2012 (9) TMI 317 - AT - Income Tax

Exemption u/s 54EC - dis-allowance - LTCG on sale of properties - sale consideration deposited in Bank out of which FDR was purchased and some money was given loan to certain persons - later REC bonds purchased - this sum according to the AO had been received by way of transfer from another bank account of the assessee - dis-allowance on ground that investment in purchase of REC bonds were not out of capital gain - Held that - Only requirement u/s 54EC is that investment in specified assets should have been made within a period of six months from the date of transfer of such capital asset. This condition has been complied by the assessee and there is no further condition that the funds should be given out of capital gain. Otherwise also once money is deposited in the bank account it gets merged with other funds of the assessee and it is impossible to locate which funds have been used for purchase of specified assets because the normal businessman would keep on doing various transactions in the bank account. Deduction allowed - Decided in favor of assessee

Summary

Issues:
1. Disallowance of exemption u/s 54EC of the Income-tax Act, 1961.
2. Discrepancy in the amount received against the sale of property.

Issue 1 - Disallowance of exemption u/s 54EC:
The Assessing Officer disallowed the exemption u/s 54EC for the assessee's investment in REC bonds, stating that the funds were not from capital gains. The assessee argued citing precedents allowing investment before receiving compensation. The CIT(A) ruled in favor of the assessee, noting compliance with the six-month investment period requirement. The ITAT upheld the decision, emphasizing that Section 54EC only mandates timely investment in specified assets, not specifying the source of funds. The ITAT reasoned that once funds are in a bank account, it is challenging to trace their origin due to various transactions, supporting the assessee's eligibility for the deduction.

Issue 2 - Discrepancy in the amount received against the sale of property:
The Assessing Officer noted a discrepancy in the amount received against the sale of property, leading to the addition of Rs. 1,87,500 to the assessee's income. The CIT(A) found the Assessing Officer's observations ambiguous and directed a reevaluation of the capital gain. The ITAT upheld the CIT(A)'s decision, stating that the Assessing Officer's unclear findings warranted a review of the records to determine the correct capital gain. Consequently, the ITAT dismissed the revenue's appeals in both cases, affirming the CIT(A)'s orders.