2017 (11) TMI 2046 - AT - Income Tax

LTCG - deduction claim u/s.54EC - claim denied on the ground that the relevant capital gains had been reinvested to the tune of Rs.50lacs each in a time span of two separate assessment years in proceedings u/s. 143(3) - assessee had disclosed long term capital gains to be arising from surrender of tenancy right as well as sale of shares in a Private Limited Company received through gift - AO denied impugned deduction provision could not be spread over to the maximum amount limit of Rs.50 lacs each spread over in two assessment years - whether crucial expression any financial year meant only one financial year of reinvestment and not more than that? - HELD THAT - It has come on record that the CIT(A) has followed the above co-ordinate bench order in concluding that assessee s reinvestment of capital gains to the tune of Rs.50 lacs each spread over in two financial years falling within 6 months is very much allowable as deduction claim u/s.54 EC of the Act. Hon ble Madras high court s judgment in CIT vs. C. Jaichander 2014 (11) TMI 54 - MADRAS HIGH COURT also adopts a similar reasoning that there is no bar as propagated at Revenue s behest in allowing such a deduction claim. Their lordships further take into account amendment in Section 54EC (1) by insertion of second proviso w.e.f. 01.04.2015 alongwith relevant explanatory memorandum to conclude that the amendment effect restricting the deduction amount to Rs.50 lacs only in any case would apply w.e.f. 01.04.2015 in relation to assessment year 2015-16. We reiterate that we are in assessment year 2011-12 only. The Revenue fails to dispute all these developments on judicial side. We therefore find no reason to interfere with the learned CIT(A) s order accepting assessee s deduction claim u/s.54EC of the Act. Revenue s appeal is accordingly dismissed.

Summary

Issues Involved:
- Disallowance of deduction claim u/s. 54EC of the Income Tax Act
- Interpretation of the expression "any financial year" in relation to reinvestment of capital gains
- Validity of spreading deduction claim over two financial years
- Application of relevant case laws and judicial precedents

Analysis:

1. The case involves the disallowance of the assessee's deduction claim of Rs.50 lakhs u/s.54EC of the Income Tax Act for the assessment year 2011-12. The Assessing Officer disallowed the deduction claim on the ground that the capital gains were reinvested in two separate financial years, which, according to the Officer, did not comply with the provision of the Act.

2. Despite being called twice, the assessee did not appear, leading to the case proceeding ex parte. The case file confirmed that the assessee disclosed long-term capital gains from the surrender of tenancy rights and sale of shares, reinvested as per Section 54EC deduction claim of Rs.1 crore, with Rs.50 lakhs each reinvested in NHAI and REC bonds in two different financial years.

3. The Assessing Officer disallowed the deduction, contending that the reinvestment should have occurred in a single financial year, not spread over two years. However, the CIT(A) reversed this decision, citing a relevant ITAT judgment supporting the assessee's claim for exemption up to Rs.1 crore spread over two financial years as per the clear language of the proviso to section 54EC.

4. The appellate tribunal upheld the CIT(A)'s decision, emphasizing that the reinvestment of capital gains in two financial years within six months was permissible under the Act. The tribunal also referenced a Madras High Court judgment supporting the allowance of such deduction claims, highlighting that the amendment restricting the deduction amount to Rs.50 lakhs came into effect later and did not apply to the assessment year in question.

5. Ultimately, the tribunal dismissed the Revenue's appeal, affirming the decision to allow the assessee's deduction claim u/s.54EC of the Act based on the interpretation of the relevant provisions and judicial precedents. The judgment was pronounced on November 1, 2017, in favor of the assessee.