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2012 (8) TMI 578 - AT - Income TaxCapital gains - Denial of Deduction u/s. 54EC of the Act investment in REC bonds, out of the amount received - wife of the assessee, was the main-holder of the certificate and the assessee alongwith his son are only the nominees of the first beneficial owner Held that - Requirement for claiming deduction u/s. 54EC of the Act was fulfilled in the instant case by virtue of the fact that the funds invested emanated from the sum received out of the transfer of long term capital asset and that it was invested within a specified time - payment of the maturity proceeds to any one of the bond holders is not a material factor for deciding the ownership of the bonds - Assessing Officer was directed to allow claim of deduction u/s. 54EC of the Act. Denial of Deduction under section 54F of the Act on the ground that assessee called for the municipal approved plan and the assessee could not furnish the same - claimed to have purchased two flats Held that - Assessing Officer directed to give the assessee one more opportunity to prove that the sale deeds with reference to which assessee claims to have purchased the property was the same which was occupied by the assessee and it is legally permitted to be constructed by the municipal authorities - assessee is at liberty to show that he is legally entitled to claim deduction under section 54F - claim of deduction under section 54F of the Act is set aside to the file of the Assessing Officer.
Issues Involved:
1. Claim of exemption under section 54F of the Income Tax Act. 2. Claim of exemption under section 54EC of the Income Tax Act. Issue-wise Detailed Analysis: 1. Claim of exemption under section 54F of the Income Tax Act: The assessee, an employee of M/s. L & T, surrendered tenancy rights for Rs. 1.20 crores and claimed exemption under section 54F, asserting that he purchased two flats (102A and 102B) in "Hercules Vasant Galaxy" and combined them into a single unit. The Assessing Officer (AO) sent a Ward Inspector to verify the claim, who reported that there were no modifications to suggest the combination of two flats into one. The AO concluded that only Flat No. 102A existed and disallowed the deduction for Flat No. 102A, allowing it for Flat No. 102B instead. On appeal, the CIT(A) observed that the Inspector's report indicated a single unit and concluded that even if two separate units were purchased and combined, it would qualify for exemption under section 54F. The CIT(A) directed the AO to allow the claim. The Revenue contended that the purchase of two properties was non-genuine and hence the assessee was not entitled to the deduction. The Tribunal noted that the initial onus was on the assessee to prove compliance with section 54F conditions. The Tribunal found the sale deeds lacked details and the assessee failed to provide municipal plans or evidence of bona fide purchase transactions. The Tribunal directed the AO to give the assessee another opportunity to prove the purchase and legality of the construction. The claim under section 54F was set aside to the AO for further verification. 2. Claim of exemption under section 54EC of the Income Tax Act: The assessee invested Rs. 46 lakhs in REC bonds, with bond certificates issued in two different names. The AO allowed the deduction for the bond where the assessee was the main holder but disallowed it for the bond where the wife was the main holder, distinguishing it from the ITAT decision in Dr. Mrs. Sudha S. Trivedi v. ITO. On appeal, the CIT(A) observed that the primary requirement for section 54EC was fulfilled as the investment emanated from the sale proceeds and was made within the specified time. The CIT(A) noted that the maturity proceeds being paid to any bond holder was immaterial for deciding ownership. The CIT(A) allowed the deduction, noting that REC had agreed to remit the maturity proceeds to the assessee's account. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the deduction under section 54EC in light of the ITAT decision in Dr. Mrs. Sudha S. Trivedi. Conclusion: The appeal filed by the Revenue was treated as partly allowed. The Tribunal directed further verification by the AO regarding the claim under section 54F, while upholding the CIT(A)'s decision on the claim under section 54EC.
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