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2.1.2. During the course of appeal proceedings objecting to the A.O's action, the A. R. has filed written submissions. The same is reproduced hereunder -

for convenience sake :-

"The Id. AO has levied maximum penalty of Rs. 4,31,34,7687- @ 300% of tax sought to be evaded vide penalty order dated 26.3.2007. The appellant furnished the return of income showing income of Rs. 27,07,370. The long term capital gain was worked out to Rs, 4,70,20,482. After making investment in specified bonds, deduction u/s. 54EC was claimed for Rs. 4,70,20,482. The assessment u/s. 143(3) was finalized vide order dated 23.3.2005. The capital gain was treated as short term capital gain after considering the addition in the earlier assessment year. Moreover, the notional interest was added on the investment after considering Circular No.2 of 2002 dated 15.02.2002.

3. In law and in facts and circumstances of the Appellant's case, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding Asst. Year 2002-03 the action of Id. Assessing Officer in not allowing claim of deduction u/s.54EC of the Act on long term capital gain referred to in ground no. 2 above."

2.2.1 The brief facts of the case are that it is noted by the A.O. in para 4 of the assessment order that the assessee has shown long term capital gain (LTCG) of Rs.8,79,320/- in respect of purchase and sale of deep discount bonds (DDBs) of Nirma Ltd. He has also noted that the purchase cost of the same have been shown at Rs.40 lacs and sale consideration has been declared at Rs.48,79,320/-. He has further noted that these DDBs were allotted to the assessee on 28.07.2000 and the allotment letter was issued to the assessee dated 23.09.2000. He has further noted that the debenture certificate has been issued to the assessee dated 05.10.2001. Thereafter, it is noted that DDBs of Series A of Nirma Industries Ltd. were listed in National Stock Exchange (NSE) on 20.09.2001 and was made available for dematerialization as on 19.09.2001. Thereafter, he has noted that these DDBs of Nirma Ltd were sold by the assessee on18.03.2002. The assessee has claimed it as long term capital asset by counting the holding period starting form the date of allotment i.e. 28.07.2000 but the A.O. was of the view that these are short term capital assets on the basis of counting of holding period from the date of listing of the same in NSE i.e. 20.09.2001. On the basis of this, the A.O. held that this capital gain of Rs.8,79,320/- is assessable as short term capital gain and he taxed the same accordingly. Moreover, the A.O. disallowed the claim of the assessee for deduction u/s 54EC of the Income tax Act, 1961 also for the same reason that such deduction is allowable against LTCG only and not against STCG. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now, the assessee is in further appeal before us.

2.2.4 From the above para of the Tribunal order, we find that it was held by the tribunal that the holding period has to be counted form the date of allotment till the date of sale and if the same is more than 12 months then, it has to be accepted that it is a LTCG and the assessee is entitled to deduction u/s 54EC also. Hence, in the present case also, by respectfully following the Tribunal decision, we decide both these issues in favour of the assessee and it is held that since period of holding was more than 12 months from the date of allotment i.e. 23.09.2000 till the date of sale i.e. 18.03.2002, the resulting gain has to be assessed as LTCG and the assessee should be held as eligible for deduction u/s 54EC also because there is no other objection of the revenue regarding allowability of deduction u/s 54EC except that the income in question is not a LTCG. Both these grounds no.2 & 3 are allowed.

Asst. Year 2002-03

5. In law and in facts and circumstances of the Appellant's case, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the action of Id. Assessing Officer in not allowing claim of deduction u/s.54EC of the Act on long term capital gain referred to in ground no. 4 above."

2.3.1 The brief facts regarding these issues are that it is noted by the A.O. in the same para 4 of the assessment order that the assessee has shown LTCG of Rs.53.49 lacs from the transaction of NCD principle strip, Part A Series I of Tata Finance Ltd. having purchase cost of Rs.495.51 lacs and sale consideration being Rs.549 lacs. In respect of this capital gain also, the assessee claimed deduction u/s 54EC of the Income tax Act, 1961 because the assessee had made investment in the bonds of Rural Electricity Corporation (REC) of Rs.62.20 lacs and the LTCG of only Rs.8320 had been offered by the assessee. The A.O. has further noted that the assessee has purchased 9 principle strips of Part A Series I of Tata Finance Ltd. of Rs.1 crores (face value) for a consideration of Rs.495.41 lacs on 23.10.2000 from Nirma Industries Ltd., which is a group concern of Nirma group and the same was sold by the assessee on 20.03.2002 at Rs.549 lacs to Nirma Industries Ltd. i.e. the same concern from which the assessee purchased these strips. The A.O. issued show cause notice to the assessee as to why the Board's Circular No.2 of 2002 dated 15.02.2002 is not applicable and why this capital gain should not be considered as STCG in the light of this Board's Circular. In reply, it was submitted by the assessee before the A.O. that the letter of board dated 12.03.1996 was applicable in the present case and therefore, the gain is LTCG. It was further submitted by the assessee before the A.O. that as per the press release of the Board dated 20.03.2002, the applicability of the circular is prospective and not retrospective and for this reason also, the gain in question is LTCG and the same cannot be considered to be STCG. The A.O. was not satisfied and he held that this gain of Rs.53.49 lacs is STSCG and the assessee is not eligible for deduction u/s 54EC also. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now, the assessee is in further appeal before us.