Indian Sugar Exim Corporation Ltd., New Delhi v. DCIT, New Delhi

ITA 2498/DEL/2010 | 2000-2001
Pronouncement Date: 15-11-2011 | Result: Allowed

Appeal Details

RSA Number 249820114 RSA 2010
Assessee PAN AAACI1163M
Bench Delhi
Appeal Number ITA 2498/DEL/2010
Duration Of Justice 1 year(s) 5 month(s) 19 day(s)
Appellant Indian Sugar Exim Corporation Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 15-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 15-11-2011
Date Of Final Hearing 03-11-2011
Next Hearing Date 03-11-2011
Assessment Year 2000-2001
Appeal Filed On 26-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI A.N. PAHUJA ACCOUNTANT MEMBER ITA NO.2498/DEL/2010 ASSESSMENT YEAR: 2000-01 INDIAN SUGAR EXIM CORPORATION LTD. VS. DCIT C-BLOCK 2 ND FLOOR ANSAL PLAZA CIRCLE 11(1) AUGUST KRANTI MARG NEW DELHI. NEW DELHI. AAACI1163M (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ASHWANI TANEJA CA SH. SUMIT JAIN CA & SH . TARUN ADV. RESPONDENT BY : SH. SALIL MISHRA SR. DR ORDER PER C.L. SETHI J.M. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 8.3.10 PASSED BY THE LD. CIT(A) CONFIRMING THE PENA LTY OF RS. 8 69 667/- LEVIED BY THE AO US 271(1)(C) OF THE INC OME TAX ACT 1961 FOR THE A.Y. 2000-01. 2. IN THIS CASE THE ASSESSEE FILED ITS RETURN OF I NCOME ON 29.11.2000 DECLARING TOTAL INCOME AT RS. 6 83 03 09 3/-. THEREAFTER THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I.T. ACT 1961 WHERE AN ADDITION OF RS. 22 58 875/ - AMONGST OTHERS WERE MADE ON ACCOUNT OF INTEREST ACCRUED ON G.E. ITA NO. 2498/D/10 2 CAPITAL BONDS. THE ASSESSEE COMPANY HAD MADE INVES TMENT IN G.E. CAPITAL BONDS IN F.Y. 1998-99. INITIALLY IN THE RETURN OF INCOME FOR THE A.Y. 1999-2000 THE ASSESSEE HAD SHO WN AN INTEREST INCOME OF RS. 2 95 077/- ON ACCRUAL BASIS ON G.E. CAPITAL BONDS. HOWEVER IN THE COURSE OF ASSESSMEN T PROCEEDINGS THE ASSESSEE CLAIMED THAT THE INTEREST INCOME IS NOT TAXABLE FROM YEAR TO YEAR BASIS BUT WILL BE AS SESSABLE IN THE YEAR OF MATURITY AS CAPITAL GAIN. HOWEVER THI S CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED IN THE A.Y. 1999-2 000. IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESS EE HAS NOT SHOWN THE INTEREST INCOME ON ACCRUAL BASIS ON T HE AFORESAID BONDS ON THE GROUND THAT AS PER THE TERMS OF THE BOND THE DIFFERENCE IN COST PRICE AND MATURITY VAL UE WILL BE CONSIDERED AS CAPITAL GAINS IN THE YEAR OF REDEMPTI ON OF BONDS IN THE MONTH OF DECEMBER 2003. THIS STAND OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO IN VIEW OF CBDT CIRCULAR NO. 2/2002 DATED 15.02.2002 WHERE IT WAS PROVIDED THAT ACCRETION TO THE VALUE OF BOND WILL BE TAXABLE AS INTEREST IN COME FROM YEAR TO YEAR. THE AO THEREFORE BROUGHT AN AMOUNT OF RS. 22 58 875/- AS INTEREST INCOME ACCRUED ON THE BONDS DURING THE YEAR UNDER CONSIDERATION AND INCLUDED THE SAME IN THE TOTAL INCOME OF THE ASSESSEE. IT WAS FURTHER NOTED BY THE AO ITA NO. 2498/D/10 3 THAT THE ASSESSEE COMPANY ITSELF HAS STARTED RECOGN IZING THE INTEREST INCOME ON ACCRUAL BASIS FROM F.Y. 2001-02 RELEVANT TO THE A.Y. 2002-03. IN THE COURSE OF ASSESSMENT PROC EEDINGS THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. A SHOW CAUSE NOTICE WAS ISSU ED ASKING THE ASSESSEE TO EXPLAIN AS TO WHY THE PENALTY U/S 2 71(1)(C) SHOULD NOT BE IMPOSED. IN REPLY TO THE SHOW CAUSE NOTICE THE ASSESSEE HAS SUBMITTED AS UNDER: - 1. IT IS RESPECTFULLY SUBMITTED THAT CIRCULAR NO. 2/2002 DATED 15.02.02 IS PROSPECTIVE IN NATURE IN VIEW OF PRESS RELEASE DATED 20.03.02 REPORTED IN 121 TAXMAN 261 (ST). 2. IT IS SUBMITTED THAT MERELY BECAUSE A DIFFERENT VIEW HAS BEEN TAKEN BY THE ASSESSEE PENALTY CANNOT BE LEVIED. THE ASSESSEE HAD A BONA FIDE BELIEF THAT THE ASSESSEE IS NOT LIABLE TO ACCRUE INCOME FROM YEAR TO YEAR AND THE FINAL TAX LIABILITY WOULD ARISE AS CAPITAL GAINS OR INTEREST INCOME IN THE YEAR OF REDEMPTION. 3. IT IS RESPECTFULLY SUBMITTED THAT THE CONTENTION OF THE ASSESSEE IS BASED UPON THE TERMS AND CONDITIONS OF DEBENTURES. THE TERMS AND CONDITIONS OF THE DEBENTURES CLEARLY STATED THAT THE ITA NO. 2498/D/10 4 ASSESSEE IS NOT ENTITLED FOR ANY INTEREST AS IT HAD NOT PURCHASED THE INTEREST PORTION. EVEN A CONFIRMATION FROM GE CAPITAL OBTAINED BY THE ASSESSEE STATES THAT THE ASSESSEE IS NOT ENTITLED FOR ANY INTEREST INCOME. 3. HOWEVER THE AFORESAID REPLY OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. THE AO HAS STATED THAT POSITION REGARDING TAXABILITY OF INTEREST ON ACCRUAL BASIS W AS ALREADY CLARIFIED BY BOARD TO RBI BEFORE THE ISSUE OF CIRCU LAR NO. 2/2002 DATED 15.2.2002. THEREFORE THE ASSESSEES CONTENTION THAT CIRCULAR NO. 2/2002 DATED 15.2.2002 IS PROSPECTIVE IN NATURE IS NOT CORRECT. THE AO FURTH ER STATED THAT ASSESSEE COMPANY ITSELF INITIALLY PROVIDED INTEREST INCOME OF RS. 2 95 077/- IN A.Y. 1999-2000 AND THEREFORE IT WAS WRONG ON THE PART OF THE ASSESSEE TO SAY THAT IT HAD A BO NAFIDE BELIEF THAT ASSESSEE WAS NOT LIABLE TO SHOW INTEREST INCOM E ON ACCRUAL BASIS FROM YEAR TO YEAR. THE AO THEREFORE STATED THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICUL ARS OF INCOME WITHIN THE MEANING OF SEC. 271(1)(C) OF THE ACT. THE AO THEREFORE LEVIED A PENALTY OF RS. 8 69 667/- O N THE INCOME OF INTEREST ASSESSED ON ACCRUAL BASIS ON G.E . CAPITAL BONDS. ITA NO. 2498/D/10 5 4. BEING AGGRIEVED THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). 5. BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED I TS EXPLANATION THAT WERE MADE BEFORE THE AO AND RELIED UPON THE VARIOUS TERMS AND CONDITIONS OF THE BONDS/DEBENTURE S TO SHOW THAT THE MATURITY VALUE WILL BE TAXED AS CAPITAL GA IN IN THE YEAR OF MATURITY. THE ASSESSEE ALSO RELIED UPON THE DEC ISION OF ITAT PASSED IN THE A.Y. 2001-02 WHERE PENALTY LEVI ED ON IDENTICAL ISSUE WAS DELETED BY THE TRIBUNAL. 6. HOWEVER THE LD. CIT(A) DID NOT ACCEPT THE ASSES SEES CONTENTION AND HOLD THAT THE AO WAS JUSTIFIED IN LE VYING THE PENALTY U/S 271(1)(C) OF THE ACT IN AS MUCH AS THE ASSESSEE HAS NOT BEEN ABLE TO OFFER ANY BONAFIDE EXPLANATION ON THE ISSUE. THE LD. CIT(A) RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF K.P. MADHU SUDAN VS. C IT 251 ITR 99 & IN THE CASE OF DHARMENDRA TEXTILES PROCESS ORS AND OTHRS. 306 ITR 277 (SC). 7. BEING AGGRIEVED WITH THE LD. CIT(A)S ORDER TH E ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. ITA NO. 2498/D/10 6 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 9. IT IS NOT IN DISPUTE THAT ASSESSEE HAD PURCHASED G.E. CAPITAL DEBENTURES AT RS. 1 39 96 500/- ON 30.1.199 9 TO BE REDEEMED ON 14.12.03 AT RS. 2 50 00 000/-. IN OTHE R WORDS BONDS HAVING FACE VALUE OF RS. 2 50 00 000/- WERE P URCHASED BY THE ASSESSEE COMPANY ON 30.1.1999 ON A MARKET DISCOUNTED PRICE OF RS. 1 39 96 500/-. IT WAS CLAI MED BY THE ASSESSEE THAT DIFFERENCE BETWEEN THE COST PRICE AND MATURITY VALUE WOULD BE TAXABLE AS CAPITAL GAINS IN THE YEAR OF REDEMPTION I.E. DURING F.Y. 2003-04 RELEVANT TO THE A.Y. 2004- 05. HOWEVER THE AO HAS TAXED THE DIFFERENCE AS IN TEREST INCOME ON ACCRUAL BASIS FROM YEAR TO YEAR AND HE HA S WORKED OUT THE INTEREST ACCRUING IN EACH YEAR @ 13.5%. AS PER THE CONTENTION OF THE ASSESSEE THE ASSESSEE HAS PURCHA SED ONLY PART A OF THE BOND AND HAS NOT PURCHASED PART B-K WHICH WERE INTEREST PORTIONS HAVING POSTDATED INTEREST W ARRANTS. THE AO HAS ASSESSED THE INTEREST INCOME ON ACCRUAL BASIS FROM YEAR TO YEAR IN THE LIGHT OF THE CLARIFICATION S ISSUED BY THE BOARD VIDE CIRCULAR NO. 2/2002 DATED 15.2.2002 WHE RE IT HAS ITA NO. 2498/D/10 7 BEEN CLARIFIED THAT DIFFERENCE BETWEEN THE BID PRIC E (SUBSCRIPTION PRICE) AND THE REDEMPTION PRICE (FACE VALUE) OF SUCH BONDS WILL BE TREATED AS INTEREST INCOME ASSES SABLE FROM YEAR TO YEAR ON ACCRUAL BASIS. IT WAS FURTHER CLAR IFIED IN THE CIRCULAR THAT IT WAS ONLY IN THE EVENT OF TRANSFER OF BONDS BEFORE MATURITY THAT THE DIFFERENCE BETWEEN THE SALES CONS IDERATION AND THE COST OF ACQUISITION WOULD BE TAXED AS INCOM E FROM CAPITAL GAINS IF THE BONDS ARE HELD AS INVESTMENT. THE AOS STAND HAS BEEN UPHELD IN APPEAL IN THE LIGHT OF THE CLARIFICATION GIVEN BY THE BOARD CIRCULAR DATED 15.2.2002. THIS IDENTICAL ISSUE HAD ALSO ARISEN IN THE A.Y. 1999-2000 & 2001- 02. IN THE A.Y. 1999-2000 THE ASSESSEE OFFERED THE INTEREST IN COME ON ACCRUAL BASIS IN THE RETURN OF INCOME BUT LATER I N THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE CLAIMED THE SA ME TO BE NOT TAXABLE. IN THE A.Y. 2000-01 & 2001-02 THE ASSESSEE HAD NOT SHOWN INTEREST INCOME ON ACCRUAL BASIS IN T HE RETURN OF INCOME. THE ADDITION OF RS. 22 58 875/- ON ACCO UNT OF INTEREST INCOME ON ACCRUAL BASIS MADE IN THE YEAR U NDER CONSIDERATION WAS CONFIRMED BY THE LD. CIT(A) VIDE ORDER DATED 26.02.03 AND FURTHER UPHELD BY THE TRIBUNAL V IDE ORDER DATED 31.01.07. SIMILARLY IN THE A.Y. 2001-02 THE ASSESSEE HAD NOT SHOWN ANY INTEREST INCOME ON ACCRUAL BASIS IN THE ITA NO. 2498/D/10 8 RETURN OF INCOME BUT IN THE COURSE OF ASSESSMENT PR OCEEDINGS VIDE LETTER DATED 14.08.03 ASSESSEE SUBMITTED THAT INTEREST INCOME MAY BE ASSESSED ON PRORATA BASIS. IN THE A. Y. 2001- 02 THE AO ALSO INITIATED PENALTY PROCEEDINGS U/S 2 71(1)(C) FOR NOT SHOWING THE INTEREST INCOME ON ACCRUAL BASIS ON BONDS IN THE RETURN OF INCOME AND A PENALTY U/S 271(1)(C) W AS LEVIED BY THE AO VIDE ORDER DATED 21.03.06. IN THAT ORDER AL SO THE AO RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF K.P. MADHU SUDAN VS. CIT (SUPRA) BY OBSERVING TH AT THE ASSESSEE HAD SUPPRESSED THE ACCRUED INCOME ON G.E. CAPITAL DEBENTURES/BONDS IN THE RETURN OF INCOME BUT HAS FA ILED TO SUBSTANTIATE THE CLAIM. THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE ACT IN RESPECT OF INTEREST INCOME ON ACCRUAL BASIS WAS CANCELLED BY THE LD. CIT(A) BY OBSERVING THAT ASSESSEE WAS UNDER BONAFIDE BELIEF THAT INTEREST ON THE G.E. CAPITAL BONDS WAS NOT TAXABLE ON ACCRUAL BASIS ON T HE STRENGTH OF THE PRESS NOTE DATED 20.03.02 AND ASSE SSEES EXPLANATION HAS BEEN UNJUSTLY IGNORED BY THE AO. T HE ORDER OF LD. CIT(A) IN DELETING THE PENALTY IN RESPECT OF INTEREST INCOME ON ACCRUAL BASIS ON G.E. CAPITAL DEBENTURES/ BONDS HAS BEEN UPHELD BY THE TRIBUNAL VIDE ORDER DATED 23 .10.09 IN ITA NO. 2498/D/10 9 ITA NO. 3528/DEL/07 WITH ITA NO. 1217/DEL/08 BY OBS ERVING AND HOLDING AS UNDER: - 6. THE AO MENTIONS IN RESPECT OF ACCRUED INTEREST ON GE CAPITAL BONDS AND DEBENTURES THAT SUCH INTEREST WAS REQUIRED TO BE REFLECTED IN THE ACCOUNTS SINCE THE APPELLANT FOLLOWS MERCANTILE BASIS OF ACCOUNTING. THAT IT HAD OFFERED TO TAX AN AMOUNT OF RS. 22 58 875/- IN COURSE OF ASSESSMENT PROCEEDINGS. THE AO STATES THAT HIS VIEW ON THE TAXABILITY OF THE AMOUNTS OF INTEREST ON ACCRUAL BASIS HAS BEEN VINDICATED BY THE CIT(A). HAD THERE BEEN NO SCRUTINY ASSESSMENT THE AMOUNT OF INTEREST ON GE CAPITAL BONDS/DEBENTURES WOULD HAVE ESCAPED FROM TAXATION ALL TOGETHER. THE PENALTY SO LEVIED WAS DELETED BY THE CIT(A) BY OBSERVING THAT THE ASSESSEE VIDE ITS LETTER DATED 14.08.2003 TO THE AO CLARIFIED THAT IT HAD PURCHASED 10 DEBENTURES FOR RS. 1.39 CRORES DURING AY 1999-2000. THAT IT WAS HOLDING PART A DEBENTURES WHICH ARE REDEEMABLE AT PART IN ONE INSTALLMENT ON 14.12.2003. THAT THE TREASURY OPERATION CONTROLLER OF GE CAPITAL SERVICE VIDE LETTER DATED 23.2.2000 INFORMED THE ASSESSEE THAT THE ASSESSEE WAS ENTITLED TO THE REDEMPTION OF THE PRINCIPLE DUE AGAINST THE DEBENTURES AND NOT ENTITLED TO ANY INTEREST COUPON ITA NO. 2498/D/10 10 PAYMENTS AND THAT THE DEBENTURES SHALL BE REDEEMED AT PAR IN ONE INSTALLMENT ON 14.12.2003. IN VIEW OF THIS THE CIT(A) FOUND THAT SUFFICIENT COGENT EXPLANATION WAS FURNISHED BY THE ASSESSEE IN ORDER TO REINFORCE THE POSITION THAT INTEREST ON ACCRUAL BASIS ON GE CAPITAL DEBENTURES COULD NOT HAVE BEEN MADE A PART OF THE TAXABLE INCOME. IN VIEW OF THE FINDING RECORDED BY THE CIT(A) WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE WAS UNDER A BONA-FIDE BELIEF THAT INTEREST ON THE GE CAPITAL BONDS WAS NOT TAXABLE ON ACCRUAL BASIS ON THE STRENGTH OF THE PRESS NOTE DATED 20.03.2002. CIRCULAR NO. 2/2002 DATED 15.02.2002 IN RESPECT OF DETERMINATION OF INTEREST ACCRUED ON BONDS ETC. AS PER PRESS NOTE DATED 20.3.2002 WOULD BE APPLICABLE FOR ISSUES AFTER THE DATE OF THE CIRCULAR AND IN THAT VIEW SINCE THE ASSESSEE HAD INVESTED IN THE BONDS DURING AY 1999-2000 AND WAS ENTITLED TO RECEIVE FULL VALUE OF CONSIDERATION IN ONE INSTALLMENT IN 2003 INTEREST ON ACCRUAL BASIS IN RESPECT OF BONDS COULD NOT BE MADE TAXABLE FOR THE RELEVANT ASSESSMENT YEAR. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE PENALTY WITH RESPECT TO ACCRUAL OF INTEREST ON DEBENTURES. ITA NO. 2498/D/10 11 10. FROM THE AFORESAID DECISION OF TRIBUNAL IT IS CLEAR THAT THE TRIBUNAL HAS TAKEN A VIEW THAT THE ASSESSEE WAS UNDER A BONA FIDE BELIEF THAT INTEREST ON THE G.E. CAPITAL BONDS WAS NOT TAXABLE ON ACCRUAL BASIS ON THE STRENGTH OF THE PRESS NOTE DATED 20.03.02 WHERE IT WAS CLARIFIED THAT CIRCULA R NO. 2/2002 DATED 15.02.02 IN RESPECT OF DETERMINATION OF INTER EST ACCRUED ON BONDS ETC. WOULD BE APPLICABLE IN RESPECT OF BON DS ISSUED AFTER THE DATE OF THE CIRCULAR. THIS DECISION OF T HE TRIBUNAL WAS RELIED UPON BY THE ASSESSEE BEFORE THE LD. CIT(A). BUT THE LD. CIT(A) HAS NOT FOLLOWED THIS DECISION BY GIVING THE REASON THAT ASSESSEE HAD NOT OFFERED ANY INCOME ON ACCOUNT OF I NTEREST ON G.E. CAPITAL DEBENTURES/BONDS IN THE YEAR UNDER CONSIDERATION WHEREAS DURING A.Y. 2001-02 IT HAD O FFERED THE INCOME DURING THE ASSESSMENT PROCEEDINGS. THE LD. CIT(A) FURTHER OBSERVED THAT ASSESSEE HAD SHOWN INTEREST I NCOME IN THE RETURN OF INCOME FOR A.Y. 1999-2000 ON ACCRUAL BASIS WHICH WOULD SHOW THAT THERE WAS NO BONAFIDE BELIEF ON THE PART OF THE ASSESSEE THAT THE INTEREST WAS NOT TAXA BLE ON ACCRUAL BASIS. THE LD. CIT(A) THEREFORE DECIDED THE ISSUE AGAINST THE ASSESSEE. AFTER GOING THROUGH THE TRIB UNALS ORDER IN A.Y. 2001-02 CONFIRMING THE CIT(A)S ORDE R IN DELETING THE PENALTY WE FIND THAT THE LD. CIT(A) I S NOT JUSTIFIED ITA NO. 2498/D/10 12 IN NOT DECIDING THE ISSUE IN THE YEAR UNDER CONSIDE RATION IN THE LIGHT OF THE VIEW TAKEN BY THE TRIBUNAL IN THE A.Y. 2001-02. AT THIS STATE IT IS PERTINENT TO NOTE THAT THOUGH ASS ESSEE HAD OFFERED INTEREST INCOME IN THE RETURN OF INCOME FOR A.Y. 1999- 2000 THE ASSESSEE MADE A CLAIM DURING THE ASSESSME NT PROCEEDING THAT IT WAS NOT TAXABLE. IN OTHER WORDS THE ASSESSEE STARTED TO MAKE A CLAIM THAT INTEREST INCO ME ON ACCRUAL BASIS ON BONDS IS NOT TAXABLE ON ACCRUAL BA SIS DURING THE ASSESSMENT PROCEEDINGS FOR THE A.Y. 1999-2000. AFTER MAKING SUCH CLAIM DURING THE ASSESSMENT PROCEEDING FOR THE A.Y. 1999-2000 THE ASSESSEE DID NOT OFFER THE INTE REST INCOME ON ACCRUAL BASIS IN THE RETURN OF INCOME FOR THE A. Y. 200-01 & 2001-02. THE ASSESSEES APPEAL AGAINST THE ASSESSM ENT ORDER FOR A.Y. 2000-01 BEFORE THE LD. CIT(A) CAME T O BE DISPOSED OFF VIDE ORDER DATED 26.02.03 AND THEREAFT ER THE ASSESSEE VIDE LETTER DATED 14.08.03 OFFERED THE INT EREST INCOME TO TAX DURING THE COURSE OF ASSESSMENT PROCE EDINGS FOR A.Y. 2001-02. IT MAKES IT CLEAR THAT WHEN THE AOS ACTION IN ASSESSING THE INTEREST INCOME ON ACCRUAL BASIS H AS BEEN UPHELD BY THE LD. CIT(A) VIDE ORDER DATED 26.02.03 IN A.Y. 2000-01 THE ASSESSEE DECIDED TO OFFER THE SAID INC OME TO TAX IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 20 01-02. ITA NO. 2498/D/10 13 THEREFORE IT IS BECAUSE OF THE CHANGE SCENARIO THA T THE ASSESSEE HAS OFFERED THE INTEREST INCOME TO TAX DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2001-02 I N RESPECT OF WHICH ALSO A PENALTY WAS LEVIED BY THE AO U/S 27 1(1)(C) OF THE ACT WHICH HAS BEEN DELETED BY THE LD. CIT(A) AN D THE TRIBUNAL. WE THEREFORE DO NOT FIND ANY REASON TO TAKE A VIEW OTHER THAN THE VIEW TAKEN BY THE TRIBUNAL IN A.Y. 2 001-02 WHERE IN THE LIGHT OF THE PRESS NOTE DATED 20.03.02 THE ASSESSES BONAFIDE BELIEF THAT INTEREST ON G.E. CAP ITAL BONDS WAS NOT TAXABLE ON ACCRUAL BASIS WAS FOUND TO BE BO NAFIDE BY THE TRIBUNAL AND AS SUCH THE PENALTY WAS DELETED. IT IS NOT IN DISPUTE THAT THE BOARD HAD ISSUED A CIRCULAR NO. 2/ 2002 DATED 15.02.2002 WHERE A CLARIFICATION HAS BEEN MADE THA T WITH REGARD TO THE TAX TREATMENT OF DEEP DISCOUNT BONDS AND SEPARATE TRADING OF REGISTERED INTEREST AND PRINCIP LE OF SECURITIES (STRIPS). THIS CLARIFICATION WAS ISSUED IN THE LIGHT OF CERTAIN PROBLEMS/CONFUSIONS ARISING WITH REGARD TO THE TAX TREATMENT OF DEEP DISCOUNT BONDS. THE CIRCULAR ITS ELF MAKES IT CLEAR THAT THERE WERE DIFFERENT VIEWS WITH REGARD T O THE TAX TREATMENT OF DEEP DISCOUNT BONDS AND THEREFORE TH E BOARD CAME FORWARD AND ISSUED A CLARIFICATION. IT IS TH US CLEAR THAT THERE WAS A DIFFERENCE OF OPINION REGARDING TAX TRE ATMENT OF ITA NO. 2498/D/10 14 DEEP DISCOUNT BONDS WHICH HAS BEEN CLARIFIED BY TH E BOARD VIDE CIRCULAR NO. 2/2002 DATED 15.02.02. THEREAFTE R THE BOARD HAS ALSO ISSUED A PRESS NOTE DATED 20.03.02 GIVING FURTHER CLARIFICATION ON TAX TREATMENT OF DEEP DISCOUNT BON DS AND STRIPS THAT THE CIRCULAR NO. 2/2002 DATED 15.02.200 2 ISSUED BY THE BOARD WOULD NOT HAVE ITS RETROSPECTIVE EFFEC T. IN THE PRESENT CASE THE ASSESSEE PURCHASED THE BONDS ON 30.01.1999 PRIOR TO ISSUANCE OF CIRCULAR NO. 2/2002 DATED 15.02.02 OF THE BOARD AND THE RETURN OF INCOME WER E ALSO FILED BY THE ASSESSEE PRIOR TO THAT DATE. HOWEVER THE A SSESSMENT HAS BEEN MADE ON THE BASIS OF THE CIRCULAR ISSUED SUBSEQUENTLY BY THE BOARD ON 15.02.02. IT IS THUS CLEAR THAT THIS IS A CASE WHERE WHETHER THE INTEREST INCOME ON DEEP DISCOUNT BONDS IS ASSESSABLE ON ACCRUAL BASIS FROM YEAR TO YEAR WAS A DEBATABLE ISSUE PRIOR TO ISSUANCE OF THE CIRCULAR BY THE BOARD ON15.02.02. IT IS ALSO NOT IN DISPUTE TH AT ALL THE DETAILS REGARDING PURCHASE OF BONDS WERE FULLY AND TRULY FURNISHED BY THE ASSESSEE TO THE AO IN THE ASSESSME NT PROCEEDINGS OF THIS ASSESSMENT YEAR AS WELL AS IN E ARLIER YEARS AND IT IS NOT THE CASE WHERE IT CAN BE SAID THAT THE ASSESSEE HAS NOT DISCLOSED FULL PARTICULARS REGARDI NG THE CLAIM IN DISPUTE. THE FACT THAT THE ISSUE WAS DEBATABLE IS FURTHER ITA NO. 2498/D/10 15 ESTABLISHED FROM THE LETTER DATED 23.12.2000 OF G.E . CAPITAL CLARIFYING THAT HOLDER OF PART A OF THE DEBENTURE SHALL BE ENTITLED ONLY TO THE PRINCIPLE REDEMPTION DUE AGAIN ST THE DEBENTURE AND NOT TO ANY INTEREST COUPON PAYMENTS AND THESE DEBENTURES SHALL BE REDEEMED AT PART IN ONE I NSTALLMENT ON 14.12.03 IN FAVOUR OF DEBENTURE HOLDERS OF PART A ONLY. IT WAS ALSO CLARIFIED BY THE G.E. CAPITAL THAT THERE W ILL BE NO DEDUCTION OF TAX AT SOURCE ON REDEMPTION OF PART A OF THE DEBENTURE IT BEING THE PRINCIPLE AMOUNT OF THE STR IP. 11. IN THE LIGHT OF THE DISCUSSION MADE ABOVE AND RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER PASSED IN A.Y. 2001- 02 WE HOLD THAT THE PENALTY LEVIED BY THE AO U/S 27 1(1)(C) OF THE ACT IS LIABLE TO BE CANCELLED IN MUCH AS THE AS SESSEE HAS BEEN ABLE TO FURNISH A BONA FIDE EXPLANATION AND HA S FURNISHED ALL THE RELEVANT PARTICULARS RELATING TO THE CLAIM. WE THEREFORE CANCEL THE PENALTY ORDER AND DECIDE THE ISSUE IN F AVOUR OF THE ASSESSEE. ITA NO. 2498/D/10 16 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER 2011. SD/- SD/- (A.N. PAHUJA) (C.L. SETH I) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 15.11.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITA NO. 2498/D/10 17 ITA NO. 2498/D/10 18