2014 (1) TMI 1758 - AT - Income Tax

Eligibility of Deduction u/s.54EC - Held that - The assessee is entitled to deduction u/s.54EC for the amount of ₹ 50 lakhs each invested in two different financial years which otherwise are invested within a period of 6 months from the date of sale of the capital asset. We accordingly setaside the order of the CIT(A) and direct the Assessing Officer to allow the claim of deduction u/s.54EC made by the assessee. The ground raised by the assessee is accordingly allowed. See ACIT Vs. Shri Raj Kumar Jain & Sons (HUF) 2012 (3) TMI 257 - ITAT JAIPUR

Summary

Issues Involved:
1. Denial of deduction under Section 54EC of the Income Tax Act, 1961.
2. Interpretation of the proviso to Section 54EC regarding the limit of Rs. 50 lakhs investment per financial year.
3. Applicability of judicial precedents and interpretation of statutory provisions.

Detailed Analysis:

1. Denial of Deduction under Section 54EC:
The assessee, an individual, claimed a deduction under Section 54EC of the Income Tax Act, 1961, for investments made in REC bonds. The Assessing Officer (AO) restricted the deduction to Rs. 50 lakhs, arguing that the exemption should be limited to the investment made in the financial year in which the transfer of the capital asset occurred. The AO noted that the assessee had invested Rs. 50 lakhs each in two different financial years (2008-09 and 2009-10) and claimed a total exemption of Rs. 1 crore. The AO denied the exemption for the second Rs. 50 lakhs investment, stating it defeated the purpose of the section.

2. Interpretation of the Proviso to Section 54EC:
The CIT(A) upheld the AO's decision, distinguishing the decision of the Ahmedabad Bench of the Tribunal in the case of Shri Aspi Ginwala and others Vs. ACIT and following the decision of the Jaipur Bench of the Tribunal in the case of ACIT Vs. Shri Raj Kumar Jain & Sons (HUF). The CIT(A) held that the admissible deduction under Section 54EC cannot exceed Rs. 50 lakhs.

3. Applicability of Judicial Precedents and Interpretation of Statutory Provisions:
The assessee's counsel cited various judicial precedents, including the decisions of the Panaji Bench of ITAT in ITO Vs. Ms. Rania Faleiro, the Bangalore Bench in Shri Vivek Jairazbhoy Vs. DCIT, and the Ahmedabad Bench in Shri Aspi Ginwala Vs. ACIT. These decisions supported the view that an assessee could claim a total deduction of Rs. 1 crore under Section 54EC by making investments in two different financial years, provided the investment in each financial year did not exceed Rs. 50 lakhs.

The Tribunal considered these precedents and the arguments presented by both sides. It noted that the Panaji Bench and Bangalore Bench had held that for claiming deduction under Section 54EC, the assessee could make investments in two different financial years, provided the investment in each financial year did not exceed Rs. 50 lakhs.

The Tribunal also referred to the explanatory note in Circular No. 3/2008 issued by the CBDT, which clarified that the limit of Rs. 50 lakhs was per person per financial year. The Tribunal emphasized that the language of the proviso to Section 54EC was clear and unambiguous, allowing investments up to Rs. 50 lakhs in each financial year.

The Tribunal concluded that the assessee was entitled to a deduction under Section 54EC for Rs. 50 lakhs each invested in two different financial years, provided the investments were made within six months from the date of transfer of the capital asset. The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction claimed by the assessee.

Conclusion:
The Tribunal allowed the appeals filed by the respective assessees, holding that they were entitled to a deduction under Section 54EC for investments of Rs. 50 lakhs each in two different financial years, provided the investments were made within six months from the date of transfer of the capital asset. The Tribunal's decision was based on the interpretation of the proviso to Section 54EC, judicial precedents, and the explanatory note issued by the CBDT.