2014 (6) TMI 1030 - AT - Income Tax

Addition as capital gain in respect of disallowance u/s 54EC for late investment of REC Bonds - Admission of additional ground - HELD THAT - Ground raised by the assessee in terms of nature of land u/s 2(14) of the Act is a legal ground, as such in the interests of substantial justice in order to decide the issue of taxability of the specific income stated to have arisen as a result of sale of a specific land the issue is germane and goes to the root of the matter, the same is directed to be admitted. Considering the plea of additional evidence we also hold that the same is relevant and crucial for determining the issue as such the same is also directed to be admitted. The prayer of the Ld. Sr. DR, Mr. Sameer Sharma that the issue has to be restored to the AO has merit as the facts necessarily are required to be looked into at the stage of the Assessing Officer. After admitting the additional ground and the additional evidence to restore the issue back to the file of the Assessing Officer with the direction to adjudicate thereon by way of a speaking order in accordance with law. The additional evidence filed by the assessee needless to say shall be taken into consideration while deciding the issue. The assessee would be at liberty to place whatever other evidence it has in its possession order to support its claim. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Addition of capital gain for late investment in REC Bonds under section 54EC.
2. Taxability of capital gains on the sale of rural land under section 2(14) of the Income Tax Act.

Analysis:

Issue 1: Addition of capital gain for late investment in REC Bonds under section 54EC:
The appellant contested the addition of Rs. 41,39,905 as capital gain, arguing that the amount was invested in REC Bonds when they became available in the market. The appellant highlighted the Central Government's notification allowing REC to issue additional bonds and extending the time limitation for investments under section 54EC. Due to the appellant's long-term capital asset transfer date falling beyond the cut-off date, they waited for the new series of bonds to be issued and invested the amount in July 2007. The appellant maintained that the addition of the capital gain was unjustified as the amount was kept in a bank account and not utilized for any other purpose. The Tribunal admitted additional grounds raised by the appellant regarding the taxability of the capital gains on the land sold, directing the issue to be restored to the Assessing Officer for further examination.

Issue 2: Taxability of capital gains on the sale of rural land under section 2(14) of the Income Tax Act:
The appellant sought to establish that the capital gains on the land sold were non-taxable as the underlying land was rural, falling under the exemption from taxation as per section 2(14) of the Act. Supporting evidence included an affidavit identifying the sold land as situated beyond 8 kilometers from the municipality, along with a letter from the Tehsildar confirming the rural status of the land. The Tribunal deemed the grounds raised by the appellant as legal in nature and crucial for determining the taxability of the specific income arising from the land sale. Consequently, the Tribunal admitted the additional grounds and evidence, directing the issue to be remanded to the Assessing Officer for a detailed examination, considering all evidence presented by the appellant.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the importance of admitting additional grounds and evidence to ensure substantial justice in determining the taxability of the capital gains related to the late investment in REC Bonds and the sale of rural land under the Income Tax Act.