS MERCANTILE AS AGAINST CASH ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 4 METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE; (II) UPHOLDING THE STAND OF AO IN CONSIDERING THE L ONG TERM CAPITAL GAIN [LTCG] OF RS.1,19,00,000/- ARISING ON TRANSFER IN PURSUANCE TO RE-PURCHASE OF 700 DEEP DISCOUNT BONDS (DDB) SERIES A ISSUED BY NIRMA LIMITED AS INTEREST INCOME; (III) UPHOLDING THE STAND OF THE AO IN NOT ALLOWING THE CLAIM OF RS.1.19 CRORES U/S 54EC OF THE ACT ON LTCG REFER RED ABOVE; (IV) UPHOLDING THE STAND OF THE AO IN CONSIDERING L TCG OF RS.3,01,35,849/-ON SALE OF 1391 DDBS OF NIRMA LIMIT ED AS SHORT TERM CAPITAL GAINS [STCG]; (V) UPHOLDING THE ACTION OF THE AO IN NOT ALLOWING THE CLAIM OF DEDUCTION OF RS.3.01 CRORES U/S 54 EC OF THE ACT ON LTCG REFERRED ABOVE; (VI) UPHOLDING THE STAND OF THE AO IN CONSIDERING RS.48,83,858/- AS ACCRUED INTEREST ON HOLDING OF 12 50 DDBS SERIES-B OF NIRMA LIMITED EACH OF RS.1 LAKH ACQUIRED ON 8/10/2001 AND HELD TILL THE END OF THE YEAR BY APPLYING THE BOARDS CIRCULAR DATED 15.2.2002 ON TH E BASIS OF ASSUMPTION AND IGNORING THE PRESS NOTE OF THE BOARD DT.20.3.02 IN THIS REGARD; - THE CIT HAD, FURTHER, ERRED IN UPHOLDING THE AOS A CTION WHILE MAKING THE ADDITION OF RS.48,83,858/-, RELYIN G ON THE ABOVE SAID CIRCULAR BY IGNORING THE PRESS NOTE OF 20.3.2002; - HE HAD ALSO ERRED IN UPHOLDING THE AOS ACTION WHIL E MAKING THE ADDITION OF RS.48.83 LAKHS BY MAKING THE CIRCULAR AS APPLICABLE WITH RETROSPECTIVE EFFECT WH ICH WAS ILLEGAL AND AGAINST THE INTEREST OF THE ASSESSEE; ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 5 - HE HAD FURTHER ERRED IN UPHOLDING THE AOS STAND WH ILE MAKING THE ADDITION OF RS.48.83 LAKHS ASSUMING THE DISCOUNT RATES FOR THE YEARS 2005 TO 2010 AND GROSS LY ERRED IN MAKING CALCULATIONS BASED ON ASSUMPTION. 4.1. FURTHER, ALL THE ASSESSEES HAVE ALSO RAISED A COMMON ADDITIONAL GROUND (AS RAISED IN THE CASE OF SHRI HI RENBHAI KARSANBHAI PATEL) WHICH READS AS UNDER: THAT IN LAW AND IN THE FACTS OF THE ASSESSEES CAS E, THE ADDITION OF RS.1,13,123/- BEING NOTIONAL ACCRUED IN TEREST ON OPTIONALLY FULLY CONVERTIBLE PREMIUM NOTES (OFCPNS) OF NIRMA INDUSTRIES LIMITED MAY BE DELETED. 5. WE SHALL NOW PROCEED TO ADJUDICATE THE APPEAL I N THE CASE OF SHRI HIRENBHAI K PATEL [ITA NO.1252/AHD/200 6] AS UNDER: 5.1. METHOD OF ACCOUNTING: IT WAS NOTICED BY THE AO FROM THE NOTES FORMING PAR T OF THE RETURN OF INCOME THAT THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, BUT, FROM THE BLOCK ASSESSMENT ORDER DATED 28.10.20 03, IT WAS OBSERVED THAT THE AO HAD CONSIDERED THE METHOD OF A CCOUNTING ADOPTED BY THE ASSESSEE AS THAT OF MERCANTILE. T HE AO HAD, FURTHER, OBSERVED THAT THE ASSESSEE HAD NOT TAKEN ANY GROUND BEFORE THE CIT (A) IN THIS REGARD WHICH, ACCORDING TO THE AO, THE ASSESSEE HAD ACCEPTED THE AOS FINDING THAT HE WAS FOLLOWING MER CANTILE SYSTEM OF ACCOUNTING. BEING QUERIED U/S 145 OF THE ACT, THE A SSESSEE CONTENDED THAT HIS METHOD OF ACCOUNTING SHOULD ONLY BE TREATED AS CASH METHOD ON REGULAR BASIS. HOWEVER, THE AO HAD REJECTED THE ASSESSEES CONTENTIONS AND CONSIDERED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE TO BE OF MERCANTILE METHO D BY HOLDING THAT ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 6 THE ASSESSEE WAS BOUND TO FOLLOW THE SAME METHOD OF ACCOUNTING ON CONTINUOUS BASIS AND HE WAS NOT PERMITTED TO CHANGE THE SAME. 5.2. ON APPEAL, THE LEARNED CIT (A) UPHELD THE STA ND OF THE AO BY OBSERVING AS UNDER: (ON PAGE 6) I HAVE CONSIDERED THE SUBMISSIONS OF T HE APPELLANT. I DO NOT FIND ANY FORCE IN THEM DUE TO THE FOLLOWING REASONS - (I) THE APPELLANT IS NOT CORRECT IN STATING THAT MERE F ACT THAT NO APPEAL HAS BEEN FILED IN THE CASE OF THE APPELLANTS BLOCK PER IOD ASSESSMENT BY THE APPELLANT CHALLENGING THE METHOD OF ACCOUNTING ADOP TED AS MERCANTILE BY THE AO, SHOULD NOT BE A GROUND FOR ADOPTING THE SAM E METHOD OF ACCOUNTING BY THE AO IN AY 2002-03 ASSESSMENT ORDER . FIRSTLY, THE APPELLANT HAVING MISSED THE BUS BY NOT FILING AN AP PEAL AGAINST THE BLOCK PERIOD ASSESSMENT ORDER, CANNOT TAKE ADVANTAGE OF H IS OWN NEGLIGENCE AND THEN BLOW HOT AND COLD LATER. (II) NO DOUBT THE AO CANNOT FORCE THE APPELLANT TO ADOPT A PARTICULAR METHOD OF ACCOUNTING, BUT, HERE THE ISSUE IS DIFFERENT. T HE APPELLANT CANNOT HAVE A DIFFERENT METHOD OF ACCOUNTING FOR THE BLOCK PERI OD ASSESSMENT AND FOR THE REGULAR ASSESSMENT PROCEEDINGS; (III) IF SUCH AN INTERPRETATION OF THE APPELLANT IS ACCEP TED, IT WOULD MAKE THE PROVISIONS OF SECTION 145 OF THE I T ACT UNWORKABLE . IN THIS REGARD, THE NIRMA GROUP HAS TRIED TO INTERPRET THE SECTION 37(1 ) IN SUCH A WAY THAT THE CLAIM OF INTEREST ON THESE DDBS IS AVAILABLE TO NIR MAL LTD ON ACCRUAL BASIS BUT IN THE CASE OF THE HOLDERS OF THE DDBS TH E SAME GROUP HAS INTERPRETED THE LETTER OF BOARD DATED 12.03.1996, C IRCULAR OF THE BOARD DATED 15.2.2002 AND PRESS RELEASE DATED 20.3.2002 I N DIFFERENT MANNER. IN THIS REGARD, RELIANCE IS PLACED IN CASE OF CWS ( INDIA) LTD V. CIT 208 ITR 649 IN WHICH IT HAS BEEN OBSERVED THAT WHEN A L ITERAL INTERPRETATION LEADS TO AN ABSURD OR UNINTENDED RESULT, EVEN THE L ANGUAGE OF THE STATUTE CAN BE MODIFIED TO ACCORD WITH THE INTENT OF LEGISL ATION AND TO AVOID ABSURDITY. IN THE CASE OF INDIAN HOTELS LTD V. ITO 245 ITR (SC) A SIMILAR VIEW HAS BEEN AFFIRMED. IN THE CASE OF GOVINDAN (K ) AND SONS V. CIT 247 ITR 658, THE HONBLE SC HAS HELD THAT INTERPRETATIO N MUST AVOID ABSURDITY AND IF LITERAL CONSTRUCTION LEADS TO UNRE ASONABLE OR ABSURD CONSEQUENCES, THE SAME SHOULD NOT BE ADOPTED. 5.3. DURING THE COURSE OF HEARING BEFORE US, THE L EARNED AR REITERATED MORE OR LESS WHAT WAS REPRESENTED BEFORE THE AUTHORITIES BELOW. IN FURTHERANCE, IT WAS PLEADED THAT IN THE ASSESSEES OWN ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 7 CASE FOR THE AY 2004-05, THE CIT (A)-IX, AHMEDABAD VIDE HIS ORDER DATED 2.8.2012 HAD ALLOWED CASH METHOD OF ACCOUNTIN G BY FOLLOWING THE ORDER OF HIS PREDECESSOR IN THE ASSESSEES OWN CASE FOR THE AY 2003.04. FURTHER, THE LEARNED AR DREW THE ATTENTIO N OF THIS BENCH TO THE FACT THAT THE EARLIER BENCH OF THE TRIBUNAL IN ASSESSEES BROTHERS CASE IN ITA NO.1855/AHD/2007 DATED 2.11.2007 DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE. 5.3.1. ON THE OTHER HAND, THE LEARNED DR HAD RELIE D ON THE ORDERS OF THE AUTHORITIES BELOW. 5.4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS, PERUSED THE RELEVANT MATERIALS ON RECORD AND ALSO T HE DOCUMENTARY EVIDENCES ADDUCED BY THE LEARNED AR IN THE SHAPE OF PAPER BOOKS. 5.4.1. AT THIS POINT OF TIME, WE WOULD LIKE TO REC ALL THAT A SIMILAR ISSUE TO THAT OF THE PRESENT ISSUE HAS BEEN CONSIDE RED BY THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF KISHAN DISCRE TIONARY FAMILY TRUST V. ACIT IN ITA NO.1850/AHD/2007 DATED 2.11.20 07 [COURTESY: P 7 61 OF PB - B]. THE RELEVANT PORTION OF THE F INDING OF THE TRIBUNAL IS AS UNDER: (ON PAGE 65) 27. THEREFORE, THE ASSESSEE ON ITS PART, IN OUR OPINION, SUCCEEDED IN ESTABLISHING THE CHANGE OF BONA FIDE B ECAUSE IT HAS CEASED TO HAVE ANY BUSINESS INCOME AND HAD ADOPTED THE CHANGE WELL BEFORE THE SEARCH AS WELL AS COMPLETION OF ASSESSMENT FOR BLOC K PERIOD AND ALSO BEFORE COMING OF CIRCULAR OF NO.2 OF 2002 ON THE STATUTE. SINCE THE ASSESSEE HAS FOLLOWED THE SAME SYSTEM IN ALL THE SUBSEQUENT YEAR S, WE SEE NO REASON AS TO WHY THE ASSESSEES CHOICE/PREFERENCE TO ADOPT THE C HANGED SYSTEM OF ACCOUNTING BE NOT ACCEPTED. IN VIEW OF THE TOTALIT Y OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS SETTLED PROVIS IONS OF LAWS DISCUSSED HEREINBEFORE, WE ARE OF THE OPINION THAT THE ASSESS EE HAD RIGHT TO ADOPT THE ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 8 CHANGED SYSTEM OF ACCOUNTING AND BY CHANGING THE SY STEM OF ACCOUNTING FROM MERCANTILE TO CASH WAS A BONA FIDE CHANGE. 5.4.2. IN CONFORMITY WITH THE FINDINGS OF THE CO-O RDINATE BENCH OF THIS TRIBUNAL (SUPRA), THIS ISSUE IS DECIDED IN FAV OUR OF THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 6. (II) TREATING OF LTCG OF RS.1.19 CRORES ON RE -PURCHASE OF 700 DBB SERIES A OF NIRMA LTD AS INTERES T INCOME & (III)NON-ALLOWING THE CLAIM OF RS.1.19 CROR ES U/S 54EC ON LTCG: [GROUND NOS: 3 & 4]: THE FACTS RELATING TO THESE GROUND S ARE THAT THE AO NOTICED THAT THE ASSESSEE HAD SHOWN LTCG OF RS.4,20,20,710/ - FROM THE TRANSACTIONS OF DDBS OF NIRMA LTD. THE ASSESSEE HA D SHOWN PURCHASE COST AND SALE PRICE OF THE SAME AT RS.20,9 7,69,500/- AND RS.25,17,90,210/- RESPECTIVELY AND ALSO CLAIMED DE DUCTION U/S 54 EC OF THE ACT AS HE MADE INVESTMENTS IN BONDS OF RURAL ELECTRIFICATION CORPORATION FOR RS.4,20,20,000/- AND THEREBY OFFERE D LTCG OF ONLY RS.710/-. FROM THE DETAILS FURNISHED, IT WAS OBSER VED BY THE AO THAT 1936 DBBS OF NIRMA LIMITED EACH OF RS.1,00,000/- WE RE ALLOTTED TO THE ASSESSEE ON 28.7.2000 AND THE LETTER OF ALLOTME NT WAS ISSUED ON 23.9.2000. FURTHER, THE DEBENTURE CERTIFICATE WAS I SSUED ON 10.5.2001 AND THE DDB SERIES A OF NIRMA LIMITED WA S LISTED IN NATIONAL STOCK EXCHANGE AND, SUBSEQUENTLY MADE AVAI LABLE FOR DEMATERIALIZATION AS ON 24.9.2001. 6.1. IT WAS, FURTHER, NOTICED BY THE AO THAT OUT O F TOTAL 2091 DDBS OF NIRMA LIMITED, 700 DDBS WERE REPURCHASED BY NIRMA ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 9 LIMITED ON 1.10.2001 AND THE BALANCE OF 1391 DDBS W ERE SOLD ON 19.3.2002. IT WAS ALSO NOTICED BY THE AO THAT THE A SSESSEE PURCHASED 87 DDBS OF NIRMA LIMITED EACH AMOUNTING T O RS.1 LAKH FROM NIRAV DISC. FAMILY TRUST ON 5.11.00 AT A CONSI DERATION OF RS.89,17,500/-. THE ASSESSEE ALSO PURCHASED 68 DDBS OF NIRMA LIMITED EACH AMOUNTING TO RS.1 LAKH FROM NIRAV DISC . FAMILY TRUST ON 28.2.01 AT A CONSIDERATION OF RS.72,42,000/-. FOR THESE 155 DDBS OF NIRMA LIMITED THE LETTER OF ALLOTMENT WAS ISSUED TO THE ASSESSEE DATED 5.3.2001. THE DEBENTURE CERTIFICATE WAS ISSUE D TO THE ASSESSEE IN COMBINATION TO THE ORIGINALLY PURCHASED DDBS I.E ., FOR THE ENTIRE LOT OF 2091 DDBS DATED 10.5.2001. THIS DDB SERIES A OF NIRMA LIMITED WAS LISTED IN NATIONAL STOCK EXCHANGE AND WAS MADE AVAILABLE FOR DEMATERIALIZATION AS ON 24.9.2001. 6.2. OUT OF THIS TOTAL 2091 DDBS OF NIRMA LIMITED, 700 DDBS WERE REPURCHASED BY NIRMA ITSELF DATED 1.10.01 AND ANOTHER 1391 DDBS WERE SOLD ON 19.3.2002. FURTHER, IT WAS NOTIC ED BY THE AO THAT THIS DDB SERIES A OF NIRMA LIMITED WAS RESULT OF T HE TERMS OF THE DEBENTURE TRUST DEED DATED 27.4.2001 WHICH WAS ENTE RED INTO BETWEEN THE COMPANIES I.E., NIRMA LIMITED, THE COMP ANY WHICH ISSUED DDBS AND THE IFCI LIMITED AS TRUSTEE. NIRMA LIMITED ISSUED THE CERTIFICATE OF HOLDING TO THE ASSESSEE ON 10.5. 2001. THIS DDB SERIES A OF NIRMA LIMITED WAS LISTED IN NATIONAL STOCK EXCHANGE ON 20.9.2001 AND WAS MADE AVAILABLE FOR DEMATERIALIZAT ION AS ON 24.9.2001. THOUGH THE LETTER OF ALLOTMENT WAS ISSU ED TO THE ASSESSEE AS ON 23.9.2000 FOR 1936 DDBS AND ON 5.3.2001 FOR 1 55 DDBS, THE CERTIFICATE OF HOLDING COULD BE ISSUED TO THE ASSES SEE AS ON ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 10 10.5.2001. SINCE THE 700 DDBS OF NIRMA LIMITED HAD BEEN RE- PURCHASED BY IT, THE INCOME ON THE SAME WAS INTERES T INCOME. FOR THE REST OF THE DDBS SINCE THE LETTER OF ALLOTMENT WAS DIFFERENT IN ITS NATURE AND CHARACTER, THE SALE OF THIS SCRIP CAN BE CONSIDERED TO HAVE TAKEN PLACE ONLY FROM THE DATE OF ISSUANCE OF CERTI FICATE OF HOLDING AND, THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN A S TO WHY THIS GAIN SHOULD NOT BE CONSIDERED AS STCG SINCE THE ASSESSEE WAS GIVEN OWNERSHIP OF THESE DDB SERIES A OF NIRMA LIMITED ON 10.L5.2001 AS PER THE TERMS OF DEBENTURE TRUST DEED DATED 27.4 .2001 AND THE SAME WERE SOLD ON 19.3.2002. 6.3. ON 700 DDBS OF NIRMA LIMITED, THE SAME WERE REPURCHASED BY THE ISSUER ITSELF AND TDS OF RS.24,2 7,600/- HAD BEEN DEDUCTED @ 20.4% ON THE INTEREST INCOME OF RS.1,19, 00,000/-. FROM THE ABOVE TRANSACTIONS, IT WAS OBSERVED BY THAT IT WAS VERY CLEAR THAT THE DDBS HAVE BEEN REPURCHASED BY THE ORIGINAL ISSU ER. THEREFORE, AS PER CIRCULAR DATED 15.2.2002 AS WELL AS, AS PER LETTER DATED 12.5.96 OF THE BOARD, THE INCOME ACCRUING ON THE SA ME SHOULD BE TREATED AS INTEREST INCOME. THE ASSESSEE HAD SHOWN LTCG OF RS.4,20,20,710/- ON THESE TRANSACTIONS AND ALSO CLA IMED THE BENEFIT OF S. 54EC OF THE ACT BY MAKING INVESTMENT IN RURAL ELECTRIFICATION CORPORATION BONDS OF RS.4,20,20,000/-. 6.4. THE ASSESSEE WAS ASKED TO PROVE THE GENUINENE SS OF THE CLAIM OF THIS GAIN AS LTCG AND THE CLAIM OF BENEFIT U/S 54EC OF THE ACT. THE ASSESSEE WAS ALSO REQUIRED TO EXPLAIN AS TO WHY THE INCOME GENERATING FROM THIS TRANSACTION SHOULD NOT BE CONS IDERED AS STCG ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 11 INCOME IN THE LIGHT OF CIRCULAR 2 OF 2002. AS PER THE PROVISIONS OF THE ACT, ONLY FOR A LISTED SECURITY, THE PERIOD OF HO LDING OF LONG TERM CAPITAL ASSET IS MORE THAN 12 MONTHS; OTHERWISE, IT IS MORE THAN 36 MONTHS. SINCE IN CASE OF THE ASSESSEE, THE SECURI TY I.E., DDB SERIES A OF NIRMA LIMITED COULD BE LISTED ONLY ON 20.9.2 001, BEFORE THIS ITS NATURE WAS SUCH THAT IT CANNOT BE CONSIDERED IN THE DEFINITION OF AN ASSET FOR WHICH THE PERIOD OF HOLDING AS LONG TERM CAPITAL ASSET WAS MORE THAN 12 MONTHS. THEREFORE, THERE WAS MATERIAL DIFFERENCE IN A LETTER OF ALLOTMENT BEFORE IT IS LISTED IN A STOCK EXCHANGE AND AFTER TO THE SAME. MOREOVER, THE LETTER OF ALLOTMENT WAS NO T COVERED IN THE DEFINITION OF THE SECURITY AS PER THE ACT AND, TH EREFORE, THE LEARNED AO OBSERVED THAT IT WAS VERY DIFFERENT FROM DEBENT URE CERTIFICATE. 6.5. THE ASSESSEE HAD ALSO PURCHASED DDB SERIES B OF NIRMA LIMITED AMOUNTING TO RS.12,50,00,000/- AS ON 8.10.2001, BUT THE ACCRUED INTEREST HAS NOT BEEN OFFERED ON THE SA ME, THOUGH NIRMA LIMITED HAD CLAIMED THE INTEREST ON THE SAME. ON T HIS CONTEXT, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ACCRUED GAIN SHOULD BE ADDED ON THE SAME ON ACCRUAL BASIS. 6.6. IT WAS, FURTHER, OBSERVED BY THE AO THAT FROM THE ABOVE, THOUGH THE VALUE OF A SECURITY INCREASES IN THE MAR KET ON DAY-TO-DAY BASIS BECAUSE AS THE TIME PASSES, THE MATURITY DATE NEARS DOWN. IN A CASE OF A SECURED DEBENTURE, THE LIQUIDITY IS HIG HLY ASSURED. THEREFORE, IT CAN BE SAFELY CONCLUDED THAT THE GAIN IN A SECURITY ACCRUES ON ANNUAL BASIS EVEN THOUGH THE EXPENDITURE MAY NOT ACCRUE IN THE HANDS OF THE ISSUER OF THE SECURITY. IN CAS E OF NIRMA GROUP, THE ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 12 STORY IS EXACTLY OPPOSITE. NIRMA LIMITED, THE ISSU ER OF DDB SERIES A HAD CLAIMED THE INTEREST EXPENDITURE ON ACCRUAL BAS IS, THOUGH THE LIABILITY HAD NOT ARISEN BEFORE THE MATURITY DATE A ND THE HOLDERS OF DDBS OF THIS GROUP HAVE NOT OFFERED THE GAIN ON THE SE SECURITIES WHICH WAS AUTOMATICALLY ACCRUING IN THE SAME BECAUS E OF THEIR HIGH LIQUIDITY AND NEARING DOWN OF THE MATURITY DATE. 6.7. AFTER TAKING INTO ACCOUNT OF THE ASSESSEES S UBMISSION AS RECORDED IN THE IMPUGNED ORDER, THE AO DISALLOWED T HE CLAIM OF THE ASSESSEE FOR LTCG OF RS.1,19 CRORES AND TREATED THE SAME AS INTEREST INCOME ON RE-PURCHASE OF 700 DDBS SERIES A OF NIRMA LIMITED DATED 1.10.2001 BY OBSERVING THAT (ON PAGE 28) 5.6. THE ABOVE CONTENTIONS OF THE ASSESSEE ARE NOT TENAB LE. THE OBSERVATION OF THE ASSESSEE THAT DEBENTURE PER SE IS A BUNDLE OF R IGHTS IS CORRECT BUT THE FINAL NATURE AND CHARACTER OF THESE DEBENTURES HAS EMERGE D ONLY AFTER SIGNING OF DEBENTURE TRUST DEED DATED 27.4.2001. ALL THE TERM S AND CONDITIONS OF THIS TRANSACTION COULD NOT BE DECIDED AT THE TIME OF ALL OTMENT OF THESE DEBENTURES BECAUSE THEIR VERY NATURE WAS NOT KNOWN. AS PER S ECTION 84 OF COMPANIES ACT, 1956, ONLY A CERTIFICATE UNDER THE COMMON SEAL OF THE COMPANY SHALL BE PRIMA FACIE EVIDENCE OF THE TITLE OF THE MEMBER ON SUCH SHARES. THIS IS A CERTIFICATE OF TRANSFER OF TITLE AND BEFORE ISSUANC E OF THIS THE TRANSACTION CANNOT BE COMPLETE. THE DEBENTURE TRUST DEED IS NO T MERELY A FORMALITY AND PROCEDURE PART OF THE LEGAL TERMS OF OFFER. THIS IS A BASIC DOCUMENT BASED ON WHICH THESE DEBENTURES HAVE GOT THE CREDIBILITY AND TRADABILITY IN THE MARKET. IF THESE DEBENTURES HAD NOT BEEN SECURED BY AN INST ITUTION LIKE IFCI, THESE WOULD HAVE NOT GOT THAT MUCH VALUE AND LIQUIDITY AS WAS AVAILABLE TO THESE. SINCE THE BASIC CHARACTER OF THESE DEBENTURES COULD BE FINALLY DECIDED BY THIS DEBENTURE TRUST DEED DATED 27.4.2001, THEIR TRANSAC TION COULD NOT BE PRE- PONED BEFORE THIS DATE. FURTHER, THE BASIC CONDITI ON OF A CAPITAL ASSET BEING A LONG TERM CAPITAL ASSET, IF IT IS HELD MORE THAN 12 MONTHS, IS THAT IT MUST BE LISTED. IN A RECOGNIZED STOCK EXCHANGE. THE DDB SE RIES A WAS LISTED IN NATIONAL STOCK EXCHANGE ONLY ON 20.9.01. THEREFORE , FROM THIS DATE TILL THE DATE OF SALE, THE PERIOD OF HOLDING IS LESS THAN ON E YEAR. HENCE, THIS ASSET CANNOT BE SAID AS LONG TERM CAPITAL ASSET. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 13 5.7. THE ABOVE TREATMENT OF CAPITAL GAIN AS SHORT TERM CAPITAL GAIN IS ALSO SUPPORTED BY THE CIRCULAR NO.2 OF 2002 WHICH WAS PU BLISHED ON 15.2.2002. THE ASSESSEE WAS VERY WELL AWARE OF THIS CIRCULAR P RIOR TO FILING OF THE RETURN OF INCOME. AS PER PARA 5.1 OF THIS CIRCULAR, THE CA PITAL GAIN IN CASE OF SALE OF DDBS WILL ALWAYS BE A SHORT TERM CAPITAL GAIN. THE RELIANCE OF THE ASSESSEE ON A PRESS NOTE DATED 20.3.2002 IS MISPLACED BECAUS E AS PER CIRCULAR 783 DATED 18.11.2001, THE CLAIMS MADE ON THE BASIS OF P RESS NOTES ARE NOT SUSTAINABLE, ESPECIALLY WHEN THE CIRCULAR ITSELF WA S CLARIFYING THE EXISTING PROVISIONS OF THE ACT. 5.8. IN THE LIGHT OF ABOVE OBSERVATIONS, IT IS CON CLUDED THAT THE INCOME GENERATING FROM THE REPURCHASE OF 700 DDBS SERIES A OF NIRMA LTD DATED 01.10.01 OF RS.1,19,00,000/- IS INTEREST INCOME. T HE TDS CREDIT OF RS.24,27,600 IS ALLOWED ON THE SAME. 6.8. ON APPEAL, THE CIT (A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DISMISSED BOTH THE GROUNDS OF THE ASSESSEE ON THE REASONING THAT (ON PAGE 10) I HAVE CONSIDERED THE ABOVE SUBMISSIO NS AND DO NOT FIND ANY FORCE IN THEM. THE TAX TREATMENT GIVEN BY NIRMA LT D BY DEDUCTING TDS AND MENTIONING THE NATURE OF PAYMENT AS INTEREST OTHE R THAN INTEREST ON SECURITY HAS A DIRECT BEARING ON THE ISSUE. INTERE ST INCOME BY THE PAYER CANNOT SUDDENLY TURN INTO CAPITAL GAIN IN THE HANDS OF THE PAYEE WITHOUT PROPER EXPLANATION IT IS SEEN THAT ALL THE OTHER ARGUMENTS TAKEN BY TH E APPELLANT HAVE BEEN DEALT WITH IN THE APPELLATE ORDER NO.CIT (A)-I/CC 1(1)/35 /05-06 DATED 2.3.06 IN THE CASE OF KARSANBHAI K PATEL (HUF) FOR AY 2002-03 AN D HARSIDDH SPECIFIC FAMILY TRUST APPELLATE ORDER NO.CIT (A)-I/CC 1(1)/4 6/05-06 DATED 7/3/06 FOR AY 2002-03. IT IS ALSO SEEN THAT THE APPELLANT HAS MIXED UP THE WRITTEN SUBMISSIONS REGARDING GROUND OF APPEAL NO.4(B) VIS- A-VIS THE GROUNDS OF APPEAL, SINCE THE WRITTEN SUBMISSIONS ON PAGE 14 RE FER TO THE ADDITION OF 119 LAKHS ON RE-PURCHASE OF 700 DDBS OF NIRMA LTD WHERE AS THE GROUND OF APPEAL NO.4(B) REFERS TO THE DIFFERENT ADDITION OF RS.3,01,35,849/- AND NOT RS.119 LAKHS [GROUND OF APPEAL NO.4(A)]. THIS ONLY PROVES THE CONFUSION IN THE SUBMISSIONS. IN VIEW OF THE ABOVE DISCUSSION, GROUND OF APPEAL NO. 4(A) DISMISSED. .. GROUND OF APPEAL NO.4(C) RELATES TO DENIAL OF DEDUC TION UNDER SECTION 54EC BY THE AO. SINCE AOS ACTION REGARDING TAX TREATME NT OF THE TRANSACTION IN ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 14 DDBS HAS BEEN UPHELD, THERE IS NO QUESTION OF ALLO WING DEDUCTION UNDER SECTION 54 EC. HENCE, GROUND OF APPEAL NO.4(C) IS DISMISSED. 6.9. IT WAS THE SUBMISSION OF THE LEARNED A R BEFO RE US THAT THE INVESTMENT IN DBBS OF NIRMA LIMITED SERIES A WAS MADE ON 23.9.2000 AND, HENCE, THE ASSESSEE WAS ENTITLED FOR HIS CLAIM FOR LTCG OF RS.1.19 CRORES AND THE CLAIM FOR DEDUCTION OF RS.1.19 CRORES ON LTCG INVESTED ON REC BONDS. IN SUPPORT, THE LEA RNED AR HAD RELIED ON THE FOLLOWING FINDINGS OF HONBLE TRIBUNA LS, NAMELY: (I) KULGAM HOLDING PVT. LIMITED ITA NO.L3785/MUM/ 2004 DATED 25.5.2007; (II) KISAN DISCRETIONARY FAMILY TRUST ITA NO.1850 /AHD/2007 DATED 2.11.2007; & (III) KARSANBHAI K PATEL (HUF) ITA NO.1042/AHD/20 06 DATED : 9.10.2009 6.10. ON THE OTHER HAND, THE LEARNED D R RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND PLEADED THAT THE FINDINGS OF THE CIT (A) REQUIRES TO BE SUSTAINED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RELEVANT MATERIALS ON CASE RECORDS. 7.1. AT THIS POINT OF TIME, WE WOULD LIKE TO RECAL L THAT AN IDENTICAL ISSUE TO THAT OF THE PRESENT ISSUE UNDER CONSIDERATION CAME UP BEFORE THE HONBLE MUMBAI BENCH IN THE CASE OF K ULGAM HOLDING PRIVATE LIMITED (SUPRA) AND ALSO BEFORE THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF KISAN DISCRETIONARY FAMILY TRUST (SUPRA). AFTER DUE CONSIDERATION, THE ISSUE HAS BEEN DECIDED IN FA VOUR OF THE ASSESSEE. INCIDENTALLY, THE EARLIER BENCH OF THIS TRIBUNAL HAD, IN THE ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 15 CASE OF KARSANBHAI K PATEL (HUF) (SUPRA) AFTER DUE CONSIDERATION OF RIVAL SUBMISSIONS AND ALSO ELABORATELY ANALYZING A SIMILAR ISSUE, OBSERVED THUS: [PAPER BOOK PAGE NO.73] 15. WE HAVE CAREFULLY CONS IDERED THE RIVAL CONTENTIONS PRESENTED BEFORE US. IN OUR OPINION, I T APPEARS DIFFICULT TO UPHOLD THE CONTENTION OF THE REVENUE TO THE EFFECT THAT THE HOLDING PERIOD OF 12 MONTHS SHOULD BE RECKONED FROM THE DATE ON WHICH THE DEBENTURE CERTIFICATE WAS ISSUED I.E., ON 10.5.2001 OR FROM THE DATE ON WHICH THE DEBENTURE TRUST DEED CAME INTO EFFECT I.E., ON 27.4 .2001 OR FROM THE DATE ON WHICH THE DEBENTURES WERE LISTED IN THE NATIONAL ST OCK EXCHANGE I.E., ON 20.9.2001. WE MAY STRAIGHT AWAY CLARIFY THAT THE C IRCULAR NO.2 OF 2002 WHICH WAS ISSUED BY THE CBDT ON 15.2.2002 IS NOT RE LEVANT FOR DECIDING THE PRESENT APPEAL BECAUSE AS RIGHTLY POINTED OUT ON BE HALF OF THE ASSESSEE, THE AO HIMSELF DID NOT APPLY THE CIRCULAR TO HOLD THAT THE SURPLUS ARISING ON THE SALE OF THE BONDS SHOULD BE TREATED AS INTEREST. H E HAS HIMSELF ASSESSED THE SURPLUS AS CAPITAL GAINS. THE DISPUTE IS ONLY WHET HER THEY ARE LONG TERM CAPITAL GAINS AS CONTENDED BY THE ASSESSEE OR SHORT TERM CAPITAL GAINS AS CONTENDED BY THE REVENUE. A SHORT TERM CAPITAL AS SET IS DEFINED BY SECTION 2 (42A) AS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NO R MORE THAN 36 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER. TH ERE IS A PROVISO TO THE SUB- SECTION WHICH WAS INSERTED BY THE FINANCE ACT, 1987 W. E. F. 1.4.1988. THE SAID PROVISO SAYS THAT IN RESPECT OF THE CAPITAL AS SETS MENTIONED THEREIN, THEY WOULD BE TREATED AS SHORT TERM CAPITAL ASSETS, IF T HEY ARE HELD FOR A PERIOD OF NOT MORE THAN 12 MONTHS. A LONG TERM CAPITAL ASSET HAS BEEN DEFINED BY SECTION 2 (29A) OF THE INCOME-TAX ACT AS MEANING A CAPITAL ASSET WHICH IS NOT A SHORT TERM CAPITAL ASSET. THE RESULT IS THAT IN THE CASE OF THE CAPITAL ASSET SPECIFIED IN THE PROVISO TO SECTION 2(42A), IT BECO MES A LONG TERM CAPITAL ASSET, IF IT IS HELD FOR MORE THAN 12 MONTHS AND IT IS NOT NECESSARY THAT SUCH AN ASSET SHOULD BE HELD AT LEAST FOR A PERIOD OF 36 MONTHS IN ORDER TO QUALIFY AS A LONG TERM CAPITAL ASSET. ONE OF THE ASSETS SP ECIFIED IN THE PROVISO IS A SECURITY LISTED IN A RECOGNIZED STOCK EXCHANGE IN I NDIA. SUCH A SECURITY WAS ADDED IN THE PROVISO BY THE FINANCE ACT 1994 W.E.F. 1.4.1995. IT IS COMMON GROUND THAT IN THE PRESENT CASE, THE DEPARTMENTS C ASE IS THAT THE CAPITAL ASSET ACQUIRED BY THE ASSESSEE FROM NIRMA LIMITED F ALLS UNDER THIS CATEGORY OF ASSETS VIZ., SECURITY LISTED IN A RECOGNIZED STO CK EXCHANGE IN INDIA. WE MAY ALSO REFER TO SECTION 2(H)(I) OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 WHICH DEFINES SECURITIES TO INCLUDE SHARES, B ONDS, DEBENTURES, DEBENTURE STOCK OR OTHER MARKETABLE SECURITIES OF A LIKE NATURE IN OR OF ANY INCORPORATED COMPANY OR OTHER BODY CORPORATE. THE RE ARE OTHER SUB-CLAUSES IN THIS CLAUSE BUT SINCE THE LEARNED CIT-DR RESTED HIS CASE ONLY ON SUB- CLAUSE (I) OF SECTION 2(H) OF THE SECURITIES CONTRACTS (REGULATIONS) ACT, WE ARE NOT REFERRING TO THEM. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 16 16. THE ASSESSEES CONTENTION IS THAT IT BECAME THE OWNER OF THE DEEP DISCOUNT BONDS SERIES A ISSUED BY NIRMA LTD ON 23 .9.2000 WHICH IS THE DATE ON WHICH THE LETTER OF ALLOTMENT WAS ISSUED. A COP Y OF THE LETTER OF ALLOTMENT HAS BEEN PLACED AT PAGE 96 OF THE PAPER BOOK FILED BY THE ASSESSEE. WE REPRODUCE BELOW THE LETTER OF ALLOTMENT. NIRMA LIMITED REGISTERED OFFICE: NIRMA HOUSE, ASHRAM ROAD, AHMEDA BAD 380 009 LETTER OF ALLOTMENT SECURED REDDEMABLE DEEP0 DISCOUNT BONDS (DDB SEDRIE S 1 OF RS.1,00,000/- EACH FOR CAST AT PAR THIS IS TO CERTIFY THAT THE PERSON NAMED BELOW OR T HE LAST TRANSFEREE(S) WHOSE NAME(S) IS/ARE THE HOLDERS OF THE WITHIN MENTIONED DDB-SERIES A, SUBJECT TO THE INFORMATION MEMORANDUM DATED 28.7.2000 AND MEMORAND UM AND ARTICLES OF ASSOCIATION OF THE COMPANY AND THAT THE AMOUNT ENDO RSED HEREIN HAS BEEN PAID UP ON EACH DDB SERIES A. DDBSERIES A EACH OF RS.1,00,000/- AMOUNT PAID UPON APPLICATION RS.1,00,000/- REGISTERED FOLIO NO.DDBAK03 LE TTER OF ALLOTMENT NO;DA005 NAME(S) OF HOLDER(S) KARSANBHAI K PATEL NUMBER OF DDB HELD ONE THOUSAND ONE HUNDRED EIGHT ONLY (**1180*) DISTINCTIVE NO(S) DA05682 TO DA06861 GIVEN AT AHMEDABAD THIS 23 RD SEPTEMBER, 2000 THE INSTRUCTIONS FOR DEALING WITH THE LETTER OF ALL OTMENT ARE SET OUT OVERLEAF AND ARE TO BE REGARDED AS FORMING PART OF THE CONDI TIONS OF THIS LETTER OF ALLOTMENT. BY ORDER OF THE BOARD OF DIRECTORS, REVENUE STAMPS FOR NIRMA LIMITED SD/- HASIT SHUKLA COMPANY SECRETARY A BARE PERUSAL OF THE LETTER OF ALLOTMENT SHOWS THA T THE COMPANY HAS CERTIFIED THAT THE PERSON NAMED THEREIN AS THE LAST TRANSFERE E IS THE HOLDER OF 1180 DEEP DISCOUNT BONDS SERIES A, EACH OF RS.1,00,000 /-. IT IS ALSO TO BE NOTED THAT THE DISTINCTIVE NUMBERS OF THE BONDS HAVE BEEN GIVEN IN THE ALLOTMENT LETTER ITSELF. THE ASSESSEE HAS BEEN SHOWN AS THE HOLDER OF THE BONDS WITH THE REGISTERED FOLIO NUMBER. THE REVERSE OF THE LETTER OF ALLOTMENT CONTAINS AS ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 17 MEMORANDUM OF TRANSFER OF THE BONDS. THIS IS BLANK AND OBVIOUSLY SO BECAUSE THE ASSESSEE IS THE FIRST ALLOTTEE OF THE B ONDS. ITEM NO.1 OF THE INSTRUCTIONS BELOW THE MEMORANDUM OF TRANSFERS SAYS THAT TRANSFER OF DDB- SERIES A COMPRISED IN THE LETTER OF ALLOTMENT WILL BE REGISTERED BY THE COMPANY UPON SURRENDER OF THIS LETTER OF ALLOTMENT WITH DULY COMPLETED TRANSFER DEED. ITEM 2 SAYS THAT THIS LETTER OF A LLOTMENT SHOULD BE PRESERVED BY THE HOLDER(S) CAREFULLY. DDB-SERIES A CERTIFICA TE(S) WILL BE EXCHANGED AGAINST SURRENDER OF LETTER OF ALLOTMENT DULY DISCH ARGED BY THE HOLDER(S). THE CONTENTS OF THE LETTER OF ALLOTMENT AND THE CAT EGORICAL MANNER IN WHICH THE ASSESSEE HAS BEEN SHOWN AS THE HOLDER OF THE BO NDS WITH DISTINCTIVE NUMBERS AND A REGISTERED FOLIO NUMBER SHOW THAT ON THE ISSUE OF THE LETTER OF ALLOTMENT THE ASSESSEE BECAME A DEBTOR TO THE ASSES SEE. FOR THE TIME BEING AND UNTIL THE DEBENTURE CERTIFICATE WAS ISSUED, THE LETTER OF ALLOTMENT EVIDENCED THE ASSESSEES TITLE TO THE BONDS. THERE CAN BE NO DOUBT THAT THE ASSESSEE, IF SUCH A SITUATION HAD ARISEN, COULD HAV E SUED THE COMPANY ON THE BASIS OF THE LETTER OF ALLOTMENT FOR REPAYMENT OF T HE DEBT. THE ISSUE OF THE DEBENTURE CERTIFICATE ON 10.5.2001, AFTER THE FORMA LITIES SUCH AS ENTERING INTO OF A DEBENTURE TRUST DEED ON 27.4.2001, DID NOT HAV E THE EFFECT OF DELAYING THE VESTING OF THE OWNERSHIP RIGHTS ON THE ASSESSEE IN RELATION TO THE BONDS. IF THE STAND OF THE DEPARTMENT IS TO BE ACCEPTED, THEN IT WOULD BE DIFFICULT TO DEFINE THE STATUS OF THE ASSESSEE AS WELL AS THE CO MPANY VIS--VIS THE TRANSACTION IN THE INTERREGNUM BETWEEN THE DATE OF THE LETTER OF ALLOTMENT AND THE DATE OF ISSUE OF THE DEBENTURE CERTIFICATE. TH E MOMENT THE LETTER OF ALLOTMENT WAS ISSUED, THE COMPANY BECAME THE DEBTOR TO THE ASSESSEE AND THAT RELATIONSHIP STOOD DEFINED AT THAT MOMENT ITSE LF. THE ISSUE OF THE DEBENTURE CERTIFICATE AT A LATER DATE AFTER THE COM PLETION OF THE FORMALITIES SUCH AS THE DEBENTURE TRUST DEED ETC., DID NOT IMP ROVE THE MATTERS AND BROUGHT ABOUT NO CHANGE IN THE RELATIONSHIP. THE L ETTER OF ALLOTMENT MERELY GOT EXCHANGED FOR THE ISSUE OF THE DEBENTURE CERTIF ICATES ON 10.5.2001. THE ASSESSEE CANNOT BE SAID TO HAVE ACQUIRED THE CAPITA L ASSET TWICE, FIRST WHEN THE LETTER OF ALLOTMENT WAS ISSUED AND THEREAFTER W HEN THE DEBENTURE CERTIFICATES WERE ISSUED. THERE WAS ONLY ONE CAPIT AL ASSET AND THAT WAS ACQUIRED ON 23.9.2000 WHEN THE LETTER OF ALLOTMENT WAS ISSUED. 17. THE LEARNED COUNSEL FOR THE ASSESSEE HAD REFERR ED TO SECTION75 OF THE COMPANIES ACT, 1956 WHICH SPEAKS OF RETURN AS TO A LLOTMENT. THIS SECTION APPLIES TO ALLOTMENT OF SHARES. HOWEVER, THE MEANI NG OF THE WORD ALLOTMENT HAS BEEN EXPLAINED AT PAGE 687 OF GUID E TO THE COMPANIES ACT, A TREATISE BY A RAMAIYA (14 TH EDN. 1998. THERE IS REFERENCE IN THIS PAGE TO THE JUDGMENT OF THE SUPREME COURT IN SRI GOPAL JALA M & CO V. CALCUTTA STOCK EXCHANGE ASSN. [AIR 1964 SC 250] IN WHICH THE SUPREME COURT HAS QUOTED THE OBSERVATIONS OF THE CHANCERY DIVISION IN ENGLAND IN THE CASE OF FLORENCE LAND AND PUBLIC WORKS CO., IN RE (1885) 29 CH D 421. IT WAS OBSERVED IN THE ENGLISH CASE THAT AN ALLOTMENT IS G ENERALLY NEITHER MORE NOR LESS THAN THE ACCEPTANCE BY THE COMPANY OF THE OFFE R TO TAKE SHARES. IT HAS FURTHER BEEN OBSERVED THAT WHEN THE OFFER IS ACCEPT ED BY THE COMPANY, IT ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 18 CONSTITUTES A BINDING CONTRACT TO TAKE THAT NUMBER OF SHARES ACCORDING TO THE OFFER AND ACCEPTANCE. EXTENDING THE LOGIC TO THE ALLOTMENT OF DEEP DISCOUNT BONDS OR DEBENTURES, IT SEEMS TO US THAT WHEN THE L ETTER OF ALLOTMENT WAS ISSUED BY NIRMA LTD ON 23.9.2000 THERE WAS A BINDIN G CONTRACT BETWEEN THE COMPANY AND THE ASSESSEE AND THE RELATIONSHIP OF DE BTOR CREDITOR CAME INTO BEING. AT PAGE 607 OF THE ABOVE TREATISE, IN THE COMMENTARY RELATING TO SECTION 69 OF THE COMPANIES ACT WHICH PROHIBITS ALL OTMENT OF SHARES UNLESS THE COMPANY RECEIVES THE MINIMUM SUBSCRIPTION, IT H AS BEEN OBSERVED THAT THE MERE SUBSCRIPTION TO SHARES IN A COMPANY DOES NOT CONSTITUTE A SUBSCRIBER A SHAREHOLDER OF THE COMPANY; HE ACQUIRE S THE STATUS OF SHAREHOLDER AND THE RIGHT TO DEMAND SHARES AND TO E XERCISE THE RIGHTS OF A SHAREHOLDER ONLY WHEN SHARES ARE ALLOTTED TO HIM AN D A COMMUNICATION OF THE ALLOTMENT IS MADE TO HIM. SIMILARLY, IT APPEA RS TO US TO BE THE POSITION IN LAW THAT ON AND FROM THE DATE OF ALLOTMENT OF THE B ONDS, THE ASSESSEE BECAME ENTITLED TO EXERCISE THE RIGHTS OF A BOND HOLDER OR DEBENTURE HOLDER WHICH MEANS THAT HE HAS STARTED HOLDING THE BONDS FROM TH AT DATE. IF THE ASSESSEE HAS STARTED HOLDING THE BONDS FROM 23.9.2000 WHICH IS THE DATE ON WHICH HE WAS INFORMED THAT THEY WERE ALLOTTED TO HIM, THEN I T WOULD BE ANOMALOUS TO SAY THAT THEY WERE ACQUIRED BY HIM AGAIN WHEN THE D EBENTURE CERTIFICATES WERE ISSUED ON 10.5.2001. THIS ASPECT OF THE MATTE R HAS BEEN DEALT WITH BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF RANCH HODBHAI BHAIJJIBHAI PATEL (SUPRA). IN THIS CASE, IT WAS HELD THAT THER E CAN BE NO TWO DIFFERENT ACQUISITIONS OF PROPERTY, ONE AS A NON-CAPITAL ASSE T AND THE OTHER AS A CAPITAL ASSET AND THAT THE PROPERTY IS ACQUIRED BY THE ASS ESSEE ONLY ONCE AND MERELY ITS CHARACTER CHANGES IN THE SENSE THAT, WHEREAS, O RIGINALLY IT WAS NON-CAPITAL ASSET, IT NOW BECOMES CAPITAL ASSET. IN THIS CASE , THE ASSESSEE HAS ACQUIRED AGRICULTURAL LAND WHICH AT THE TIME OF ACQUISITION WAS NOT A CAPITAL ASSET UNDER THE INCOME-TAX ACT. THE LAND WAS LATER CONVE RTED AS NON-AGRICULTURAL LAND AND SOLD. THE ARGUMENT OF THE ASSESSEE WAS TH AT THE VALUE OF THE LAND ON THE DATE OF CONVERSION TO NON-AGRICULTURAL PURPO SES SHOULD BE TAKEN AS THE COST OF ACQUISITION OF THE CAPITAL ASSET. REPE LLING THE ARGUMENT, IT WAS HELD THAT THERE CAN BE ONLY ONE ACQUISITION OF A CA PITAL ASSET AND, THEREFORE, THE COST OF THE AGRICULTURAL LAND AT THE TIME OF PU RCHASE OF THE FAIR MARKET VALUE OF THE SAID LAND AS ON 1.1.1954, AT THE OPTIO N OF THE ASSESSEE, WAS TO BE DEDUCTED AND NOT THE MARKET VALUE OF THE LAND ON TH E DATE ON WHICH IT WAS CONVERTED FOR NON-AGRICULTURAL PURPOSES. IT MUST B E REMEMBERED THAT THE JUDGMENT WAS RENDERED IN THE CONTEXT OF AN ASSET WH ICH WAS NOT A CAPITAL ASSET ACCORDING TO THE ACT AT THE TIME OF ACQUISITI ON. THE RATIO OF THE JUDGMENT APPLIES WITH STRONGER FORCE TO THE CASE BE FORE US WHERE THE BONDS OR THE DEBENTURES WERE CAPITAL ASSETS AT BOTH POINT S OF TIME UNDER THE ACT. THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE O F KESHVJI KARSONDAS V; CIT (SUPRA) AND THE ORDER OF THE PUNE BENCH (THIRD MEMBER) IN THE CASE OF KALYANI EXPORTS & INVESTMENTS P. LTD (SUPRA) ALSO S UPPORT THE ABOVE PROPOSITION. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 19 18. HAVING HELD THAT THE ASSESSEE CANNOT BE SAID T O HAVE ACQUIRED THE BONDS ON THE DATE OF ISSUE OF THE BONDS CERTIFICATES (10. 5.2001), WE NOW PROCEED TO CONSIDER THE CONTENTIONS OF THE REVENUE THAT SINCE THE BONDS WERE LISTED IN THE NSE ONLY ON 20.9.2001, THAT IS THE DATE ON WHIC H THE ASSESSEE CAN BE SAID TO HAVE STARTED HOLDING THEM. THIS CONTENTION IS B ASED ON THE PROVISO TO SECTION 2(42A). ACCORDING TO THE REVENUE SINCE IT IS A CONDITION THAT THE CAPITAL ASSET IN QUESTION, BEING A SECURITY, SHOULD BE LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA, THE DATE ON WHICH THE SECU RITY WAS LISTED IN THE STOCK EXCHANGE ALONE CAN BE TAKEN AS A THE STARTING POINT FOR COMPUTING THE HOLDING PERIOD. THE DIFFICULTY IN ACCEPTING THE CO NTENTION OF THE REVENUE IS THAT THERE IS NO INDICATION IN THE PROVISO THAT THE SECURITY VIZ., THE BONDS SHOULD BE LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA AT BOTH POINTS OF TIME VIZ., WHEN THEY ARE ACQUIRED BY THE ASSESSEE A ND WHEN THEY ARE SOLD. IT SEEMS TO US THAT WE HAVE TO ONLY SEE THAT THE CONDI TION STANDS SATISFIED AT THE POINT OF TIME WHEN THE SECURITY IS SOLD AND IT HARD LY MATTERS THAT THE SECURITY WAS NOT LISTED WHEN IT WAS ACQUIRED. ON THIS QUEST ION ALSO WE ARE OF THE VIEW THAT THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF RANCHHODBHAI BHAIJJIBHAI PATEL V. CIT (SUPRA) APPLI ES. AS ALREADY NOTICED, IN THAT CASE THE LAND WAS ORIGINALLY AGRICULTURAL I N NATURE AND WAS NOT INCLUDED IN THE DEFINITION OF CAPITAL ASSET UNDER T HE INCOME-TAX ACT. WHEN IT WAS ACQUIRED BY THE ASSESSEE, IT WAS NOT A CAPITAL ASSET. HOWEVER, WHEN IT WAS SOLD, IT WAS NOT AGRICULTURAL LAND AS IT HAD BE EN CONVERTED BY THE ASSESSEE FOR NON-AGRICULTURAL USED. IT WAS, THUS, A CAPITAL ASSET AS DEFINED BY THE ACT AT THE TIME OF SALE. THE ARGUMENT OF THE ASSESSEE WAS THAT THE ASSET SOLD SHOULD BE A CAPITAL ASSET UNDER THE ACT BOTH AT THE POINT OF ACQUISITION AND AT THE POINT OF SALE. THE HONBLE HIGH COURT REPELLED THE CONTENTION AND AT PAGES 455-457 OF THE JUDGMENT REFERRED TO SECTION 4 5 AND HELD THAT IT WAS CLEAR ON A PLAN READING OF THE SECTION THAT THE ONL Y CONDITION FOR ATTRACTING THE CHARGE OF TAX WAS THAT THE ASSET TRANSFERRED MU ST BE A CAPITAL ASSET AT THE POINT OF SALE AND THERE WAS NO CONDITION THAT IT SH OULD HAVE BEEN A CAPITAL ASSET UNDER THE ACT EVEN AT THE POINT OF ACQUISITIO N. THE HONBLE HIGH COURT FURTHER REFERRED TO SECTION 48 WHICH PROVIDED FOR T HE COMPUTATION OF THE CAPITAL GAINS AND HELD THAT THERE WAS NO CONDITION IN THIS SECTION THAT THE ASSET SOLD SHOULD SATISFY THE DEFINITION OF THE CAP ITAL ASSET AT THE DATE OF ACQUISITION ALSO. IT WAS OBSERVED THAT THE EXPRESS ION CAPITAL ASSET IS TO BE UNDERSTOOD ONLY AS A DEMONSTRATIVE NOUN TO REFER TO THE PROPERTY TRANSFERRED AND CANNOT BE UNDERSTOOD AS IMPOSING A CONDITION FO R THE CHARGE THAT THE ASSET SHOULD HAVE BEEN A CAPITAL ASSET AS DEFINED B Y THE ACT EVEN AT THE POINT OF ACQUISITION. IF THE RATIO OF THIS JUDGMENT IS A PPLIED TO THE PRESENT CASE, AS WE ARE RESPECTFULLY BOUND TO, IT SEEMS TO US THAT T HE EXPRESSION ANY OTHER SECURITY LIST IN A RECOGNIZED STOCK EXCHANGE IN IND IA APPEARING IN PROVISO TO SECTION 2(42A) IS MERELY DEMONSTRATIVE OF THE ASSET THE SALE OF WHICH HAS GIVEN RISE TO CAPITAL GAINS AND IT DOES NOT IMPOSE ANY CONDITION THAT THE SECURITY SHOULD HAVE ALSO BEEN LISTED IN THE STOCK EXCHANGE WHEN IT WAS ACQUIRED BY THE ASSESSEE. APART FROM THE JUDGMENT OF HONBLE GUJARAT COURT CITED SUPRA ON THIS POINT, THERE IS ALSO THE JUDGMENT OF THE BOMBAY ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 20 HIGH COURT IN KESHVJI KARSONDAS V. CIT (SUPRA) WHIC H HAS ALSO TAKEN THE SAME VIEW FOLLOWING THE HONBLE GUJARAT HIGH COURT S VIEW. THE RESULT IS THAT THE STAND OF THE REVENUE THAT THE ASSESSEE CAN BE SAID TO HAVE ACQUIRED THE CAPITAL ASSET VIZ., A SECURITY LISTED IN A RECO GNIZED STOCK EXCHANGE, ONLY ON 20.9.2001 WHEN THE BONDS WERE LISTED IN THE NSE CAN NOT BE ACCEPTED AS SOUND. 19. THE LEARNED CIT-DR HAD REFERRED TO CLAUSES (D) AND (F) OF EXPLANATION 1 OF SECTION 2 (42A). THE SAID EXPLANATION PROVIDES FOR THE COMPUTATION OF THE PERIOD FOR WHICH ANY CAPITAL ASSET IS HELD BY THE A SSESSEE. CLAUSE (D) SAYS THAT IN THE CASE OF SHARE OR ANY OTHER SECURITY SUB SCRIBED TO BY THE ASSESSEE ON THE BASIS OF HIS RIGHT TO SUBSCRIBE TO THE SAME OR SUBSCRIBED TO BY THE PERSON IN WHOSE FAVOR THE ASSESSEE HAS RENOUNCED HI S RIGHT TO SUBSCRIBE TO THE SHARE OR THE SECURITY, THE PERIOD OF HOLDING SH ALL BE RECKONED FROM THE DATE OF ALLOTMENT OF THE SHARE OR OTHER SECURITY. WE ARE UNABLE TO APPRECIATE THE RELEVANCE OF THIS CLAUSE TO THE CONTROVERSY BEF ORE US. THE CLAUSE APPLIES ONLY TO A SHARE OR OTHER SECURITY SUBSCRIBED TO BY THE ASSESSEE ON RIGHTS BASIS. IT SAYS THAT IF THE ASSESSEE HAS SUBSCRIBED TO THE SHARE OR THE SECURITY ON RIGHTS BASIS THEN THE PERIOD OF HOLDING SHALL COMME NCE ON THE DATE OF ALLOTMENT OF THE SHARE OR THE SECURITY. THIS CLAUS E IN TERMS DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE BECAUSE THE ASSESSEE HEREIN HAS NOT SUBSCRIBED TO THE BONDS ON RIGHTS BASIS, EVEN TAKING NOTE OF T HE FACT THAT THE BONDS AND ALSO SECURITIES COVERED BY THE CLAUSE. IF ANYTHING , THIS CLAUSE SUPPORTS THE CONTENTION OF THE ASSESSEE THAT THE PERIOD OF HOLDI NG OF THE SECURITY SHALL COMMENCE FROM THE DATE OF ALLOTMENT OF THE BONDS I. E., ON 23.9.2000 BECAUSE THE CLAUSE SPECIFICALLY SAYS THAT IT IS THE ALLOTME NT OF THE SHARE OR SECURITY, SUBSCRIBED TO BY THE ASSESSEE ON RIGHTS BASIS, THAT WILL BE THE STARTING POINT OF THE PERIOD OF HOLDING. 20. CLAUSE (F) OF EXPLANATION 1 SAYS THAT IN THE C ASE OF FINANCIAL ASSET ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSET, THE PERIOD OF HOLDING SH ALL BE RECKONED FROM THE DATE OF THE ALLOTMENT OF SUCH FINANCIAL ASSET. WE WERE NOT REFERRED TO ANY DEFINITION OF WHAT A FINANCIAL ASSET IS UNDER THE I NCOME-TAX ACT. HOWEVER, WE SHALL ASSUME FOR THE SAKE OF ARGUMENT THAT THE L ISTED BONDS HELD BY THE ASSESSEE ARE FINANCIAL ASSETS. EVEN SO THE CLAUSE WOULD APPLY ONLY WHERE THE LISTED BONDS WERE ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSET. EVE N ASSUMING THAT THE LISTED BONDS (DEBENTURE CERTIFICATES) WERE ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT WHEN THEY WERE ALLOTTED, THEY CANNOT BE SAI D TO HAVE BEEN ALLOTTED TO THE ASSESSEE ON THE BASIS OF HOLDING OF ANY OTHER F INANCIAL ASSET. THE ARGUMENT OF THE LEARNED CIT-DR WAS THAT THE LETTER OF ALLOTMENT IS A FINANCIAL ASSET AND THAT HAS BEEN EXCHANGED FOR THE DEBENTURE CERTIFICATES AND, THEREFORE, THE DEBENTURE CERTIFICATES WERE ALL OTTED TO THE ASSESSEE ON THE BASIS OF HOLDING OF THE LETTER OF ALLOTMENT AND, AC CORDINGLY, THE DATE OF ISSUE OF THE DEBENTURE CERTIFICATES AS SUCH SHALL BE TAKE N AS THE DATE OF ALLOTMENT ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 21 WHICH SHALL BE THE STARTING POINT OF THE PERIOD OF HOLDING. HERE, WE HAVE TO GO BACK TO THE FUNDAMENTAL PROPOSITION THAT THE DEB T DUE TO THE ASSESSEE FROM NIRMA LTD WAS FIRST EVIDENCED BY THE LETTER OF ALLO TMENT AND, THEREAFTER, THE LETTER OF ALLOTMENT WAS SURRENDERED AND IN LIEU THE REOF, THE COMPANY ISSUED DEBENTURE CERTIFICATES TO THE ASSESSEE. THUS, THER E WAS CHANGE ONLY IN THE NATURE OF THE DOCUMENT WHICH ACKNOWLEDGED THE DEBT DUE TO THE ASSESSEE, BUT, THERE WAS NO CHANGE IN THE NATURE AND CHARACTE R OF THE ASSET ITSELF. WE MAY AGAIN REFER TO THE JUDGMENT OF THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF RANCHHODBHAI BHAIJJIBHAI PATEL V. CIT (SUPR A) WHERE IT WAS HELD THAT THE PROPERTY CAN BE ACQUIRED ONLY ONCE AND WHE N IT BECAME A CAPITAL ASSET WITHIN THE MEANING OF THE INCOME-TAX ACT, WHA T HAPPENS IS MERELY THAT ITS CHARACTER CHANGED IN THE SENSE THAT WHEREAS IT WAS A NON-CAPITAL ASSET AT THE TIME OF ACQUISITION, IT BECAME A CAPITAL ASSET LATER. IT SEEMS TO US THAT CLAUSE (F) WOULD APPLY TO A CASE WHERE THERE ARE TW O SEPARATE AND DISTINCT CAPITAL ASSETS, AS RIGHTLY POINTED OUT ON BEHALF OF THE ASSESSEE, AND ONE IS EXCHANGED FOR THE OTHER. IT IS ONLY IN SUCH A CASE THAT IN RESPECT OF THE SECOND FINANCIAL ASSET, THE PERIOD OF HOLDING SHALL BE RECKONED FROM THE DATE OF ALLOTMENT THEREOF. WE ARE, ACCORDINGLY, WITH RE SPECT, UNABLE TO GIVE EFFECT TO THE ARGUMENT OF THE LEARNED CIT-DR BASED ON THE SAID CLAUSE. 21. IT NOW REMAINS FOR US TO CONSIDER THE ARGUMENT OF THE DEPARTMENT THAT THE RIGHTS OF THE ASSESSEE AS A BOND HOLDER BECAME CRYSTALLIZED ONLY WHEN THE DEBENTURE TRUST DEED WAS DRAWN UP AND TRUSTEES WERE APPOINTED. ACCORDINGLY, IT IS CONTENDED THAT IT WAS ONLY ON 27 .4.2001 THAT THE ASSESSEE CAN BE SAID TO HAVE BECOME A BOND HOLDER IN THE REA L AND FULL SENSE OF THE TERM. THE DEBENTURE TRUST DEED MERELY SECURES THE DEBT DUE TO THE ASSESSEE BY THE COMPANY BY CREATING A CHARGE OR MORTGAGE OF THE ASSET BELONGING TO THE COMPANY. THERE IS NO CHANGE EFFECTED IN THE NA TURE OF THE DEBT. WHAT PERHAPS CAN BE SAID AT BEST IS THAT THE BOND CERTIF ICATES WERE ISSUED BY THE COMPANY THE FINALIZATION OF THE DEBENTURE TRUST DEE D BUT IT MUST BE REMEMBERED THAT THE CAPITAL ASSET IS NOT REPRESENTE D BY THE BOND CERTIFICATES THEMSELVES WHICH ARE MERE EVIDENCE OF THE ASSESSEE S TITLE TO THEM AND THE SUBSTANCE OF THE MATTER IS THAT IT IS THE DEBT DUE TO THE ASSESSEE WHICH IS HIS ASSET. THAT DEBT AROSE TO HIM ONCE THE LETTER OF A LLOTMENT WAS ISSUED ON 23.9.2000. WE ARE, THEREFORE, UNABLE TO UPHOLD THE ARGUMENT OF THE DEPARTMENT. 22. WE MAY BRIEFLY REFER NOW TO THE AUTHORITIES C ITED BY THE LEARNED CIT- DR. IN THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF MRS. A GHOSH (SUPRA) EQUITY SHARES WERE SOLD WITHIN 12 MON THS OF CONVERSION. IT WAS HELD THAT THE PROFITS WERE ASSESSABLE AS SHORT TERM CAPITAL GAINS. IT IS TO BE NOTED THAT IN THIS CASE THE HIGH COURT HELD THAT WHEN THE ASSESSEE GAVE UP THE DEBENTURES AND ACQUIRED THE SHARES, HE ACQUIRED AN ASSET WHICH WAS QUITE DISTINCT AND SEPARATE FROM THE DEBENTURES AND FURTHER THAT THE RIGHTS AS A SHAREHOLDER WHICH THE ASSESSEE ENJOYED WERE QUITE DIFFERENT FROM THE RIGHTS THAT THE ASSESSEE HAD AS A DEBENTURE HOLDER. THUS, TWO SEPARATE CAPITAL ASSETS ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 22 WERE INVOLVED. IT WAS, THEREFORE, HELD THAT THE SA LE OF SHARES WITHIN A PERIOD OF 12 MONTHS FROM THE DATE OF CONVERSION OF THE DEB ENTURES GAVE RISE TO SHORT TERM CAPITAL GAINS. IN THE PRESENT CASE, WE HAVE A LREADY HELD THAT THERE WERE NO TWO OR MORE DISTINCT OR SEPARATE CAPITAL ASSETS AND WHAT THE ASSESSEE HELD THROUGHOUT WAS A SINGLE CAPITAL ASSET WITH CHANGES THAT DID NOT AFFECT THE REAL NATURE AND CHARACTER THEREOF. THE ASSESSEE EN JOYED THE SAME RIGHTS SUBSTANTIALLY THROUGHOUT THE PERIOD COMMENCING FROM THE LETTER OF ALLOTMENT AND ENDING WITH THE SALE OF THE BONDS. THERE LIES THE DISTINCTION BETWEEN THE CITED JUDGMENT AND THE PRESENT CASE. 23. THE JUDGMENT OF THE BOMBAY HIGH COURT IN CIT V. SANTOSH L CHOWGULE AND OTHERS (SUPRA) CAN ALSO BE DISTINGUISH ED ON THE SAME FOOTING. IN THIS CASE, THE ASSESSEE HELD EQUITY SHARES SINCE 1965 AND IN 1971 THESE SHARES WERE EXCHANGED FOR NEW TYPES OF EQUITY SHARE S AND IRREDEEMABLE CUMULATIVE PREFERENTIAL SHARES. THESE SHARES WERE SOLD IN 1976 AND THE ASSESSEE SUFFERED AS LOSS. IT WAS HELD THAT THE LO SS WAS A SHORT TERM CAPITAL LOSS SINCE THE NEW TYPES OF EQUITY SHARES AND IRRED EEMABLE CUMULATIVE PREFERENTIAL SHARES ALLOTTED TO THE ASSESSEE IN 197 1 HAD RIGHTS AND LIABILITIES WHICH WERE DIFFERENT FROM THE SHARES HELD BY HIM PR IOR TO 1971. AS CAN BE SEEN FROM THE FACTS, THIS JUDGMENT IS ALSO DISTINGU ISHABLE FROM THE PRESENT CASE SINCE TWO DISTINCT AND SEPARATE CAPITAL ASSETS WERE INVOLVED IN THE CITED CASE. 24. THE ORDER OF THE BANGALORE BENCH OF THE TRIBUN AL IN THE CASE OF GIRIDHAR KRISHNA (SUPRA) ALSO TURNED ON DIFFERENT F ACTS. THERE THE ASSESSEE WAS GIVEN A STOCK OPTION UNDER THE EMPLOYEES STOCK OPTION SCHEME [ESOP]. UNDER THE SCHEME, THE ASSESSEE WAS VESTED WITH RIGH T TO PURCHASE CERTAIN NUMBER OF SHARES WITHIN CERTAIN PERIOD. THIS OPTIO N WAS EXERCISED BY THE ASSESSEE ON 7.11.2002. THE SHARES WERE SOLD ON 18. 5.2003. THE ASSESSEE CLAIMED THAT THE CAPITAL GAINS ARISING ON THE SALE OF THE SHARES SHOULD BE TREATED AS LONG TERM CAPITAL LOSS. THE CLAIM WAS R EJECTED ON THE FOOTING THAT THE PERIOD OF HOLDING OF THE SHARES IS TO BE RECKON ED FROM THE DATE OF ALLOTMENT OF THE SHARES AND NOT FROM THE DATE ON WH ICH THE RIGHT TO PURCHASE THE SHARES VESTED IN THE ASSESSEE. EVEN IF THE RAT IO OF THIS ORDER IS TO BE APPLIED TO THE PRESENT CASE, IT SEEMS TO US THE DAT E ON WHICH THE ASSESSEE BEFORE US WAS ALLOTTED THE DEEP DISCOUNT BONDS BY I SSUE OF LETTER OF ALLOTMENT SHOULD BE THE STARTING POINT OF THE HOLDING PERIOD. THE BANGALORE BENCH HELD THAT WHATEVER HAPPENED BEFORE THE SHARES WERE ALLOTTED, VIZ., THE VESTING OF THE RIGHT IN THE EMPLOYEE TO PURCHASE THE SHARES WITHIN A PARTICULAR PERIOD, WERE ALL IRRELEVANT AND IT WAS ONLY FROM TH E DATE OF THE ALLOTMENT OF THE SHARES THAT THE ASSESSEE CAN BE SAID TO HAVE HE LD THE SHARES. THIS DECISION CANNOT, THEREFORE, BE SAID TO ADVANCE THE REVENUES CASE. 25. THE ORDER OF THE DELHI BENCH IN THE CASE OF SP LENDOR CONSTRUCTION P LTD. V. ITO (SUPRA) ON WHICH RELIANCE WAS PLACED BY THE LEARNED CIT-DR IS A CASE OF CONVERSION OF LAND FROM THE COMPANYS STOCK IN TRADE INTO INVESTMENT ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 23 AND THE QUESTION WAS WHETHER FOR THE PURPOSE OF ASC ERTAINING WHETHER THE CAPITAL GAINS ON THE SALE OF THE LAND WERE LONG TER M OR SHORT TERM, IT IS THE DATE OF CONVERSION THAT SHOULD BE TAKEN AS THE STAR TING POINT FOR COMPUTING THE PERIOD OF HOLDING OF THE ASSET. THE QUESTION W AS ANSWERED IN THE AFFIRMATIVE. THIS CASE IS WHOLLY DISTINGUISHABLE O N FACTS FROM THE PRESENT CASE AND THE NATURE OF THE CONTROVERSY IS ALSO DIFF ERENT. WE ARE NOT HEREIN CONCERNED WITH ANY CONVERSION OF STOCK IN TRADE INT O INVESTMENT. THIS ORDER IS ALSO NOT HELPFUL TO THE REVENUE. 26. 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 TH E FOOTING THAT HE HELD THEM FOR A PERIOD OF MORE THAN 12 MONTHS STARTING F ROM 23.9.2000 BEFORE THEY WERE SOLD ON 20.3.2002. CONSEQUENTLY, WE ALSO HOLD THAT THE ASSESSEE IS ENTITLED TO EXEMPTION UNDER SECTION 54EC AS CLAIMED .. 7.2. THE FACTS OF THE PRESENT CASE AND THAT OF THE ISSUES INVOLVED IN THE ABOVE REFERRED CASE BEING IDENTICAL , IN CONFORMITY WITH THE FINDINGS OF THE CO-ORDINATE BENCH OF THE TRIBUN AL (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT (A) WAS NOT JUSTIFIED IN SUSTAINING (I) THE ADDITION OF RS.1.19 CRORES BY TR EATING THE SAME AS INTEREST INCOME ON RE-PURCHASE OF 700 DDBS AND, CON SEQUENTLY (II) CONFIRMING THE DISALLOWANCE OF RS.1.19 CRORES BEING THE ASSESSEES CLAIM U/S 54EC OF THE ACT. IN ESSENCE, BOTH THE IS SUES ARE DECIDED IN FAVOUR OF THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 8. TREATING OF LTCG OF RS.3,01,35,849/- ON SALES OF 1391 DDB OF NIRMA LIMITED AS STCG & NOT-ALLOWING OF DEDUCTI ON U/S 54EC ON LTCG OF RS.3.01 CRORES [GROUND NOS.5 & 6]: THE FACTS RELATING TO THESE GROUNDS ARE THAT THE ASSESSEE SOLD THE BALANCE 1391 DDBS ON 19.3.2002 AT A CONSID ERATION OF RS.16,98,95,209/- @ RS.1,12,139/- PER BOND. THE LE ARNED AO CONSIDERED THE INCOME GENERATED FROM THE SALE OF 15 5 DDBS SERIES ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 24 A OF NIRMA LIMITED WHICH WERE PURCHASED FROM NIRAV DISCRETIONARY FAMILY TRUST AS STCG WHICH COMES TO RS.1,89,31,545/ -. FURTHER, IT WAS OBSERVED BY THE AO THAT OUT OF THESE 155 DDBS, THE ASSESSEE PURCHASED 87 DDBS ON 5.11.2000 AT RS.89,17,500/- AN D THE BALANCE OF 68 DDBS WERE PURCHASED ON 28.2.2001 AT RS.72,42, 000/-. THEREFORE, THE AO COMPUTED THE STCG ON THE SAME AT RS.27,72,045/-. FURTHER, IT WAS NOTICED THAT THE A SSESSEE SOLD 1236 DDBS AT RS.15,09,63,804/- WHICH WERE PURCHASED AT RS.12,36,00,000/-. THE AO HAD, THEREFORE, COMPUTED STCG ON THE SAME AT RS.2,73,63,804/- THEREBY AGGREGATING THE CO MPUTATION OF STCG TO RS.3,01,35,849/-. SINCE THE INCOME OF ASSE SSEE EARNED FROM SALE OF AFORESAID DDBS BY THE AO AGAINST THE C LAIM OF LTCG, THE AO DISALLOWED THE ASSESSEES CLAIM OF DEDUCTION U/S 54EC OF THE ACT AMOUNTING TO RS.4,20,20,200/-[REFER: PARAS 5.9 TO 5.11 OF THE ASST. ORDER]. 8.1. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUES WI TH THE CIT (A) FOR RELIEF. THE LEARNED CIT (A), HOWEVER, UPHE LD THE STAND OF THE AO BY OBSERVING THUS: (ON PAGE 11) THE APPELLANTS SUBMISSIONS HAVE BEEN CONSIDERED BY ME. THIS ISSUE IS COVERED BY THE APPELLATE ORDER NO. CI T(A)-I/CC1(1)35/05-06 DATED 2.3.06 IN THE CASE OF KARSANBHAI K PATEL(HUF) FOR AY 2002-03 AND HARSIDDH SPECIFIC FAMILY TRUST NO. CIT (A)-I/CC-1(1 )46/05-06 DATED 7/3/06 FOR AY 2002-03. HENCE, CONSIDERING THE ABOVE FACT, GROUND OF APPEAL NO.4 (B) IS DISMISSED. GROUND OF APPEAL NO.4(C) RELATES TO DENIAL OF DEDUC TION UNDER SECTION54EC BY THE AO. SINCE AOS ACTION REGARDING TAX TREATME NT OF THE TRANSACTION IN DDBS HAS BEEN UPHELD, THERE IS NO QUESTION OF ALLOW ING DEDUCTION UNDER SECTION 54EC. HENCE, GROUND OF APPEAL NO.4(C) IS D ISMISSED. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 25 8.2. BEFORE US, THE LEARNED AR SUBMITTED, IN SHORT , THAT THESE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF KARSA NBHAI KHODIDAS PATEL [HUF] V. ACIT (SUPRA). IT WAS, THEREFORE, PLE ADED THAT THE ISSUE REQUIRES TO BE DECIDED IN FAVOUR OF THE ASSESSEE. 8.2.1. HOWEVER, THE LEARNED D R SUPPORTED THE STAN D OF THE AUTHORITIES BELOW. 8.3. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSION S AND ALSO PERUSED THE RELEVANT MATERIALS ON CASE RECORD. 8.3.1. AT THE OUTSET, WE WOULD LIKE TO REITERATE T HAT THESE ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE WHILE A DJUDICATING THE GROUND NOS.2 AND 3 RAISED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN T HE CASE OF KARSANBHAI KHODIDAS PATEL (HUF) SUPRA. SINCE THE FACTS AND CI RCUMSTANCES OF THE CASE AND THE ISSUES INVOLVED IN THESE GROUNDS B EING IDENTICAL, THE AO IS DIRECTED TO TREAT THE INCOME OF THE ASSESSEE ARISING OUT OF SALE OF 1391 DDBS BY THE ASSESSEE AS LTCG AND, CONSEQUEN TLY, TO ALLOW THE ASSESSEES CLAIM OF DEDUCTION OF RS.4,20,20,000 /- U/S 54EC OF THE ACT. IT IS ORDERED ACCORDINGLY. 9. ADDITION OF ACCRUED INTEREST OF RS.48,83,858/- ON 1 250 DDBS OF NIRMA LIMITED SERIES B [GROUND NO.7]: THE AO HAD OBSERVED THAT 1250 D DBS EACH OF RS.1,00,000/- OF SERIES-B WERE ALLOTTED TO THE ASSE SSEE, THE MATURITY ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 26 VALUE OF WHICH AFTER 20 MONTHS WAS AT RS.1,15,500/- . THE ASSESSEE WAS QUERIED TO EXPLAIN AS TO WHY THE INTEREST EARNE D ON THESE DDBS SHOULD NOT BE ADDED TO HIS INCOME. IT WAS ALSO THE STAND OF THE AO THAT AS PER THE BOARDS CIRCULAR DATED 15.2.2002, T HE ASSESSEE SHOULD HAVE OFFERED INTEREST ON ACCRUAL BASIS IRRES PECTIVE OF WHAT METHOD OF ACCOUNTING WAS ADOPTED BY HIM. AS THE AO DID NOT FIND THE ASSESSEES EXPLANATION TO BE COGENT, HE COMPUTE D THE INTEREST ON THE BASIS OF DISCOUNTED PRICE AS ON 31.3.2002 AT RS .12,98,83,858/- AND, ACCORDINGLY, CALCULATED THE ACCRUED INTEREST/G AIN ON THE SAME AT RS.48,83,858/-. THE SAME WAS ADDED TO THE INCOME O F THE ASSESSEE. 9.1. WHEN THE MATTER TRAVELED IN APPEAL TO THE C IT (A) FOR RELIEF, THE CIT (A), HOWEVER, REJECTED THE ASSESSEE S CONTENTIONS BY OBSERVING THAT (ON PAGE 11) THIS ISSUE IS COVERED BY THE APPELLAT E ORDER NO. CIT(A)- I/CC1(1)35/05-06 DATED 2.3.06 IN THE CASE OF KARSAN BHAI K PATEL(HUF) FOR AY 2002-03 AND HARSIDDH SPECIFIC FAMILY TRUST NO. C IT (A)-I/CC- 1(1)46/05-06 DATED 7/3/06 FOR AY 2002-03. HENCE, FO LLOWING THAT APPELLATE ORDER, GROUND OF APPEAL NO.4 (D) IS DISMISSED. 9.2. DURING THE COURSE OF HEARING BEFORE US, THE L EARNED AR SUBMITTED THAT THE ASSESSEE HAD ACQUIRED 1250 DDBS B SERIES OF NIRMA LIMITED EACH OF RS.1 LAKH ON 8.10.2001 AND TH E REVENUE AUTHORITIES CALCULATED THE ACCRUED INTEREST ON THE SAME AT RS.48,83,858/- RETROSPECTIVELY BY APPLYING THE BOA RDS CIRCULAR DATED 15.2.2002 THEREBY IGNORING THE BOARDS PRESS NOTE D ATED 20.3.2002 PURELY ON SURMISES AND, THEREFORE, PLEADED THAT THE ADDITION MADE BY THE AO WHICH WAS SUBSEQUENTLY SUSTAINED BY THE CIT (A) REQUIRES TO BE DELETED. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 27 9.3. ON THE OTHER HAND, THE LEARNED DR SUPPORTED T HE STAND OF THE AUTHORITIES BELOW ON THE ISSUE. 9.4. AT THE OUTSET, WE WOULD LIKE TO RECALL THAT T HIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE WHIL E ADJUDICATING THE GROUND NO.2 OF THE ASSESSEES APPEAL (SUPRA) [AT PA RA 5.4.2 PAGE 8] WITH REGARD TO TREATING THE INTEREST INCOME OF RS.1 .19 CRORES ARISING ON TRANSFER OF 700 DDBS A SERIES OF NIRMA LIMITED . ACCORDINGLY, THIS ISSUE ALSO GOES IN FAVOUR OF THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 10. LET US NOW TURN OUR ATTENTION TO THE ADDITIONA L GROUND RAISED BY THE ASSESSEE. 10.1 THE ADDITIONAL GROUND RAISED RELATES TO THE A DDITION OF ACCRUED INTEREST INCOME OF RS.1,13,123/- ON OPTIONA LLY FULLY CONVERTIBLE PREMIUM NOTES [OFCPN] OF NIRMA INDUSTRI ES LIMITED. THIS ISSUE INVOLVED BEING A LEGAL ONE, THE SAME IS, AFTER DUE CONSIDERATION, ADMITTED FOR ADJUDICATION. 10.1.1. THE FACTS RELATING TO THE ISSUE INVOLVED IN THE ADDITIONAL GROUND ARE THAT THE AO OBSERVED THAT THE ASSESSEE F ILED A LETTER DATED 11.8.2004 OFFERING ACCRUED INTEREST ON OFCPN OF NIRMA INDUSTRIES LIMITED STATING THAT THE SAME WAS OFFERE D AS PER THE BOARDS CIRCULAR NO.2/2002/F.NO.149/233/2001-TPL DA TED 15.2.2002 DUE TO ABUNDANT PRECAUTION, THOUGH THE SAME WAS NOT APPLICABLE IN CASE OF OFCPN, BUT WAS RELATED TO DDBS. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 28 10.1.2. THE ASSESSEE HAD PURCHASED 3814 OFCPN OF NI RMA INDUSTRIES LIMITED ON 25.3.2002 AT RS.9,53,50,000/- AND THE INTEREST ACCRUED THEREON AMOUNTING TO RS.1,13,123/- WAS, THE REFORE, OFFERED BY THE ASSESSEE. 10.1.3. THE AO HAD, HOWEVER, REJECTED THE ASSE SSEES STAND THAT THE BOARDS CIRCULAR DATED 15.2.2002 WAS NOT APPLIC ABLE IN THE CASE OF THE ASSESSEE SINCE IT WAS RELATED TO DDB. THE A O HAD, FURTHER, HELD THAT THE NATURE OF OFCPN AND DDBS BEING SIMILA R AND, HENCE, THE BOARD CIRCULAR (SUPRA) WAS APPLICABLE IN THE CA SE OF OFCPN ALSO. ACCORDINGLY, AN ADDITION OF RS.1,13,123/- ON ACCOUN T OF ACCRUED INTEREST INCOME ON OFCPN OF NIRMA INDUSTRIES LIMITE D WAS ADDED. [REFER PARAS: 3 3.1 OF THE ASST. ORDER]. 10.1.4. IT WAS THE CASE OF THE LEARNED A R THAT THE INVESTMENT IN OFCPN OF NIRMA INDUSTRIES LIMITED WAS MADE BY THE A SSESSEE ON 25.3.2002 AND THE INCOME EARNED THEREON WAS DULY OF FERED AS A PRECAUTIONARY MEASURE ON 11.8.2004. IT WAS, FURTHE R, SUBMITTED THAT THE AO MADE THE ADDITION OF RS.1.13 LAKHS ON ACCOUN T OF ACCRUED INTEREST INCOME BASED ON THE BOARDS CIRCULAR (SUPR A), WHICH, ACCORDING TO THE LEARNED AR, HAS NO RELEVANCE AND, HENCE, THE SAME REQUIRES TO BE DELETED. 10.1.5. THE LEARNED DR, RELYING ON THE STAND OF T HE AO, SUBMITTED THAT THE BOARDS CIRCULAR (SUPRA) IS A VA LID CIRCULAR AND, HENCE, THE STAND OF THE AO REQUIRES TO BE UPHELD. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 29 10.1.6. AT THIS JUNCTURE, WE WOULD LIKE TO REC ALL THAT THE EARLIER BENCH OF THIS TRIBUNAL HAD, VIDE ITS ORDER DATED 9. 10.2009 IN THE CASE OF KARSANBHAI KHODIDAS PATEL (HUF) V. ACIT (SUPRA), DECIDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. THE RELE VANT PORTIONS OF ITS FINDINGS ARE REPRODUCED, FOR APPRECIATION OF FACTS, AS UNDER: (ON PAGE 25) 28.THE ASSESSEE IS FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND THIS HAS BEEN RECORDED IN THE FIRST PAGE OF THE ASSESSMENT ORDER ITSELF. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSES SEE FILED A LETTER DATED 11.8.2004 IN WHICH IT OFFERED THE INTEREST ON THE O FCPNS ON ACCRUAL BASIS. IT WAS ALSO STATED BY THE ASSESSEE THAT THE INTERES T WAS BEING OFFERED ON ACCRUAL BASIS DUE TO ABUNDANT PRECAUTION AND THAT I T IS THE ASSESSEES CASED THAT THE CIRCULAR NO.2 OF 2002 ISSUED BY THE CBDT O N 15.2.2002 IS NOT APPLICABLE TO OFCPNS AND WAS CONFINED TO DEEP DISCO UNT BONDS. THE ASSESSEE HAD PURCHASED 7132 OFCPNS ISSUED BY NIRMA INDUSTRIES LIMITED ON 25.3.2002 FOR RS.17.83 CRORES AND THE INTEREST A CCRUED THEREON TILL 31.3.2002 WAS RS.2,11,535/-. THE AO ACCEPTED THE L ETTER TO THE EXTENT THE INCOME WAS OFFERED THEREIN FOR ASSESSMENT BUT MADE IT CLEAR IN THE ASSESSMENT ORDER THAT THE CIRCULAR CITED ABOVE EQUA LLY APPLIES TO OFCPNS SINCE THEY ARE IN NO WAY DIFFERENT FROM DEEP DISCOU NT BONDS. 29. THE ISSUE STANDS COVERED BY THE ORDER OF THE A HMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF KISAN DISCRETIONARY FAMILY TRUST V. ACIT IN ITA NO.1850/AHD/2007 (AY 2003-04) DATED 2.11.2007. IN THIS ORDER, IT HAS BEEN HELD THAT AS PER CIRCULAR NO.2 OF 2002 IT IS APPLIC ABLE ONLY TO DEEP DISCOUNT BONDS PURCHASED AFTER 15.2.2002. THEREFORE, IF IT IS HELD THAT THE OFCPNS ARE SIMILAR IN NATURE TO DEEP DISCOUNT BONDS, THEY HAVING BEEN PURCHASED AFTER 15.2.2002, THE CIRCULAR IS APPLICABLE AND THE INTEREST MUST BE HELD TO HAVE BEEN RIGHTLY OFFERED AND ASSESSED. THE CONTEN TION BEFORE US HOWEVER IS THAT THE ASSESSEE FOLLOWS THE CASH SYSTEM OF ACCOUN TING AND, THEREFORE, THE INTEREST IS ASSESSABLE ONLY IN THE YEAR IN WHICH TH E OFCPNS ARE ENCASHED. WE FIND THAT THE INTEREST HAS BEEN ASSESSED IN THE ASSESSMENT ORDER UNDER THE HEAD INCOME FROM OTHER SOURCES. UNDER SECTION 14 5(1) OF THE ACT, INCOME CHARGEABLE UNDER THIS HEAD SHALL SUBJECT TO THE PRO VISIONS OF SUB-SECTION(2) BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCA NTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. AS ALREADY NOTICED, THE ASSESSEE IS FOLLOWING THE CASH SYSTEM OF ACCOUNTING . THEREFORE, THE INTEREST CANNOT BE ASSESSED ON ACCRUAL BASIS. THE CIRCULAR NO.2 OF 2002 CANNOT OVERRIDE THE PROVISIONS OF SECTION 145(1) AND ON TH E BASIS OF THE CIRCULAR; THE INTEREST CANNOT BE ASSESSED ON ACCRUAL BASIS IN THE CASE OF AN ASSESSEE FOLLOWING THE CASH SYSTEM OF ACCOUNTING. FOR THIS REASON, WE ALL THE ADDITIONAL GROUND AND HOLD THAT THE INTEREST OF RS. 2,11,535/- CANNOT BE ASSESSED IN THE YEAR UNDER APPEAL.[COURTESY: P 62 87 OF PB MARKED B] ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 30 10.1.7. AS THE FACTS AND CIRCUMSTANCES OF THE PR ESENT ISSUE AND THAT OF THE ISSUE WHICH HAS BEEN DECIDED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL (SUPRA) ARE IDENTICAL, WE HOLD THAT T HE INTEREST OF RS.1.13,123/- CANNOT BE ASSESSED IN THE HANDS OF TH E ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE ADDITION MADE BY THE AO IS, ACCORDINGLY, DELETED. 11. IN THE RESULT : THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2002-03 IS PARTLY ALLOWED. 12. IN VIEW OF OUR ABOVE FINDINGS WITH REGARD TO T HE ADDITIONAL GROUND RAISED BY SHRI HIRENBHAI K PATEL [ITA NO.125 2/AHD/2006 AY 2002-03] RELATING TO THE ADDITION OF ACCRUED INTERE ST INCOME ON OFCPNS OF NIRMA LIMITED, THE COMMON ADDITIONAL GROU ND RAISED BY ALL OTHER ASSESSEES IN THEIR APPEALS UNDER CONSIDER ATION IS ALSO ALLOWED. ITA NO.1243/AHD/06 NIRMA CREDIT & CAPITAL LTD A Y 2002-03: ITA NO.1244//AHD/06 NIRMA CHEMICAL WORKS LTD- AY 2002-03: 13. IN THESE APPEALS, THE ABOVE ASSESSEES HAVE RAI SED A COMMON GROUND [OTHER THAN THE COMMON GROUNDS WHICH HAVE BEEN DEALT WITH IN THE CASE OF SHRI HIRENBHAI K PATEL ITA NO.1252/06 (SUPRA)] WHICH READS AS UNDER: (GROUND NO.3 & 6 RESPECTIVELY) THAT THE CIT (A) HA D ERRED IN UPHOLDING THE STAND OF THE AO IN NOT ALLOWING SET-O FF OF BROUGHT FORWARD CAPITAL LOSS AGAINST THE LTCG. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 31 13.1. AT THE OUTSET, WE WOULD LIKE TO POINT OUT TH AT THE BROUGHT FORWARD CAPITAL LOSS OF THE ASSESSMENT YEAR 2001-02 WAS ALLOWED TO BE SET OFF AGAINST THE LTCG VIDE ORDER OF THE AO DA TED 3.2.2005 WHILE GIVING EFFECT TO THE ORDER OF THE CIT (A) DAT ED 10.1.2005. THIS HAS BEEN ACKNOWLEDGED TO BE CONFIRMED BY THE EARLIE R BENCH OF THIS TRIBUNAL VIDE ITS ORDER DATED 30-11-2009 AS STATED BY THE DCIT, CIRCLE-5, AHMEDABAD IN HIS ORDER DATED 15.2.2010 [R EFER: PB OF AR MARKED A]. AS THE ISSUE IS SIMILAR TO THAT OF TH E ISSUE WHICH HAS BEEN CONSIDERED BY THE EARLIER BENCH (SUPRA), THE I SSUE GOES IN FAVOUR OF THE ASSESSEES. IT IS ORDERED ACCORDINGLY . ITA NO.1247/AHD/2006 SMT. RAJALBEN H PATEL A.Y 2002-03: 14. OTHER THAN THE COMMON GROUNDS WHICH HAVE BEEN DEALT BY US IN THE CASE OF SHRI HIRENBHAI K. PATEL ITA NO.1252/AHD/2006 (AY: 2002-03) SUPRA, THE ASSESSEE HAS RAISED YET AN OTHER ADDITIONAL GROUND WHICH READS AS UNDER: IN LAW AND IN THE FACTS OF APPELLANTS CASE, THE L D. AO HAS ERRED IN MAKING ADDITION ON ACCOUNT OF INTEREST INCOME RS.51,50,000 /-. 14.1. AFTER DUE CONSIDERATION OF THE LEARNED A.RS SUBMISSION ON THE ISSUE, THE ADDITIONAL GROUND IS ADMITTED AND TAKEN UP FOR ADJUDICATION. 14.2. THE AO HAD OBSERVED THAT THE ASSESSEE HAD SH OWN STCG OF RS.2,50,000/- FROM THE DDBS OF VIMPSON INVE STMENT PVT. LTD AND SHOWN NIL STCG FROM THE DDBS OF SHREE DEVEL OPERS PVT. LTD. FROM THE DETAILS FURNISHED BY THE ASSESSEE WI TH REGARD TO DDBS ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 32 OF VIMPSON INVESTMENT PVT. LTD, THE AO NOTICED THAT 5 DDBS OF THE SAID PARTY EACH OF RS.50 LAKHS, TOTALING TO RS.2.5 CRORES WERE ORIGINALLY ALLOTTED TO NIRMA INDUSTRIES LIMITED. T HE LETTER OF ALLOTMENT WAS TRANSFERRED TO THE ASSESSEE BY THIS PARTY ON 8. 2.2001 FOR RS.2.7 CRORES. THE DEBENTURE CERTIFICATE WAS ISSUED BY TH E PARTY TO THE ASSESSEE ON 27.7.2001. THESE BONDS WERE AGAIN RE-P URCHASED BY THE AFORESAID PARTY VIMPSON INVESTMENT PVT. LTD ON 20.3.2002 AT RS.2,72,50,000/-. TAX WAS DEDUCTED @ 10.20% AMOUNTI NG TO RS.2,29,500/- AS ON 20.3.2002 FOR THE INTEREST AMOU NT OF RS.22,50,000/-. SINCE THE DIFFERENCE OF SALE CONSI DERATION AND PURCHASE COST WAS RS.2.5 LAKHS, THE ASSESSEE OFFERE D THE SAME AS STCG AND CLAIMED TO BE ELIGIBLE FOR CREDIT OF TDS O F RS.2,29,500/- ALREADY DEDUCTED. 14.2.1 IN RESPECT TO DDBS OF SHREE DEVELOPERS PVT. LTD., THE AO OBSERVED THAT 7 DDBS OF THE SAID PARTY EACH OF RS.5 0 LAKHS, TOTALING TO RS.3.5 CRORES WERE ORIGINALLY ALLOTTED TO NIRMA SPECIFIC FAMILY TRUST AND THE LETTER OF ALLOTMENT WAS TRANSFERRED TO THE ASSESSEE ON 18.1.2001 FOR TOTAL CONSIDERATION OF RS.3,81,50,000 /-. THE DEBENTURE CERTIFICATE WAS ISSUED BY SHREE DEVELOPERS PVT. LTD TO THE ASSESSEE ON 27.7.2001. THESE WERE RE-PURCHASED BY SHREE DEV ELOPERS PVT. LTD ON 20.3.2002 AT RS.3,81,50,000/- @ RS.54,50,00 0/- EACH DDB BY DEDUCTING TDS OF RS.3,21,300/- ON THE TOTAL INTE REST AMOUNT OF RS.31,50,000/-. SINCE THE DIFFERENCE OF SALE CONSI DERATION AND PURCHASE COST IS NIL, THE ASSESSEE CLAIMED THE SAME AS STCG AND CLAIMED CREDIT OF TDS OF RS.3,21,300/- ALREADY DEDU CTED. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 33 14.2.2. FROM THE ABOVE TRANSACTIONS, THE LEARNED AO OBSERVED THAT THE DDBS WERE RE-PURCHASED BY THE ASSESSEE FRO M THE ORIGINAL ISSUER. THEREFORE, AS PER CBDT CIRCULAR DATED 15.2 .2002 AND LETTER DATED 12.5.1996, THE INCOME ON THESE BONDS WAS TO B E TREATED AS INTEREST INCOME AND THE PART OF THE INCOME WHICH HA D NOT BEEN OFFERED BY THE ASSESSEE SHALL HAVE TO BE CONSIDERED AS INTEREST INCOME ON SUBSTANTIVE BASIS IN THE HANDS OF THE SEL LER OF THESE BONDS. ACCORDINGLY, THE AO MADE THE ADDITION OF RS.51,50,0 00/- [RS.31,50,000 + 22,50,000 = RS.54,00,000 2,50,000 (OFFERED BY THE ASSESSEE)] AS INTEREST INCOME IN THE HANDS OF THE A SSESSEE ON A PROTECTIVE BASIS WITH A RIDER (ON PAGE 27) 7.2HOWEVER, IF AT THE APPELLATE STAGE IT IS UPHELD THE INCOME PERTAINS TO THE ASSESSEE, THEN TDS CREDIT MAY BE ALLOWED . 14.2.3. THE LEARNED AR ARGUED STATING THAT SINCE TH E INTEREST AMOUNT OF RS.51,50,000/- IS TAXED IN THE HANDS OF T HE ASSESSEE UNDER THE HEAD OF INCOME FROM INTEREST, THE CORRESPONDING TAX CREDIT OF TDS MAY BE GRANTED. THE ARGUMENT OF THE LEARNED AR HAS FORCE. AT THE OUTSET, WE WOULD LIKE TO RECALL THE RULING OF THE H ONBLE HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF CIT V. SMT. SONAL BANSAL REPORTED IN (2008) 167 TAXMAN 311 (P & H) WHEREIN, ON A SIMI LAR ISSUE TO THAT THE PRESENT ISSUE UNDER CONSIDERATION, THE HONBLE COURT HAS HELD AS UNDER: A PERUSAL OF THE PROVISIONS OF SECTION 199 SHOWS T HAT ANY DEDUCTION MADE OF TAX AT SOURCE AND PAID TO THE CENTRAL GOVERNMENT IS REQUIRED TO BE TREATED AS PAYMENT OF TAX ON BEHALF OF THE PERSON FROM WHOSE I NCOME THE DEDUCTION WAS MADE. HOWEVER, WITH EFFECT FROM 1.4.1997, AMEN DMENTS WERE INTRODUCED BY FINANCE ACT, 1996 WHICH RESULTED IN A DDITION OF WORDS DEPOSITOR OR OWNER OF PROPERTY OR OWNER OF SEC URITY OR UNIT HOLDER AS ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 34 THE CASE MAY BE. THEREFORE, IT IS CLEAR THAT ANY D EDUCTION MADE OF TAX AT SOURCE AND PAID TO THE CENTRAL GOVERNMENT IS REQUIR ED TO BE TREATED AS PAYMENT OF TAX ON BEHALF OF OWNER OF SECURITY OR UNIT HOLDER. IN THE INSTANT CASE, IT WAS OBVIOUSLY THE ASSESSEE-SECONDA RY PURCHASER WHO WAS OWNER OF SECURITY AND, THEREFORE, TAX DEDUCTED AT S OURCE HAD TO BE REGARDED AS PAYMENT MADE ON HER BEHALF. MOREOVER, CERTIFICA TE UNDER SECTION 203 HAD ALSO BEEN ISSUED TO ASSESSEE. FURTHER, THE TRIBUNAL HAD RIGHTLY INTERPRETED THE W ORDS OWNER OF THE PROPERTY OR OF THE UNIT-HOLDER TO MEAN THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT. THE AFOREMENTIONED SITUATION HAD BEEN MAD E FURTHER CLEAR BY CBDT CIRCULAR NO.2 OF 2002 BY ISSUING GUIDELINES. ONE OF THE GUIDELINES IN THE CBDT CIRCULAR IS THAT THE TDS IS TO BE MADE AT THE TIME OF MATURITY OF THE BOND AND IT IS TO BE ISSUED TO THE HOLDER OF TH E BOND AT THE TIME OF MATURITY. IT WAS UNDISPUTED FACT THAT THE TDS CERT IFICATE WAS ISSUED IN THE NAME OF THE ASSESSEE BEING HOLDER OR OWNER OF THE B OND AT THE TIME OF MATURITY. THEREFORE, THE CASE OF THE ASSESSEE WAS COVERED BY THE EXPRESSIONS OWNER OF THE PROPERTY OR THE UNIT HOLDER WHICH WERE ADDED IN SECTION 199 WITH EFFECT FROM 1.4.1997. THEREFORE, THE VIEWS TA KEN BY THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL WERE THE CORRECT VIEWS. 14.2.4. IN CONFORMITY WITH THE RULING OF THE HONBL E COURT (SUPRA), THIS ISSUE WITH RESPECT TO TDS IS DECIDED IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY, CREDIT FOR TDS SHALL BE GRANTED TO THE ASSESSEE, IF THE TDS CERTIFICATES STAND IN THE NAME OF THE ASSES SEE AND THE TDS AMOUNT IS DEPOSITED IN THE GOVERNMENT TREASURY. 15. ITA NO.1250/AHD/2006BANIHAL HOLDING PVT.LTD. A. Y 02-03: OTHER THAN THE COMMON GROUNDS WHICH HAVE BEEN DEALT BY US IN THE CASE OF SHRI HIRENBHAI K. PATEL ITA NO. 1252/AHD/2006 (AY: 2002-03) SUPRA, THE ASSESSEE HAS RAISED THE FO LLOWING GROUNDS: (GROUND NO.4 ) NOT ALLOWING SALARY OF RS.2,91,911/- PAID TO THE COMPANY SECRETARY & (GROUND NO.5 ) - DISALLOWANCE OF NET INTEREST EXPENSES OF RS.118415/- ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 35 15.1. ON A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, THE AO NOTICED THAT THE ASSESSEE HAD SHOW N THE FOLLOWING INCOME: DIVIDEND INCOME RS.73,30,838 INTEREST INCOME RS. 32,339 PROFIT ON SALE OF SECURITY RS.56,34,305 AGRICULTURAL INCOME RS. 2,20,209 MISC. INCOME RS. 4 INCREASE/DECREASE IN STOCK RS. (15,428) AGAINST THE ABOVE INCOME, THE ASSESSEE HAD CLAIMED THE FOLLOWING EXPENSES: AGRICULTURAL EXPENSES RS. 5,54,935 INTEREST EXPENSES RS. 1,50,754 PAYMENT TO AND PROVISION RS. 3 ,88,867 OTHER EXPENSES RS. 72,534 15.1.1. THE AO WAS, THEREFORE, OF THE VIEW THAT THE ASSESSEE HAD INCURRED THE INTEREST EXPENSES AND OTHER EXPENSES I N THE INVESTMENT ACTIVITY ON WHICH DIVIDEND INCOME WAS EARNED WHICH WAS EXEMPT AND ON CAPITAL GAINS, NO SUCH EXPENSES WERE ALLOWABLE A ND EXPENSE ON AGRICULTURE WAS NOT ALLOWABLE SINCE AGRICULTURAL IN COME WAS ALSO EXEMPT. ACCORDINGLY, THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE NET INTEREST EXPENSES OF RS.1,18,415/- [RS.1,50 ,754 32339 SHOWN AS INTEREST INCOME] AND THE PAYMENTS AND PROV ISIONS FOR EMPLOYEES OF RS.2,91,911 [RS.3,88,867 96,956 (DIS ALLOWED IN THE STATEMENT OF INCOME)] SHOULD NOT BE DISALLOWED. 15.1.2. THE AO HAD REJECTED THE ASSESSEES CO NTENTION AS UNTENABLE SINCE AGAINST STCG, NO INTEREST EXPENSE C AN BE CLAIMED ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 36 AS PER THE PROVISIONS OF THE ACT. THE AO HAD ALSO NOT ACCEDED TO THE ASSESSEES CONTENTION THAT THE OTHER EXPENSES WERE REQUIRED TO BE INCURRED FOR THE VERY EXISTENCE OF THE ASSESSEE COM PANY AND, ACCORDINGLY, DISALLOWED THE SAME AS THEY WERE IN TH E NATURE OF AUDIT FEES, CONSULTANCY FEES AND OTHER RELATED ACCOUNTING EXPENSES. ACCORDING TO THE AO, SINCE THE ASSESSEE HAD NOT EAR NED ANY TAXABLE INCOME OTHER THAN CAPITAL GAINS, THE EXPENSES INCUR RED IN RESPECT OF PROVISIONS FOR EMPLOYEES SALARY, LEAVE ENCASHMENT E TC., AMOUNTING TO RS.2,91,911/-, WERE DISALLOWED AS PER THE PROVIS IONS OF S.14A OF THE ACT. 15.2. ON APPEAL, THE CIT (A) ALSO REJECT ED THE ASSESSEES CLAIM FOR THE FOLLOWING REASONS: (ON PAGE 6) I HAVE PERUSED THE APPELLANTS ABOVE S UBMISSIONS AND DO NOT FIND ANY FORCE IN THEM FOR THE FOLLOWING REASONS: (I) THE AO HAS RECORDED A FINDING IN THE ASSESSMENT ORD ER IN PARA 7 THAT THE DIVIDEND INCOME IS EXEMPT UNDER SECTION 10(33) OF T HE I.T. ACT. AGAINST SUCH AN EXEMPT INCOME, SECTION 14A DOES NOT ALLOW A NY DEDUCTION OF EXPENSES; (II) THE AO HAS RECORDED A FINDING THE ASSESSMENT ORDER THAT THE INTEREST EXPENSES AND OTHER EXPENSES HAVE BEEN INCURRED BY T HE APPELLANT AGAINST EXEMPT INCOME IN THE NATURE OF DIVIDENDS INCOME AND AGRICULTURAL INCOME; & (III) AGAINST SHORT TERM CAPITAL GAINS ALSO, SUCH EXPENDI TURE IS NOT ADMISSIBLE. 15.3. DURING THE COURSE OF HEARING, THE LEARNED A R HAD, BY EXTENSIVELY QUOTING THE PROVISIONS OF S. 14A OF THE ACT, CONTENDED THAT THE SECTION SPEAKS ABOUT EXPENDITURE IN RELATIONS T O INCOME AND NOT STAND ALONE EXPENDITURE; AND THAT THE SECTION VERY CLEARLY AND CATEGORICALLY SPEAKS ABOUT THE ALLOW-ABILITY OF EXP ENDITURE WHICH WAS ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 37 INCURRED ONLY AND ONLY TO THE EXTENT IN RELATION TO THE INCOME. WITH REGARD TO THE INTEREST EXPENSES OF RS.1,50,754/-, I T WAS EXPLAINED THAT THE SAME WAS INCURRED MAINLY ON BORROWING FOR REPAY MENT OF LOAN WHICH WAS AVAILED FOR INVESTMENT IN DDBS OF NIRMA L IMITED SERIES A. THUS, IT WAS ARGUED, THE INTEREST EXPENDITURE W AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INC OME WHICH WAS TAXABLE AND, HENCE, RIGHTLY CLAIMED. THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.32,339/- AND ALSO OFFERED AN INCOME OF RS.36,897/- IN RESPECT OF OFCPNS OF NIRMA INDUSTRIE S LIMITED. WITH REGARD TO THE SALARY OF THE COMPANY SECRETARY, IT W AS THE CONTENTION OF THE LEARNED AR THAT THE EXPENDITURE INCURRED WAS OF A NATURE WHICH WAS IRRESPECTIVE OF THE INCOME EARNED AND THAT THE SAME WAS REQUIRED TO BE INCURRED FOR THE BASIC PURPOSE OF VE RY EXISTENCE OF THE ASSESSEE COMPANY. IT WAS THE CONTENDED BY THE LEAR NED AR THAT THE EXPENDITURE INCURRED WAS STAND ALONE EXPENDITURE AN D, THUS, THERE WAS NO RELATION WHATSOEVER OF THE EXPENDITURE INCUR RED AND THE INCOME EARNED AND, THEREFORE, IT WAS URGED, THE AO HAD WRONGLY DISALLOWED THE EXPENDITURE. TO SUBSTANTIATE HIS CL AIM, THE LEARNED AR TOOK REFUGE IN THE RULINGS OF JUDICIARY, NAMELY: (I) CIT V. RAMPUR TIMBER & TURNERY CO. LTD (1981) 6 T AXMAN 241 (ALL); (II) CIT V. NEW SAVAN SUGAR & GUR REFINING CO. LTD (1991) 55 TAXMAN 189 (CAL) (III)CIT V. GANGA PROPERTIES LTD - (1992 ) 62 TAXMA N 285 (CAL); (IV) NAKODAR BUS SERVICE (P) LTD V. CIT (1989) 45 T AXMAN 290 (P & H); & (V) CHINAI & CO. (P) LTD V. CIT (1994) 206 ITR 616 (BOM). ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 38 15.4. THE LEARNED D.R, ON THE OTHER HAND, SUPPORTE D THE STAND OF THE AUTHORITIES BELOW AND PLEADED THAT THE FINDI NGS OF THE CIT(A) REQUIRE TO BE SUSTAINED. 15.5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSIONS AND ALSO PERUSED THE RELEVANT CASE RECORDS. 15.5.1. WE FIND THERE IS FORCE IN THE ARGUMEN T OF THE LEARNED AR THAT THE PROVISIONS OF S.14A OF THE ACT ARE CLEAR T HAT THE ALLOW-ABILITY OF EXPENSES WHICH HAVE BEEN INCURRED ONLY TO THE EX TENT IN RELATION TO THE INCOME. 15.6. WE SHALL NOW ANALYZE THE JUDICIAL PRO NOUNCEMENTS, AS RELIED UPON BY THE LEARNED AR, ON A SIMILAR ISSUE. (I) IN THE CASE OF CIT V. GANGA PROPERTIES LTD (SU PRA), THE HONBE CALCUTTA HIGH COURT HAS RULED THAT A LIMITED COMPANY EVEN IF IT DOES NOT CARRY ON BUSINESS, EVEN IF IT DERIVES INCOME FROM O THER SOURCES, HAS TO MAINTAIN ITS ESTABLISHMENT FOR COMPLYING WITH STATUTORY OBLIGATI ON SO LONG AS IT IS IN OPERATION AND ITS NAME IS NOT STRUCK OFF THE REGISTER OR UNLESS T HE COMPANY IS DISSOLVED. SO LONG AS THE COMPANY IS IN OPERATION, IT HAS TO MAINTAIN THE STATUS AS A COMPANY AND IT HAS TO DISCHARGE CERTAIN LEGAL OBLIGATION AND FOR THAT PUR POSE IT IS NECESSARY TO APPOINT CLERICAL STAFF AND SECRETARY OR ACCOUNTANT AND INCU R INCIDENTAL EXPENSES. IN THIS BACKGROUND, THE CONCLUSION OF THE TRIBUNAL THAT THE EXPENSES INCURRED WERE WHOLLY AND EXCLUSIVELY FOR THE ACTIVITIES TO EARN INCOME W AS A REASONABLE CONCLUSION. FURTHER, THE HONBLE COURT, FOLLOWING ITS OWN DECIS ION IN CIT V. SAVAN SUGAR & GUR REFINING CO., LTD (SUPRA) AND THE RULIN G OF THE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. RAMPUR TIMBER & TU RNERY CO. LTD (SUPRA), HAD DECIDED THAT A LIMITED COMPANY, EVEN I F IT DOES NOT CARRY ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 39 ON BUSINESS AND MERELY DERIVES INCOME FROM OTHER SO URCES HAS TO MAINTAIN ITS ESTABLISHMENT FOR COMPLYING WITH OTHER STATUTORY REQUIREMENTS SO LONG AS IT IS IN OPERATION AND, THE REFORE, THE EXPENSES ON ESTABLISHMENT ETC., INCURRED ARE WHOLLY AND EXCLUSIVELY FOR THE ACTIVITIES TO EARN INCOME AND, HENCE, ARE A LLOWABLE DEDUCTION IN COMPUTING INCOME FROM OTHER SOURCES. (II) THE HONBLE HIGH COURT OF PUNJAB & HARYANA HAD , IN THE CASE OF NAKODAR BUS SERVICE (P) LTD V. CIT (SUPRA) IN CONFO RMITY WITH THE ALLAHABAD HIGH COURTS RULING IN THE CASE OF CIT V. RAMPUR TIMBER & TURNERY CO. LTD (SUPRA) HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 57(III) IN RESPECT OF THE S ALARY PAID TO ITS EMPLOYEES. (III) THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CHINAI & CO. (P) LTD V. CIT (SUPRA) HAD RULED THUS: AS REGARDS UNDER SECTION 57 AGAINST THE ASSESSEES INCOME FROM INTEREST AND DIVIDENDS, TAXED AS INCOME FROM OTHER SOURCES, THIS SECTION CLEARLY PROVIDES FOR DEDUCTION OF EXPENDITURE OTHER THAN CAPITAL EXP ENDITURE. THEREFORE, ANY OTHER EXPENDITURE WHICH MAY HAVE BEE N INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING DIVIDENDS IS DEDUCTIBLE FROM THE INCOME SO EARNED FOR THE PURPOSE OF COMPUTATION OF INCOME-TAX. THE ASSESSEE COMPANY HAD CLAIMED EXPENDITURE FOR THE PU RPOSE OF MAINTAINING ITS ESTABLISHMENT IN ORDER THAT IT MAY REALIZE INCO ME FROM ITS VARIOUS ASSETS AND INVESTMENTS INCLUDING DIVIDENDS FROM SHARES. T HE AAC AND TRIBUNAL HAD ALLOWED EXPENDITURE AT CERTAIN PERCENTAGE OF SU CH INCOME UNDER THESE HEADS. THE SAME BASIS CAN BE APPLIED TO INCOME IN THE FORM OF DIVIDENDS ALSO. THEREFORE, THE ASSESSEE WOULD BE ENTITLED TO ESTABLISHMENT EXPENSES IN THE FORM OF SALARY ETC., NECESSARY FOR IT TO MAINTA IN ITS STATUS AS A COMPANY AND TO EARN INCOME IN THE FORM OF INTEREST AND DIVI DENDS.. 15.7. TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTAN CES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PARAGRA PHS AND ALSO IN ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 40 CONFORMITY WITH THE RULINGS OF JUDICIARY (SUPRA), W E ARE OF THE CONSIDERED VIEW THAT THE CIT (A) WAS NOT JUSTIFIED IN HIS FINDINGS. IN ESSENCE, THE ISSUES ARE DECIDED IN FAVOUR OF THE AS SESSEE. IT IS ORDERED ACCORDINGLY. 16. ITA NO.1254/AHD/2006 JETHIBEN K PATEL DISCRETIONA RY TRUST - A.Y 2002-03: OTHER THAN THE COMMON GROUNDS WHICH HA VE BEEN DEALT BY US IN THE CASE OF SHRI HIRENBHAI K. PATEL ITA NO. 1252/AHD/2006 (AY: 2002-03) SUPRA, THE ASSESSEE HAS RAISED THE FO LLOWING GROUND, NAMELY: (GROUND NO.3 ) ADOPTING THE STATUS OF THE ASSESSEE AS TRUST AS AGAINST INDIVIDUAL. (GROUND NO.12 ) - LEARNED CIT(A) HAS ERRED IN DISALLOWING INTEREST EXPENSES OF RS.20.72 LACS AND SERVICE CHAR GES OF RS.3.15 LACS U/S 14A OF THE ACT. 16.1. (GROUND NO.3 ) ADOPTING THE STATUS OF THE ASSESSEE AS TRUST AS AGAINST INDIVIDUAL. WHILE CONCLUDING THE ASSESSMENT, THE AO HAD ADOPTE D THE STATUS OF THE ASSESSEE AS TRUST AS AGAINST THE CL AIM OF THE ASSESSEE AS AN INDIVIDUAL WITHOUT RECORDING THE REASONS FO R SUCH ADOPTION. 16.2. WHEN THE ISSUE HAD TRAVELED TO THE CIT (A) F OR RELIEF, THE CIT (A) HAD OBSERVED AS UNDER: ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 41 [ON PAGE 5] ALL THE GROUNDS OF APPEAL HAVE BEEN DE ALT WITH IN THE APPELLATE ORDER NO. CIT (A)-I/CC-1(1)/46/05-06 DATED 7/3/06 F OR AY 2002-03 IN THE CASE OF HARSIDDH SPECIFIC FAMILY TRUST AND SHRI KAR SANBHAI K PATEL (HUF) FOR AY 2002-03 IN APPEAL NO.CIT(A)-I/CC 1(1)/35/05- 06 DATED 2/3/06. HENCE, FOLLOWING THE ABOVE APPELLATE ORDERS, GROUND OF APPEAL NO.1, 2 TO 11 ARE DISMISSED AND GROUND OF APPEAL NO.3 IS PARTLY A LLOWED. 16.3. BEFORE US, THE LEARNED AR REITERATED MORE OR LESS WHAT WAS PRESENTED BEFORE THE AUTHORITIES BELOW. IN FUR THERANCE, THE LEARNED AR DREW THE ATTENTION OF THIS BENCH TO THE RULINGS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF ( I) CIT V. DEEPAK FAMILY TRUST NO.1 AND OTHERS REPORTED IN 211 ITR 57 5 (GUJ) AND (II) IN DCIT V. HARJIVANDAS JUTHABHAI ZAVERI AND ANOTHER RE PORTED IN 258 ITR 785 (GUJ) TO DRIVE HOME HIS POINT THAT THE STAT US OF THE ASSESSEE IS TO BE ORDERED TO TREAT AS INDIVIDUAL AS AGAINS T TRUST. 16.3.1. ON THE OTHER HAND, THE LEARNED D R SU PPORTED THE FINDINGS OF THE AUTHORITIES BELOW. 16.4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIALS ON RECORD. 16.4.1. AT THE OUTSET, WE WOULD LIKE TO POINT OUT THAT THE LEARNED CIT (A) IN HIS FINDINGS RECORDED THAT GROUND OF APPEAL NO.3 [ 3.THE LEARNED ASSESSING OFFICER HAS ERRED IN CHANGING STA TUS OF THE ASSESSEE FROM INDIVIDUAL TO TRUST WITHOUT GIVIN G ANY REASON FOR MAKING SUCH CHANGE IN STATUS] IS PARTLY ALLOWED . WE FIND THE FINDING OF THE CIT (A) IS INTRIGUING AND CONFUSING, IN THE SENSE, HE HAD NOT SPELT OUT REASONS FOR TREATING THE GROUND NO.3 OF THE ASSESSEE AS PARTLY ALLOWED. ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 42 16.4.2. BE IT AS IT MAY, THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT V. DEEPAK FAMILY TRUST NO.1 AND OTHERS (SUPRA) HAS RULED THUS: THE QUESTION WHICH ARISES FOR CONSIDERATION IN THE SE REFERENCES IS WHETHER IN A CASE WHERE THE ASSESSEE IS A DISCRETIONARY TRU ST, IT IS ENTITLED TO DEDUCTIONS UNDER SECTION 80L OF THE ACT. IN ALL THE CASES, THE INCOME-TAX OFFICER REJECTED THE CLAIM MADE UNDER SECTION 80L O N THE GROUND THAT THE SAID SECTION WAS AVAILABLE ONLY TO INDIVIDUALS AND/ OR HINDU UNDIVIDED FAMILIES AS THEY ARE THE ONLY ASSESSEES CONTEMPLATE D BY THAT SECTION FOR THE PURPOSE OF THE BENEFIT CONFERRED BY IT. THE APPELLA TE ASSISTANT COMMISSIONER HELD THAT THE TRUST SHOULD BE TREATED AS AN INDIVID UAL AND, THUS, IT WOULD BE ENTITLED TO THE RELIEF UNDER SECTION 80L. THE TRIBU NAL HELD THAT SECTION 161 AND NOT SECTION 164 IS THE BASIS FOR ASSESSMENT OF THE REPRESENTATIVE ASSESSEE AND AS THE TRUSTEE IS ONLY VICARIOUSLY LIABLE AS A REPRESENTATIVE ASSESSEE AND AS THE TAX HAS TO BE LEVIED UPON AND RECOVERED FROM HIM IN THE LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON AND RECOVERABLE FROM THE PERSON REPRESENTED BY HIM, IN THE ASSESSMENT OF THE REPRESENTATIVE ASSESSEE, EXEMPTIONS, DEDUCTIONS AND BENEFITS HAVE TO BE GIVE N AS THE BENEFICIARY WOULD HAVE BEEN ENTITLED TO IN CASE OF DIRECT ASSES SMENT. THE TRIBUNAL HELD THAT THE TRUSTEES OF A TRUST TAKE COLOUR OF THEIR S TATUS FROM THAT OF THE BENEFICIARY AND IT CANNOT BE DIFFERENT FROM THE PER SONS THEY REPRESENT. THE TRIBUNAL, RELYING UPON THE OBSERVATIONS MADE BY THE SUPREME COURT IN MATTERS ARISING UNDER THE WEALTH-TAX ACT, 1957, HEL D THAT THE STATUS OF THE TRUSTEES OF A DISCRETIONARY TRUST IS NECESSARILY TH AT OF AN INDIVIDUAL AND, THEREFORE, THAT WOULD ALSO BE THE STATUS OF THE TRU STEES FOR THE PURPOSE OF ASSESSMENT UNDER SECTIONS 161 AND 162. TAKING THIS VIEW, IT CONFIRMED THE ORDER PASSED BY THE APPELLATE ASSISTANT COMMISSIONE R AND DISMISSED THE APPEAL. 16.4.3. IN CONFORMITY WITH THE RULING OF TH E HONBLE COURT (SUPRA) AND ALSO NEITHER THE AO NOR THE FIRST APPELLATE AUT HORITY FOR THAT MATTER HAVE PRECISELY SPELT THE REASONS FOR ADOPTING THE A SSESSEES STATUS FROM INDIVIDUAL TO TRUST, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 17. GROUND NO. 12 LEARNED CIT(A) HAS ERRED IN DISALLO WING INTEREST EXPENSES OF RS.20.72 LAKHS & SERVICE CHARG ES OF RS.3.15 LAKHS U/S. 14A OF THE ACT: ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 43 THE AO HAS OBSERVED IN THE ASSES SMENT ORDER AS UNDER: 10. WITHOUT PREJUDICE TO THE OBSERVATIONS MADE ABO VE, THE FOLLOWING OBSERVATIONS ARE ALSO MADE IN THIS CASE. IN THIS CASE FROM THE STATEMENT OF INCOME IT HAS BE EN FOUND THAT THE ASSESSEE HAS CLAIMED THE INTEREST EXP AND THE SERVICE CHARGE S AGAINST THE LTCG. BUT THE SAME CANNOT BE CLAIMED SINCE THESE CLAIMS ARE N OT AVAILABLE AGAINST THE CAPITAL GAIN AS PER THE ACT. AND FROM THE CAREFUL ANALYSIS OF THE BALANCE SHEET AND THE P & L A/C, IT IS CLEAR THAT THE ASSES SEE HAS INVESTED THE FUNDS ON THE SECURITIES. IN THE ASSESSMENT ORDER, THE INCOM E FROM THE OTHER SOURCES ARISING FROM THESE SECURITIES HAVE BEEN ADDED IN TH E HANDS OF THE ASSESSEE THEREFORE THESE CLAIMS HAVE NOT BEEN DISALLOWED SIN CE AGAINST SUCH INCOME THESE EXP CAN BE CLAIMED. HOWEVER, IF ANY VIEW IS TAKEN OTHERWISE THAN THE ADDITIONS MADE AS INTEREST INCOME IN THE HEAD INCOM E FROM OTHER SOURCES, THEN THIS EXP CANNOT BE ALLOWED TO THE ASSESSEE. T HE REASON OF THIS IS THAT IN THAT CASE, IT WILL BE THE FINDING OF THE UNDERSIGNE D THAT THE ASSESSEE HAS INVESTED ITS INTEREST BEARING FUNDS IN EARNING SUCH INCOME WHICH IS EXEMPT FROM THE TAX, BECAUSE THE SAME IS IN THE FORM OF DI VIDENDS; OR THE INCOME FROM THESE FUNDS IS CAPITAL GAIN AGAINST WHICH SUCH CLAIMS ARE NOT AVAILABLE TO THE ASSESSEE, THEN SUCH EXP CANNOT BE ALLOWED IN THE LIGHT OF SEC.14A OF I.T. ACT. TOTAL SUCH INTEREST EXP ARE RS.20,72,915/ - AND THE SERVICE CHARGES ARE RS.3,15,000/- 17.1. AS COULD BE SEEN FROM THE FINDINGS OF T HE CIT (A), THE ISSUE HAS NOT BEEN DEALT WITH PROPERLY, INSTEAD, THE GROU ND RAISED BY THE ASSESSEE WAS DISMISSED WITH AN OBSERVATION THAT ALL THE GROUNDS OF APPEAL HAVE BEEN DEALT WITH IN THE APPELLATE ORDERS IN THE CASES OF HARSIDDH SPECIFIC FAMILY TRUST AND SHRI KARSANBHAI K PATEL (HUF). 17.2. AT THIS POINT OF TIME, WE WOULD LIKE TO PO INT OUT THAT THE ASSESSEE IN ITS COMMUNICATION DATED 27.9.2004 ADDRE SSED TO THE AO HAD STATED UNDER THE CAPTION INTEREST EXPENSE THA T THE TRUST HAD PAID INTEREST OF RS.20,72,915/- TO NIRMA SPECIFIC FAMILY TRUST FOR THE NET BORROWINGS MADE DURING THE YEAR WHICH HAS BEEN UTIL IZED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME. THE ABOVE REFERRED INTEREST EXPENSE IS THUS INCURRED FOR THE PURPOSE O F EARNING INCOME ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 44 WHICH IS TAXABLE AND, THEREFORE, THERE IS NO QUESTI ON FOR APPLICABILITY OF S. 14A IN OUR CASE. WITH REGARDS TO SERVICE CHARGES OF RS.3,15,000/- WAS CONCERNED, THE ASSESSEE IN ITS LETTER DATED 15. 9.2004 DREW THE ATTENTION OF THE AO TO THE EFFECT THAT THE SAME WAS PAID TO NIRMA MANAGEMENT SERVICES PRIVATE LIMITED TOWARDS ACCOUNT ING, INVESTMENT AND OTHER RELATED MATTERS. HOWEVER, AS COULD BE SEEN FROM THE ASSESSMENT ORDER, IT APPEARS THAT THE AO H AD NOT TAKEN COGNIZANCE OF THE ASSESSEES CONTENTIONS WHILE DECI DING THE ISSUE. 17.3. WHILE ADJUDICATING A SIMILAR ISSUE IN THE CA SE OF ITA NO.1250/AHD/2006 BANIHAL HOLDINGS PVT.LTD. A.Y 2 002-03 (SUPRA), WE HAVE, IN CONFORMITY WITH THE JUDICIAL VIEWS REFE RRED THEREIN, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. AS THE PRESENT ISSUE IS SIMILAR TO THAT OF THE ISSUE REFERRED TO ABOVE, THE FINDINGS RECORDED THEREIN HOLD GOOD FOR THE PRESENT ISSUE UNDER CONSI DERATION. IN ESSENCE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASS ESSEE. IT IS ORDERED ACCORDINGLY. 18. IN THE RESULT : (I) THE APPEAL OF THE ASSESSEE IN ITA NO.1252/A/200 6 FOR THE AY 2002-03 IS PARTLY ALLOWED; (II) THE APPEAL OF THE ASSESSEE IN ITA NO.1243/A/20 06 FOR THE AY 2002-03 IS PARTLY ALLOWED; (III) THE APPEAL OF THE ASSESSEE IN ITA NO.1244/A/2 006 FOR THE AY 2002-03 IS PARTLY ALLOWED; (IV) THE APPEAL OF THE ASSESSEE IN ITA NO.1247/A/20 06 FOR THE AY 2002-03 IS PARTLY ALLOWED; ITA NO.1252, 1243, 1244,1247,1250,1253 AND 1254 (AY : 2002-03) SHRI HIRENBHAI K. PATEL AND 6 OTHERS VS ACIT, CENT. CIR-1 (1), AHMEDABAD 45 (V) THE APPEAL OF THE ASSESSEE IN ITA NO.1250/A/200 6 FOR THE AY 2002-03 IS PARTLY ALLOWED; (VI) THE APPEAL OF THE ASSESSEE IN ITA NO.1253/A/20 06 FOR THE AY 2002-03 IS PARTLY ALLOWED; (VII) THE APPEAL OF THE ASSESSEE IN ITA NO.1254/A/2 006 FOR THE AY 2002-03 IS PARTLY ALLOWED; ORDER PRONOUNCED IN THE OPEN COURT ON 15-02-2013. SD/- SD/- (G. C. GUPTA) VICE PRESIDENT (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA LAKSHMIKANTA DEKA / DEKA / DEKA / DEKA / COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION- DIRECT ON COMPUTER 05-12-12/1 2-12-12 /18-12-12/06- 02-13/12-02-13 2 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 12-02-13 3 DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./ P.S.: 4 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S.: 6 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER 9 DATE OF DESPATCH OF THE ORDER: