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2014 (9) TMI 495 - AT - Income TaxRestriction of amount of exemption u/s 54EC investment in two financial year totaling ₹ 1 crore - LTCG on sale of factory land - Held that - The Long Term Capital Gain accrued to the assessee on transfer of Long Term Capital Asset on 01.01.2008 - The assessee invested ₹ 50 lakhs on 29.02.2008 i.e. FY 2007-08 and ₹ 50 lakhs on 30.06.2008 i.e. FY 2008-09 - the assessee invested in ₹ 1 crore in specified bonds which are eligible for deduction u/s 54EC of the Act within six months from the date of the transfer of capital asset giving rise to Long Term Capital Gain in the hands of the assessee - A reading of the Circular No.3/2008 dated 12.03.2008 issued by CBDT shows that the proviso has been inserted to limit the investment in eligible bonds to an amount of ₹ 50 lakhs in a financial year and the proviso does not limit the amount of exemption u/s 54EC in a financial year to an amount of ₹ 50 lakhs - the proviso to section 54EC does not limit the amount of exemption which is available as per provision of section 54EC relying upon Vivek Jairazbhoy v. Dy. CIT 2014 (9) TMI 419 - ITAT BANGALORE - the lower authorities were not justified in not allowing exemption u/s 54EC to the assessee in respect of investments made in specified capital bonds of ₹ 1 crore which were within the limit of proviso to section 54EC i.e. ₹ 50 lakhs in a financial year and were within the specified period of six months thus, the order of the CIT(A) is set aside and the AO is directed to allow exemption to the assessee u/s 54EC in respect of both the investments i.e. ₹ 50 lakhs on 02.08.2008 and ₹ 50 lakhs on 30.06.2008 Decided in favour of assessee.
Issues Involved:
1. Whether the Commissioner of Income-tax (Appeals) erred in restricting the exemption under Section 54EC to Rs. 50 lakhs instead of Rs. 1 crore claimed by the assessee. Detailed Analysis: Issue 1: Restriction of Exemption under Section 54EC The sole issue in this appeal is the restriction of exemption under Section 54EC to Rs. 50 lakhs instead of Rs. 1 crore. The assessee earned Long Term Capital Gain (LTCG) on the sale of factory land and claimed an exemption of Rs. 1 crore under Section 54EC by investing in bonds of NHAI and REC. The Assessing Officer (AO) restricted the exemption to Rs. 50 lakhs based on the proviso to Section 54EC(1) inserted by the Finance Act, 2007, effective from 01.04.2007. The AO cited the Explanatory Notes and CBDT Circular No. 3/2008, which emphasized a ceiling on the quantum of investment in such bonds to Rs. 50 lakhs per financial year. Before the Commissioner of Income-tax (Appeals), the assessee argued that the investment was made in two different financial years: Rs. 50 lakhs in FY 2007-08 and another Rs. 50 lakhs in FY 2008-09, thus complying with the stipulation of Section 54EC. The Commissioner of Income-tax (Appeals) upheld the AO's decision, interpreting the proviso to Section 54EC(1) as restricting the exemption to Rs. 50 lakhs per assessee per financial year. The Commissioner cited various judicial precedents and CBDT Circular No. 3/2008 to support this interpretation. The assessee relied on several Tribunal decisions, including the Bangalore Bench in the case of Vivek Jairazbhoy, the Chennai Bench in the case of Smt. Sriram Indubal, and the Panaji Bench in the case of Ms. Raina Faleiro, which held that the proviso to Section 54EC restricts the investment in a single financial year to Rs. 50 lakhs but does not cap the total exemption to Rs. 50 lakhs if investments are made in different financial years within the six-month period. The Departmental Representative supported the lower authorities' decisions, citing the Jaipur Bench's decision in ACIT v. Shri Raj Kumar Jain & Sons (HUF), which interpreted the proviso as limiting the exemption to Rs. 50 lakhs per financial year. Upon review, the Tribunal found that the proviso to Section 54EC, as amended by the Finance Act, 2007, limits the investment in eligible bonds to Rs. 50 lakhs in a financial year but does not restrict the total exemption to Rs. 50 lakhs if investments are made in different financial years within the six-month period. The Tribunal referenced the CBDT Circular No. 3/2008 and the second proviso to Section 54EC inserted by the Finance (No.2) Act, 2014, which further clarified this interpretation. The Tribunal concluded that the lower authorities were not justified in restricting the exemption to Rs. 50 lakhs and directed the AO to allow the exemption of Rs. 1 crore under Section 54EC for investments made in two different financial years within the specified six-month period. Conclusion: The Tribunal allowed the appeal, setting aside the orders of the lower authorities and directing the AO to grant the exemption of Rs. 1 crore under Section 54EC, as the investments were made within the permissible period and in compliance with the financial year limits.
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