2015 (2) TMI 624 - AT - Income Tax

Disallowance under Section 54EC - whether investment of ₹ 50 lakh made in HHAI Bonds on 26-08-2008 can be considered to be made within six months period as per the proviso to sec. 54EC - Held that - Since the wording of the proviso to section 54EC is clear, the benefits which are available to the assessee cannot be denied. In view of above, it is hereby held that the assessee is entitled for exemption of ₹ 1 crore as six months period for investment in eligible investments involved is two financial years. Language of Section 54EC is clear and unambiguous and it leads to the interpretation that the assessee can make the investment in two different financial years provided in a financial year the investment made did not exceed ₹ 50,00,000/-. Respectfully following the referred decision of the co-ordinate benches in Ram Aganval v. Jt. CIT 2001 (9) TMI 233 - ITAT BOMBAY-G and Ms. Rania Faleiro 2013 (11) TMI 518 - ITAT MUMBAI , this issue is accordingly decided in favour of the assessee. Indexed cost of acquisition of the property - computation of LTCG - adopting the date of acquisition as date of inheritance of the property v/s date of acquisition by the person from whom the property has been inherited by the assessee - Held that - As relying on CIT Vs. Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT wherein held that the question of deducting the cost of improvement incurred by the previous owner in the case of an assessee covered under section 49(1) of the Act would arise only if the period for which the asset was held by the previous owner is included in determining the period for which the asset was held by the assessee. Therefore, it is reasonable to hold that in the case of an assessee covered under section 49(1) of the Act, the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. - Decided in favour of the assessee.

Summary

Issues:
1. Disallowance under Section 54EC.
2. Levy of interest u/s 234.
3. Indexed cost of acquisition of the property.

Issue 1: Disallowance under Section 54EC
The appeal was against the order of the Commissioner of Income Tax (Appeals) relevant to assessment year 2009-10. The assessee sold a property in January 2009, invested in Rural Electrification Corporation (REC) Bonds, and claimed a deduction of Rs. 1 Crore under Section 54EC of the Income Tax Act, 1961. The Assessing Officer noted the investment in REC Bonds was made in two installments, allowing exemption only for Rs. 50,00,000. The CIT(A) upheld this decision. However, the Tribunal referred to cases where investments were made in two financial years, holding that the assessee was entitled to exemption up to Rs. 1 Crore. The Tribunal relied on clear language in the proviso to Section 54EC and previous judicial decisions supporting the assessee's claim. Therefore, the appeal was allowed in favor of the assessee.

Issue 2: Levy of interest u/s 234
Ground No.3 of the appeal raised the issue of interest levied under Section 234, which was considered consequential and did not require adjudication at that stage. Hence, no further analysis or decision was provided on this issue in the judgment.

Issue 3: Indexed cost of acquisition of the property
Ground No.4 of the appeal related to the indexed cost of acquisition of the property. The AO computed Long Term Capital Gains (LTCG) by adopting the date of inheritance of the property by the assessee. However, the assessee argued that the date for indexation should be the date of acquisition by the person from whom the property was inherited. The Tribunal referred to a decision of the Hon'ble Bombay High Court, which held that in cases where the asset was inherited, the capital gains liability should be computed considering the assessee held the asset from the date it was held by the previous owner. Following this decision, the Tribunal ruled in favor of the assessee on this issue, allowing the appeal.

In conclusion, the Tribunal allowed the assessee's appeal concerning disallowance under Section 54EC and the indexed cost of acquisition of the property. The issue of interest levied under Section 234 was considered consequential and did not require further adjudication. The judgment provided detailed analysis and legal interpretations supporting the decisions made on each issue raised in the appeal.