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2017 (9) TMI 1460 - AT - Income TaxDisallowance of deduction claimed u/s 54EC - time limit for investment - Held that - From a reading of Section 54EC and the first proviso, it is clear that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by assessee cannot be denied. It would have made a difference, if the restriction on the investment in bonds to ₹ 50,00,000/- is incorporated in Section 54EC(1) of the Act itself. However, the ambiguity has been removed by the legislature with effect from 1.4.2015 in relation to the assessment year 2015-16 and the subsequent years. For the foregoing reasons, we find no infirmity in the orders passed by the Tribunal warranting interference by this Court. The substantial questions of law are answered against the Revenue and these appeals are dismissed. We are of the view that there are differences in the judicial opinion on the issue. Thus following the decision of Hon ble Madras High Court in the case of CIT vs S. Jaichander 2014 (11) TMI 54 - MADRAS HIGH COURT , dismiss the appeal of the Revenue on this ground.
Issues Involved:
1. Whether the assessee can claim deduction under Section 54EC of the Income-tax Act, 1961, exceeding ?50 lakhs by investing in two different financial years. Issue-Wise Detailed Analysis: 1. Deduction under Section 54EC of the Income-tax Act, 1961: The primary issue revolves around the interpretation of Section 54EC of the Income-tax Act, 1961, which deals with the exemption of capital gains on investment in certain bonds. The specific question is whether the assessee can claim a deduction exceeding ?50 lakhs by making investments in two different financial years. Facts of the Case: The assessee sold agricultural land for ?1,37,22,500 and reported a long-term capital gain of ?99,53,675. The assessee claimed a deduction under Section 54EC by investing ?1 crore in NHAI bonds, arguing that ?50 lakhs was invested in each of two financial years. Assessing Officer's (AO) Stand: The AO restricted the exemption to ?50 lakhs, referencing the judgment of ITAT Jaipur in ACIT vs. Shri Raj Kumar Jain & Sons (HUF), which stated that the deduction under Section 54EC should not exceed ?50 lakhs in any financial year. The AO asserted that the matter had not reached finality in higher courts and relied on the interpretation that the proviso to Section 54EC should not lead to discrimination among taxpayers. CIT(A)'s Decision: The CIT(A) deleted the addition made by the AO, allowing the assessee's claim of ?1 crore deduction. Tribunal's Analysis: The Tribunal reviewed the arguments, relevant orders, and various judicial decisions. It reproduced Section 54EC, emphasizing the proviso that limits the investment in specified bonds to ?50 lakhs per financial year. Judicial Opinions: - The ITAT Ahmedabad in Aspi Cinwala vs. CIT and ITAT Bangalore in Vivek Jairazbhoy vs. DCIT held that the exemption is available on investments of ?1 crore if made within the prescribed time limit falling in two different financial years. - Contrarily, the ITAT Jaipur in ACIT vs. Shri Raj Kumar Jain & Sons (HUF) held that the exemption should be restricted to ?50 lakhs even if ?1 crore was invested within the prescribed time limit falling in two financial years. High Court Rulings: - The Madras High Court in CIT vs. S Jaichander clarified that the first proviso to Section 54EC(1) restricts the benefit of investment in bonds to ?50 lakhs per financial year. However, it acknowledged that if the six-month investment period spans two financial years, the assessee can claim the benefit for ?50 lakhs in each year. Legislative Amendments: The Finance (No. 2) Act, 2014, effective from 1-4-2015, introduced a second proviso to Section 54EC(1), explicitly stating that the total investment in specified bonds should not exceed ?50 lakhs during the financial year of transfer and the subsequent financial year. This amendment aimed to remove ambiguities and apply from assessment year 2015-16 onwards. Tribunal's Conclusion: Given the differences in judicial opinions and the absence of a jurisdictional High Court decision, the Tribunal found the reasoning of the ITAT Jaipur bench persuasive but ultimately followed the Madras High Court's decision. The Tribunal dismissed the Revenue's appeal, allowing the assessee's claim based on the interpretation that investments spanning two financial years could qualify for a total deduction of ?1 crore. Final Judgment: The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 21.09.2017.
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