ITA Nos. 845 to 852/LKW/2014

Shri Sunil Kumar Yadav And Shri A. K. Garodia,JJ.

For the Petitioner : Shri B. P. Yadav, Cost Accountant
For the Respondent : Shri Vivek Mishra, CIT. DR

ORDER

All these eight appeals are filed by the Revenue and are directed against a combined order of Learned CIT(A)- III, Lucknow dated 26/08/2014 for assessment year 2006-07 to 2013-2014.

2. In all these appeals, the grievance of the revenue is about deletion of demands raised by the A.O. u/s 201 (1) & 201 (1A) and except difference in amounts, the grounds are identical. Hence, the grounds are reproduced from ITA No. 845/LKW/2014 being the appeal for A.Y. 2006 - 07. The grounds are as under:-

“1. That the impugned order of the Ld. CIT (A) is invalid, illegal and void as the Ld. CIT (A) has not given any statutory notice u/s 250 (1) of the IT. Act to provide opportunity of hearing to the Assessing Officer and the appellate order is liable to be quashed solely on this ground itself.

2. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case by holding that the entire impugned demand inter - alia of relevant F.Y. 2005-06 is barred by limitation as per the provisions of section 201(3) of the I.T. Act.

3. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in allowing relief to the appellant in respect of interest of Rs. 24,27,27,009/- (after AO's order u/s 154 of the IT Act dated 26.05.2014) charged u/s 201 (1A) of the IT Act, inter - alia for the relevant F.Y. which does not get time barred under section 201 (3) of the I.T. Act.

4. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in holding that limitation u/s 201 (3) of the Act is applicable to both the situation i.e. in a case where whole of tax has been deducted or any part of tax has been deducted.

5. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in accepting assessee's proposition that if the recovery of tax is time barred u/s 201 (1) then interest will also be time barred u/s 201 (1A).

6. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case has erred in holding that no order u/s 201 (1) could be made after 31.03.2013 in respect of F.Y. 05-06 to 09-10 and that in respect of F.Y. 10-11, an order u/s 201 (1) could be made only in respect of last quarter for which statement were filed in F.Y. 11-12.

7. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in deleting the demand of Rs. 49,55,67,644/- (after AO's order u/s 154 of the IT Act, dated 26.05.2014) raised by the order u/s 201 (1) & 201 (1A) of the Act in respect of gains to the investor arising from conversion of FCCBs.

8. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in holding that conversion gain cannot be recognized and charged as interest payable in any manner.
9. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in holding that working of the rate of conversion by the AO is not correct.

10. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in holding that the demand raised by the AO in respect of the notional gain arising from conversion of the FCCBs is contrary to the provisions of the Act as well as the ratified scheme of FCCBs.
11. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in holding that AO has also raised demand in respect of FCCBs for F.Y. 2005-06 & 06-07 as well, there being no notice for the said financial years.

12. The appellant craves leave to add, amend, alter, modify and / or withdraw any of the grounds of appeal. The appellant further craves leave to make written and oral submission at the time of hearing of appeal.”
3. The chart of amount involved in each year is as under:-

4. Learned DR of the revenue supported the assessment order and Statement of Facts filed with the appeals. Learned AR of the assessee supported the order of Learned CIT (A).

5. We have considered the rival submissions. We find that the learned CIT (A) on page no. 77 of his order has stated that the assessee has raised 5 issues i.e. (1) General, (2) Limitation, (3) Taxability of Interest on NCDs, (4) Taxability of Interest on FCCBs and (5) Taxability of Interest on FDRs. He decided all these appeals on issue basis and both sides agreed that we can also decide these appeals on issue basis. We proceed accordingly.

6. First we reproduce the findings of learned CIT (A) from pages 77 to 90 of his order. The same are as under:-

“In all these appeals for different year the appellant has raised various common issues in the different grounds of appeal, these issues can be divided : (1) General (2) Limitation (3) Taxability of interest on NCDs (4) Taxability of interest on FCCBs (5) Taxability of interest on FDRs. My findings issue wise are given in subsequent paras. Finding for Ground Nos. 1 to 3 and 27 to 37 together (General)
All these are general grounds of the appeal of the assessee are covered by my findings in other grounds of appeal in subsequent paras of this appeal order and they do not require any separate adjudication as they have been incorporated in my findings ground wise.

Findings grounds Nos 4 to 10 together (Limitation) I have perused the facts stated in the order u/s 201(1)/201(1A) as well as facts stated in statement of facts and assessee's submission as well as the Remand report of Assessing Officer dated 20-06-2014 and 25-07-2014 and the assessee's rejoinder/submission dated 30.06- 2014 and 30-07-2014 and 08-08-2014 which are in the body of this Appellate Order (verbatim). All these grounds are common with respect to limitation hence these are disposed of vide my common finding. It is a fact that the limitation u/s 201(3) is applicable to both the situation i.e. in a case where whole of tax has been deducted or any part of tax has been deducted and this has been clearly expressed in the language of the section and is clear. There is no ambiguity with respect to interpretation of the expressed language whereas the Assessing Officer on her own has given implied meaning to the language of the section 201(3). The case law of CIT vs Meat Products of India Ltd. is correct and the assessee's reliance is also correct - if the recovery of tax is time barred u/s 201(1) then interest also will be time barred u/s 201(1A). Interest on tax has no separate existence without the principle demand being outstanding within the limitation period for recovery. This decision follows Traco Cable Co. Ltd. v. CIT 166 ITR 278 (Ker). Further the Assessing Officer is wrong in concluding that the limitation of section 201(3) does not apply to interest chargeable u/s 201(1A). The Assessing Officer has also erred in holding that the assessee is in default for tax and interest prior to F.Y. 2007-08 as time limit for them was two years filing of statement. Further the Assessing Officer did not issue any notice for these years F.Yrs, 2005-06 and 2006-07. Transactions before 1.4.2007 become time barred on 31.3.2011 under section 201(3). Moreover substantial demand before financial year 2011-12 is also time barred on the date of the order under section 201(3). No order under section. 201(1) could be made after 31.3.2013 in respect of financial years 2005-06, 2006-07, 2007-08. 2008-09 & 2009-10. In respect of financial year 7010-11, an order under s. 201(1) could be made only in respect of the last quarter for which statement was filed m financial year 2011-12. Thus, the entire impugned demand in respect of financial years 2005-06, 2006-07, 2007-08, 2008- 09 & 2009-10 and substantial pan of the demand in respect of financial year 2010-11 is barred by limitation as well. Regarding F.Yr. 2011-12 and F.Yr. 2012-13 the demand has been deleted by me on the merits of the case issue wise and is also allowed on facts.

Finding for Ground Nos. 11 to 17 together (NCD) I have perused the facts in the order u/s 201(1) and 201(1A) as well as facts stated in statement of facts and assessee's submission as well as the Remand report of Assessing Officer dated 20/06/2014 and 25/07/2014 and the assessee's rejoinder/submission dated 30/06/2014 and 30/07/2014 and 08/08/2014, which are in the body of this Appellate Order (verbatim).

The issue regarding the regular interest paid in respect of NCDs was never raised during the proceedings by the Assessing Officer and the details thereof were never called for from the assessee as evident from the Assessing Officer letter in the Index of the Paper Book (sent to the Assessing Officer along with written submission for comments). Index is at pages 57 to 64 along with Certificate and is also a part of the body of order. As the Assessing Officer had not obtained the details of interest actually credited and paid in respect of NCDs. the Assessing Officer resorted to her own calculations of interest which according to her would have accrued for each financial year based on Annual Report of the Company. The Assessing Officer appears to have made these calculations based on the coupon rate of each NCD as available in the assessee's balance sheets. However, such calculations were bound to be incorrect because, owing to the multiple redemption points of each NCD the exact outstanding amount of the NCD and the period for which it was outstanding during the year would not be readily available from the balance sheet unless specifically asked tor. There is no provision in law which empowers the assessing officer to estimate the TDS liability based on presumptive calculations. The TDS liability, if any, has to be determined with reference to the actual income credited or paid in the books of the assessee.

The Assessing Officer had also attempted to directly verify the demat status of the NCDs in question from the website of the NSDL (the depositary). After having downloaded the list of NCDs of companies of name beginning with letter T. she recorded the following observations in Para 5.4 of her order that...

'On examining the above noted list from (the) NSDL, the annual reports of the assessee company and assessee's written submission, It is found that some NCDs (as found in the annual reports) are not reflected in the list of active NCDs and redeemed NCDs as taken out from (the) NSDL website. Such NCDs which are not covered in the NSDL list are out of the purview of the exemption provided in clause (ix) of the proviso to section 193 of the Act because there is no evidence available on record to prove their dematerialization. Hence, tax was liable to be deducted on such NCD.”

It is a fact that no security can be listed on the NSE or the BSE unless it is ready to be traded, and no security is ready to be traded on the electronic stock exchanges unless it is in a dematerialized form. As per the circulars of the SEBI issued vide No.SEBI / MRD/ SE/ AT/ 36/ 2003/ 30/09 dated 30.9.2013 & No. SEBI/MRD/SE/AT/46/2003 dated 22/12/2003, the NCDs to be listed are required to be in the DMAT form (refer pp. 104-110 of the Paper Book). Thus if any NCDs have been listed on the NSE or the BSE, they have to be necessarily in the demateriaiized form.

Therefore, once the Assessing Officer was satisfied that the NCDs in question were listed NCDs, she should have under law concluded that they were also demateriaiized. The documentary evidence of dematerialization could not be filed by the assessee because she indicated this requirement for the first time in her letter dated 25.3.2014 (as evident from the letter mentioned in the paper book ) and also seen from the Index which is a pan of paper book and made the impugned order after six days on 31.3.2014. The said information was to be filed by 28.3.2014, latest by 12:00 pm. Thus, the assessee did not have sufficient opportunity to file the requisite evidence. Later on the evidence was filed in the statement of facts and also with written submission dated 30/07/2014 which was sent to the Assessing Officer for comments.

The exemption from TDS of listed and dematerialized securities came into force from 1/6/2008. The assessee had earlier deducted TDS from interest in respect of NCDs prior to that date and in fact up to 30.9.2009. Details of interest in respect of NCDs and TDS deducted there from during the financial years 2007-08 to 2009-10 and challans for deposit of tax are at pp. 129-140 of the Paper Book.

Statement of all NCDs considered by Assessing Officer for each financial year is at Paper Book at pp. HI-115. It may be noticed that during the financial years 2009-10, 2010-11, 2011-12 & 2012-13, all the NCDs in the books of the assessee were listed and dematerialized. Moreover NCDs held by the LIC were exempt from TDS under clause (vi) of the proviso to section 193. Hence no tax was deductible in respect of any NCD in the books of the assessee in these years. Prior to the said years the assessee was duly deducting tax from the NCD interest as aforesaid. Relevant extracts from Annual Reports for F.Y. 2010-11 to 2012-13 are at Paper Book pp. 115 ABC and list of debentures held by LIC is at paper book pp 147. The assessee has been filing the quarterly statements of TDS in accordance with section 200(3) of the Act read with Rule 31 A of the Rules. As per clause (i) of section 200(3) of the Act, no order under section 201(1) deeming a person to be an assessee in default shall be made after the expiry of two years from the end of the financial year in which the statement filed.

No order u/s 201(1) could be made after 31/3/2013 in respect of financial years 2007-08, 2008-09 & 2009-10. In respect of financial year 2010-11, an order under s. 201(1) could be made only in respect of the last quarter for which statement was filed in financial year 2011-12. Thus, the entire impugned demand in respect of financial years 2007-08, 2008-09 & 2009-10 and substantial part of the demand in respect of financial year 2010-11 is barred by limitation as well. Now that on this issue sufficient opportunity was given to the appellant as well as Assessing Officer during the Appellate proceedings and the paper book along with its Index and Certificate was sent along with written submission dated 30- 06-2014 to the Assessing Officer for comments she did not find anything contrary relating to assessee's submission regarding liability of NCD. She simply relied on her order as mentioned in Para 3 and 3,3 of her Remand Report dated 25- 07-2014 that

3. With regard to demand in respect of NCDs, FCCBs and FDs, your kind attention is invited to the discussion made wider respective heads in the order dated 31.03.2014 and in the comments dt. 20.06.2014 on grounds of appeal and statement of facts under respective heads of NCDs, FCCBs and FDs for respective years. Some additional comments on these issues are as follows :-

I. With regard to the arguments raised on the issue of NCDs. the reliance is placed on the discussion made from Para 5 to 5.6 of the Order dt. 30.03,2014 r.w. relevant portion of discussion on the same issue in comments dt. 20.06.2014. The amount of NCDs ore taken from the Annual Reports of the company only which are found on record. The year wise interest calculation on NCDs is given in Para 5.4 of the order and the undersigned relies on the same...

With regard to Remand Report dated 20/06/2014 the Assessing Officer stated that SEBI Circulars are in the nature of additional evidence, in this regard, I am of the view that these are available in the Public domain and this was informed to the Assessing Officer by the Certificate filed by the appellant with the written submission dated 30/06/2014 and Paper book with Index which was sent to her for her comments.

Further the Assessing Officer did not issue any notice for these years F.Yrs. 2005-06 and 2006-07.1n view of all the above stated facts there is no liability of interest on NCD thus the entire demand raised by the Assessing Officer in respect of interest on NCDs is contrary to the facts and law, hence, I am of the view, that the assessee has a strong case on the facts as well as on the law. As such he wins on both the grounds. These grounds of appeal are allowed.

Finding for Ground Nos. 18 to 21 together (FCCB)

I have perused the facts in the order u/s 201(1)/201(1A) as well as facts stated in the statement of facts assessee’s submission as well as the Remand report of Assessing Officer dated 20-06-2014 and 25-07-2014 and the assessee's rejoinder/submission 30-06-2014 and 30-07-2014 and 08-08- 2014. The Central Government notified FOREIGN CURRENCY CONVERTIBLE BONDS AND ORDINARY SHARES (THROUGH DEPOSITORY RECEIPT MECHANISM) SCHEME, 1993 Vide further notification No. SO 987(E) dated 10.9.2002, the Central Government specified the said scheme for the purposes of section 115AC of the Income-tax Act, 1961 for assessment year 2002-03 and subsequent assessment years. These notifications are at pp. 55-62 of the Paper Book.

From 2005 to 2012 the assessee company issued four series of FCCBs ('the bonds') under the aforesaid scheme. The bonds, as their name suggests, were convertible at the option of the holder into shares of the issuing company at a predetermined price. The balance remaining after conversions, if any, were redeemed on the due redemption dates.

The Finance (No.2) Act, 1991 inserted a clarificatory clause (x) in section 47 of the Act with retrospective effect from 1.4.1962 which excluded from the purview of capital gain any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company. Similarly, section 47(xa) was inserted w.e.f. 1.4.2008. In other words, the clarificatory amendments provided that no taxable capital gain will arise on conversion.

CBDT's CIRCULAR NO. 621, dated 19-12-91 containing the Explanatory Notes on the provisions of the said Finance Act has explained the purpose of this clarificatory provision as follows -"Clarification regarding transfer by way of conversion of debentures etc.

“24. For the purposes of capital gains taxation, "transfer" in relation to a capital asset, includes, infer alia, the sale, exchange, or relinquishment of the asset. Doubts have been expressed in the recent past as to whether capital gain arises at the time of conversion of convertible debentures into shares. With a view to reiterating the legislative intention, a new clause (x) has been inserted in section 47 of the Income-tax Act to provide that any transfer by way of conversion of debentures, debenture-stock, or deposits certificate in any form, of a company into shares or debentures of that company will not be regarded as a transfer giving rise to any taxable gain. Further, a new sub-section (2A) has been inserted in section 49 of the Income-tax Act to provide that on sale of shares or debentures received on such conversion, the capital gain shall be computed by faking the cost of acquisition as that part of the cost of debentures, debentures-stock or deposits certificate which has been appropriated towards the shares or debentures " (Emphasis supplied).

Subsequent to the clarificatory amendment aforesaid, two new sections, namely 115AC and 196C were introduced in the Act with effect from 1.4.1993 and 1.6.1992 respectively by the Finance Act, 1992.

The section 115AC did not provide for the taxation of gain arising on conversion. If the legislature intended, it could have expressly provided for the taxation of conversion gain in the said section. Had it done so, it would have had to amend section 49(2A) to exclude from its purview the bonds covered by section 11tAC so that the conversion gain taxed under section 115 AC was not taxed again on subsequent sale of the converted shares or debentures. It would have had to provide that in the case of FCCBs referred to in section 115 AC the cost of acquisition of converted shares shall be the market price of the share on the date of conversion. Understandably, the legislature did not do so. Doing so would have been a disincentive rather than an incentive for investment in FCCBs. The Assessing Officer cannot take this argument that notional gain arising on conversion is interest as interest is defined under section 2(28A) as under:

"Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized."

Such notional gain on conversion is excluded from the meaning of capital gains under section 47(x) and 47(xa). This is also the reason why clause (x) of section 47 was brought, not as a substantive amendment, but as a clarificatory provision. Clarificatory, because any such gain was in any case not recognizable and taxable under the scheme of the Income-tax Act, 1961. Hypothetical, notional or fictional income can only be taxed if there is specific provision providing for the same. There is no such specific provision to tax the impugned notional gain as interest and as such too the adverse inference as made is unlawful.

Hence, in the absence of any specific and express deeming provision, the conversion gain cannot be recognized and included as interest payable in any manner. In fact, the legislature effectively excluded conversion gain from being taxed under any other head of income by specifically providing, through section 49(2A), that such conversion gain shall be included in the capital gain arising from subsequent transfer of the converted asset.

Further, every provision of the Act must be interpreted and understood in the context in which it is introduced. Sections 115AC (read with s. 196C) was introduced specifically to provide for a special scheme of taxation for FCCBs. A section which is intended to offer clarity (if not also an incentive) to nonresident bond-holders in the matter of taxation, would not leave the taxation of such a key event as conversion to interpretation. If the legislature wanted to recognize conversion gain for the purposes of taxation, it would have done so expressly for of the nonresident investors, it incorporated express provisions delimiting the taxation of FCCBs and used the mandatory expression 'shall' in every sub-section of section 8 thereof.

The Scheme provides for deduction of tax at source from interest payments on bonds until the conversion option is exercised. It also deals with the tax exemption on the conversion of bonds into shares. It provides for deduction of tax at source from dividend on the convened portion of the bonds. It also exempts the taxation of capital gain arising from the transfer of bonds outside India amongst non residents.

However, the Scheme expressly forbids the taxation of any capital gain arising from the conversion of bonds into shares. Had it been the intention to include such gain in the interest under sub-section (1) of section 8, there would have been in the scheme an appropriate inclusion clause instead of the exclusion clause.

The Act and the Scheme provide for taxation of income by way of interest from FCCBs prior to conversion. They also provides for taxation of income by way of dividend from shares after conversion. However, they do not prescribe taxation on income arising from conversion.

The Assessing Officer cannot give a new and additional incidence of taxation to the complete and self-contained scheme of taxation of FCCBs incorporated in section 115AC of the Act as well as in section 8 of the notified Scheme. Now that sufficient opportunity has been given to the appellant as well as Assessing Officer during the Appellate proceedings, it is seen form the facts stated above that there was no liability of the assessee for the TDS. On this issue also the comments of the Assessing Officer were called for and she did not find anything contrary to the assessee's submission rather she relied on assessment order and offered her comments as stated in her Remand Report dated 25/07/2014 Para 6.2 to 6.4 that...

6.2 The conversion rate and the market price of the shares have been taken from the company's annual reports for various years and the undersigned relies on the same. The shares of the company were split into 5:1 with record date of 26/12/2007 and ex-split date of 17/12/2007 for face value was Rs. 2/- per share. Due to the split of company's shares, the market rates of the shares of the past period available on the BSE website currently was not found to be the true reflective of the actual market rates on those dates: hence the market rate available in the annual reports were taken.
iii. On the legal issue of taxability of gain on conversion of FCCBs, reliance is placed on the discussion from Para 6 to 6.9 of the Order dt. 31.03.2014.

iv. With regard to the issue raised in Para 30 of the written submissions, your kind attention is invited to the discussion made under the head FCCBs in comments of the undersigned dt. 20.06.2014. The relevant portion of which is reproduced as follows-
6.3 "With regard to the issue raised in Para 6.3 of the Statement of Facts r.w. Annexure V, this is submitted that the details of conversion of FCCBs and dotes of issue of shares were taken from the Information Memorandum of the Assessee Company as available on the website of the Bombay Stock Exchange. The said Memorandum is placed on record. In this Information Memorandum, it is clearly mentioned that on 10.10.2008, 10,000,000 shares were issued against conversion of a tranche of FCCB-11. Further, assessee's claim that the issue of these shares on 10.10.2008 is not on account of conversion of FCCBs but these are preferential allotment to promoters: is not supported by any evidence. Such unsubstantiated claim is liable to be outrightly rejected.

6.4 With regard to the issue raised by the assessee regarding allotment of shares on amalgamation on 25.08,2006 and 14.06.2009, this is submitted that as evident from the Information Memorandum, the process of conversion of FCCBs and allotment of shares on amalgamation is going on simultaneously: and also the consideration for issue of shares on amalgamation is not given. It is understood that the conversion of FCCBs is also involved in the allotment of these shares on 25.08.2006 and 14.06.2009, and the entries on these two dates are in substance and effect the same as other entries in the list. The assessee has also not produced any evidence to prove its claim that allotment of shares on these two dates is not on account of conversion of FCCBs, hence assessee's argument being unsubstantiated is liable to be rejected. Strength is drawn on this issue from the landmark judgment of Kedarnath Jute Manufacturing Company by Hon'ble Supreme Court (1971 AIR 2145, 1972 SCR (I) 277) "whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and nor on the view which the assessee might lake of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The ratio supports the case of the Department, though context of the case may be different. "

The working by the Assessing Officer is not correct as the conversion Rate was prefixed 6 years back when the bonds were issued in market. Alternatively, the Assessing Officer says that notional gain is taxable but this presumption falls flat from the very start of her assumption, as there is no provision in the l.T. ACT as well as in the scheme for taxing Notional Gain. TDS is only on Real Payment and on Real accrual of income which is not in this case.

Impugned notional gain as worked by the Assessing Officer does not fall in the meaning of interest payable. Interest payable would be from the assessee to the payee. On facts there can be no question that there was ever anything payable or paid by assessee to payee which constitutes interest payable in respect of the impugned notional gain. As the notional gain has never been paid or credited to the payee there can be no question of any TDS thereon. From all of the above stated facts, it is clear that the demand raised by the assessing officer in respect of the notional gain arising from conversion of the FCCBs is contrary to the express provisions of the Act as well as of the notified Scheme of FCCBs.

The Assessing Officer has also raised demand in respect of this issue for the financial years 2005-06 & 2006-07 as well. This has been done despite there being no notice for the said financial years.
Hence after perusal of the facts stated above, I am of the view that the assessee has strong case on the facts as the notional gain on the FCCB is not liable for TDS at all as well on the law hence he wins on both the grounds. As such these grounds of appeal! are allowed.
Finding for Ground Nos. 22 to 26 together (FDR)

I have perused the facts stated in the order u/s 201(1)/201(1A) as well as facts stated in the assessee's submission as well as the Remand report of Assessing Officer dated 20-06-2014 and 25-07-2014 and the assessee's rejoinder/submission dated 30.06-2014 and 30-07-2014 and 08-08-2014. The Assessing Officer in her remand report dated 25-07-2014 has stated that the digitized details of the Fixed Deposits are in nature of additional evidence which may be admitted only when they fulfilled one of the four conditions given in the Rule 46A of IT Rules. Regarding this it is slated that this is not an additional evidence as all the details regarding "Fixed Deposit were emailed to the Assessing Officer on 21/3/2014 and then again on 29-03-2014 in excel file as evident from the Index of the paper book. This paper book along with the index and certificate along with written submission dated 30-06-2014 were sent to the Assessing Officer for comments. The Assessing Officer did not contradict regarding the assessee’s version regarding the details which were sent to her by email by the assessee on these dates i.e. 21/03/2014 and 29/03/2014. CD was also supplied with Paper book. In a way she agrees to the fact that she did receive the email. What the assessee has now given to me is the data in read-able format from which a conclusion can be drawn and the same is reproduced below......

(2) With a view to assist your honour, break up of tolal accrued interest, tax deductible interest, interest below Rs. 5,000/- and interest in respect of FORMs 15G/15H are as under:

Copies of First and last page of all the above years for interest on FDs, tax deductible cases, interest less than Rs. 5,000/- cases and interest accrued in 15G/15H cases are being enclosed.
Notes:
(i) That vide letter dated 07.03.2013, the Ld. A.O. asked the assessee to furnish the details of tax deducted at source on interest accrued on FDRs. (Pl. refer page 1-4 of the paper book)
(ii) That vide letter dated 04.04.2013, assessee furnished the details of interest accrued on FDRs, Tax deductible interest and tax deducted thereon for the A.Y. 2009-2010, 2010-11 and 2011-12 (pl. refer page 5-9 of the paper book)

(iii) That vide letter dated 22.01.20J4, the Ld. A.O. asked the assessee to furnish the difference between interest accrued and tax deductible interest. (Pl. refer page 10 of the paper book)

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

(v) That the Ld. A.O. vide her letter dated 20.03.2014 asked the assessee lo substantial the interest below Rs. 5,000/- as well as the interest against Forms 15G/15H with documentary evidence. (Pl. refer page 20 of the paper book)

(vi) That the assessee vide its letter dated 21.03.2014 made a detailed submissions on forms 15G/15H and emailed the details of interest below Rs. 5.000/- for the A.Y. 2009- 2010, 2010-2011 and 2011-2012 to the DCIT, TDS on 21/3/2014 itself (Pl. refer page 22-24 of the paper book)

(vii) That the Ld. A.O. vide her letter dated 25.03.2014 alleged that no documentary evidence were filed in respect of interest below Rs. 5,000/- as well as the interest accrued in respect of Forms 15G/15H for the A.Y. 2009-2010, 2010- 2011 and 2011-2012. (Pl. refer page 25-28 of the paper book)

(viii) That the assessee vide its letter dated 27.03.2014 again made a detailed submissions in respect of interest below Rs. 5000/- as well as the interest in respect of Forms 15G/15H. Further below Rs. 5,000/- as well as copies of Forms 15G/15H were again submitted before the Ld. A.O. by enclosing the same with the Submissions. (Pl. refer page 29-51 of the paper book

(ix) That the Ld. A.O. vide her letter dated 28.03.2014 again asked the assessee to furnish the details of non tax deducted FD cases for the A. Y. 2007-2008, 2008-2009 and 2012-2013. (Pl. refer page 52 of the paper book)

(x) That the assessee vide its reply dated 29.03.2014 sent its reply by fax and email to the Ld. A.O. showing complete details of interest below Rs. 5000/- as well as the interest in respect of Forms 15G/15H. (Pl. refer page 53-54 of the paper book)
(xi) That the tax deducted on tax deductible accrued interest was deposited to the credit of the Central Government. Details and tax challans for deposit of tax on FDs interest for the F. Y. 2007-2008 to 2012-2013 are placed at pages 148 to 158 of the paper book.

(xii) That besides above, a CD containing details of accrued interest on FDs is also enclosed with the paper book.

(xiii) That the some forms 15G/15H as sample copies are also placed at pages 159 to 111 of the paper book.
WITHOUT PREJUDICE TO ABOVE:

It is respectfully submitted that all interest so paid has been allowed and accepted wider this head in the assessee's assessment made u/s 143(3) of the Act. There is also no adverse inference regarding any of these fixed deposits as unexplained deposits or in any manner in the said income tax assessments in all the said years involved. As such past records, TDS records, assessment records of the tax department have duly accepted the deposits, interest thereon and TDS thereon including non deduction of TDS in the case of FORMs 15G/15H and interest below Rs. 5,000/-. Thus, in view of the facts of the present case and our submissions made above dully supported with the documentary evidences, your honour would find that the lax liability of Rs. 48,61,06,234/- wrongly created by the Ld. A.O. on account of alleged non deduction of tax on FDs interest is contrary to the facts of the case of the assessee and not sustainable in the eyes of law and hence may kindly be ordered to be deleted.

RECTIFICTAION APPLICATION OF THE ASSESSEE U/S 154 OF THE ACT

Assessee had also moved a rectification application before the Ld. A.O. for the A.O. for the F.Y. 2005-2006 to 2012- 2013, which was disposed of by the Ld. A.O. vide her order dated 26.05,2014. All the documents/ papers found placed in the paper book were also part of the submissions for rectification petition made u/s 154 of the Act. But the Ld. A.O. did not appreciate the facts of the present case. Rectification petition as well as the order of the Ld. A.O. are placed at pages 172 to 191 of the paper book.

The assessee vide its letter dated 13.3.2014 explained that the difference between the total interest and the taxdeductible interest was due to below Rs. 5000 (interest) cases as well as Form 15G/15H cases in both of which tax was not deductible. The details of total interest, tax-deductible interest and non-tax-deductible interest in respect of financial years 2007-08, 2008-09 & 2012-13 were also furnished. These were as under:

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

As regards the 15G/15H forms, the assessing officer was informed that the 15G/15H forms were regularly submitted with the CIT as per Rule 29C of the Rules. The assessee does not keep digitized copies of the same in view of the huge numbers involved. However, copies of receipts/letters under which 15G/15H forms for financial year 2012-13 were submitted to the office of the CIT were furnished. These are at pp. 12-19 of the paper book.

However, the assessing officer through her letter dated 25.3.2014 reiterated the requisition to furnish digitized copies of 15G/15H forms in respect of all the financial years from 2007-08 through 2012-13. In response, the assessee filed copies of letters/receipts under which the said forms for the financial years 2009-10, 2010-11 & 2011-12 were submitted to the office of the CIT as per Rules. As regards copies of receipts for the delivery of 15C/J5H forms in respect of financial years 2007-08 & 2008-09, the assessing officer was informed that the same will have to be retrieved from the old records of the company and will take time.

In spite of all of the aforesaid details and evidences furnished by the assessee, the assessing officer in her impugned order has treated the entire non tax deducted interest as tax-deductible interest on the ground that the assessee only give the names of the deposit-holders and the amounts of interest earned; they do not give their addresses, PANs, amounts of deposit, rate of interest and the period of interest.

The assessing officer has also rejected the Forms 15G/15H cases on the ground that names and amounts of interest involved in 15G/15H forms could not be ascertained from the copies of receipts for the delivery of these forms in the office of the CIT.

Further the Assessing Officer did not issue any notice for these years F.Yrs. 2005-06 and 2006-07. The Assessing Officer gave no show-cause notice, and made no proposition, for holding the assessee in default in respect of tax-deducted cases. The assessee has been held in default in respect of tax deducted cases unilaterally and without any notice, or opportunity. Now that sufficient opportunity has been given to the assessee as well as Assessing Officer during the Appellate proceedings it is seen from facts stated above that there was no liability of the assessee for the TDS on FD interest.

In view of the facts stated above, the entire impugned demand raised by the Assessing Officer in respect of the fixed deposit is against the facts and is therefore deleted on merits of the case. Furthermore the entire demand in respect of financial years 2007-08, 2008-09 & 2009-10 and substantial part of the demand in respect of financial year 2010-11 is also barred by limitation. Hence assessee has a strong case on merits as well as on law and these grounds of appeal are allowed.

In view of my findings above on different issues which are common in all the appeal for F.Yrs. i.e.2005-06 2006- 07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13 and consolidated appeal for F.Yrs. 2005-06 to 2012-13, I have disposed off all the appeals for all the years by this common order.
12. In the result, the appeals are allowed.”

7. Regarding the first issue i.e. “General”, no separate adjudication is called for.

7.1 In respect of the second issue i.e. Limitation, we find that learned CIT (A) has followed the judgment of Hon’ble Kerala High Court rendered in the case of Traco Cable Co. Ltd. vs. CIT, 166 ITR 278 and held that no order u/s 201 (1) could be made after 31.03.2013 in respect of Financial Years 2005 - 06 to 2009 - 10. In respect of Financial Year 2010 - 11, he held that an order u/s 201 (1) could be made in respect of last quarter for which statement has been filed in Financial Year 2011 - 12. In this regard, we reproduce the provisions of sub section (3) of section 201 as under:-
“No order shall be made under sub section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India , at any time after the expiry of -

(1) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed;
(2) six years from the end of the financial year in which payment is made or credit is given in any other case.
Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011.”

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

9. There is one more aspect. It is noted by learned CIT (A) that this was an objection of the A.O. that even if the order u/s 201 (1) is held to be time barred in view of provisions of section 201 (3), the orders u/s 201 (1A) are not time barred because there is no reference to section 201 (1A) in section 201 (3). Before us also, this contention is raised in Statement of Facts (SOF) and reliance was placed by learned DR on SOF. The decision of learned CIT (A) on this aspect is this that when recovery of tax u/s 201 (1) is time barred, recovery of interest u/s 201 (1A) is also time barred. We find no infirmity in the order of learned CIT (A) on this aspect also because in our considered opinion, interest u/s 201 (1A) is consequential to default u/s 201 (1) and therefore, when action u/s 201 (1) is time barred, action u/s 201 (1A) is also time barred as a consequence and for that , specific mention of section 201 (1A) in section 201 (3) is not essential.

10. As per above discussion, we do not find any infirmity in the order of learned CIT (A) on second issue and hence, we decline to interfere in his order on this issue.

11. In respect of the third issue i.e. regarding taxability of interest on NCDs, the decision of CIT(A) is on the basis that the exemption from TDS from listed and dematerialized securities came into force from 01/06/2008. He has given a clear finding that the assessee had earlier deducted TDS from interest in respect of NCDs prior to this date and in fact up to 30/09/2009. He has also noted that the details of interest in respect of TDS deducted during financial year 2007-08 to 2009-10 and challan for deposit of tax are available on pages 129 to 140 of the paper book. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue and hence, this has to be accepted that till 30.09.2009, TDS deduction was made by the assessee from interest on NCDs.
12. The CIT(A) has given further finding that all the NCD of the assessee were listed and dematerialized. He has also given a finding that NCDs held by LIC were exempt from TDS under clause (vi) of the proviso to section 193 and therefore, no tax was deductible in respect of any NCD in the case of the assessee in these years i.e. financial years 2009-10 to 2012-13. These findings of CIT(A) also could not be controverted by Learned D.R. of the Revenue and since the interest on NCDs paid by the assessee were exempt from the requirement of TDS either on account of NCDs being listed and dematerialized or on account of held by LIC, TDS was not deductible and therefore, there is no reason to interfere in the order of CIT(A) on this issue also. Accordingly issue No. 3 is also decided in favour of the assessee and the order of CIT(A) is confirmed on this issue.

13. The 4th issue is regarding taxability of interest on FCCBs. On this issue, CIT(A) has noted down the contents of CBDT Circular No. 621 dated 19/12/1991 as per which, capital gain is not chargeable on conversion of debenture or bonds in shares in view of clause (x) of section 47 of the Act. Hence, it is seen that no capital gain arise on conversion of debenture into shares. Moreover, even if such capital gain on conversion of debenture into share is considered as income at the time of conversion, this cannot be considered as interest and the liability of TDS cannot be fastened on the assessee. The CIT(A) has also referred to the provisions of section 115AC read with section 196C and observed that as per the scheme of taxation in respect of FCCBs, it has been provided that TDS is required to be deducted from interest payments on bonds until the conversion option is exercised. This scheme exempts the taxation of capital gain arising from the transfer of bonds outside India among non residents. He has further noted that the scheme expressly forbids the taxation of any capital gain arising from the conversion of bonds into shares. Considering all these facts and in view of the above discussion, we are of the considered opinion that the Assessing Officer was not justified in fastening the liability of TDS on the assessee in respect of notional gain worked out by the Assessing Officer on conversion of FCCBs and therefore, on this issue also, we do not find any reason to interfere in the order of CIT(A). This issue is also decided in favour of the assessee.

14. The 5th and last issue is taxability of interest on FDRs. On this issue we find that it is noted by CIT(A) on page No. 88 of his order that the assessee vide his letter dated 13/03/2004 explained that the difference between the total interest and tax deductible interest was due to below Rs. 5,000/- interest cases as well as Form 15G/15H cases and in both of these cases, tax was not deductible. He has reproduced the details of total interest, tax deductible interest and non deductible tax interest in respect of financial years 2007-08, 2008-09 and 2012-13. Thereafter, a clear finding is given by CIT(A) that in spite of all these details and evidence furnished by the assessee, the Assessing Officer in her impugned order has treated the entire non tax deducted interest as tax deductible interest on the ground that the assessee only gave the names of deposit holders and the amount of interest earned but their address, PAN, amount of deposit, rate of interest and period were not given. He has further noted that the Assessing Officer has rejected Forms 15G/15H cases on the ground that names and amounts of interest involved in 15G/15H forms could not be ascertained from the copies of receipts for the delivery of these forms in the office of the CIT(A). Thereafter, a clear finding is given that sufficient opportunity has been given to the assessee as well as to the Assessing Officer during appellate proceedings and thereafter, he has given a finding that it is seen from the facts that there was no liability of the assessee for TDS on FDR interest. These specific findings of CIT(A) on this issue could not be controverted by Learned D.R. of the Revenue. When the FDR interest paid by the assessee is partly below Rs. 5,000/- per payee or partly the payee has given Form 15G/15H and as a consequence, no TDS was required to be deducted by the assessee, it was not proper for the Assessing Officer to raise this liability of TDS on such FDR interest. In view of above discussion, we find that there is no infirmity in the order of CIT(A) on this issue also and therefore, we decline to interfere in the order of CIT(A).

15. As per the above discussion, we have seen that on none of the issues involved in the present appeals, there is any infirmity in the order of CIT(A) and therefore, we decline to interfere in the order of CIT(A) on any of the issues in any of the years.

16. In the result, all the 8 appeals of the Revenue stand dismissed.