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2015 (7) TMI 645 - AT - Income TaxEligibility for exemption u/s. 54EC - CIT(A) allowed claim - according to AO the sale proceeds of the capital asset were not invested in REC/NHB Bonds and what was invested was only loan taken from the partnership firm, M/s. Tallam Textiles, the claim of exemption u/s. 54EC was not to be allowed - Held that - The evidence filed by the assessee before the CIT(A), in our view, clearly demonstrates that there was no loan taken by the assessee from M/s. Tallam Textiles. It was a case where assessee deposited the sale proceeds in his capital account (current account) and withdrew monies therefrom and made investments in the Bonds. Therefore, there was no question of denying exemption to the assessee u/s. 54EC on the premise that assessee took a loan from Tallam Textiles and made investments in the Bonds and not out of sale proceeds received on sale of capital asset. Even assuming that the assessee had taken loan and made investments in REC Bonds, that cannot be a bar to claim exemption u/s. 54EC of the Act. In our view, the decision of the Mumbai Bench of the Tribunal in Bombay Housing Corporation (2001 (2) TMI 1020 - ITAT MUMBAI) clearly supports the claim of the assessee in this regard - Decided in favour of assessee.
Issues Involved:
1. Justification of CIT(Appeals) in allowing the claim of exemption u/s. 54EC of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Justification of CIT(Appeals) in Allowing the Claim of Exemption u/s. 54EC: The appeal by the Revenue concerns whether the CIT(Appeals) was justified in allowing the assessee's claim for exemption under section 54EC of the Income-tax Act, 1961. The facts reveal that the assessee, an HUF, sold a property and invested the sale proceeds in REC and NHB Bonds. The Department questioned the investment source, suspecting the funds were loans from a firm, M/s Tallam Textiles, rather than direct sale proceeds. During reassessment, the AO contended that the sale proceeds were credited to the partner's capital account in M/s. Tallam Textiles, and the HUF obtained a loan from the firm to invest in the bonds, thus disallowing the exemption claim. The AO relied on a letter from Tallam Textiles confirming the loan. The assessee submitted an affidavit asserting that the funds withdrawn from Tallam Textiles were from its capital account, not a loan. The firm later confirmed this, retracting the earlier statement. The CIT(Appeals) considered these submissions and concluded that even if the funds were borrowed, the assessee was entitled to the exemption under section 54EC, referencing case law which held that the source of funds for investment in specified assets is irrelevant if the investment is made within six months of the sale. The CIT(Appeals) cited several judgments, including IAC vs. Jayantilal Chimanlal (HUF) and decisions from the ITAT Kolkata and Mumbai Benches, supporting the view that investments made out of borrowed funds still qualify for exemption under section 54EC. The CIT(Appeals) thus allowed the exemption, deleting the addition made by the AO. The Tribunal, upon reviewing the evidence and submissions, agreed with the CIT(Appeals). It found that the assessee had indeed withdrawn from its capital account, not taken a loan. Even if the funds were borrowed, the Tribunal held that the exemption under section 54EC would still apply, referencing the Mumbai Bench decision in Bombay Housing Corporation which supported this interpretation. The Tribunal dismissed the Revenue's appeal, affirming the CIT(Appeals)'s decision to allow the exemption under section 54EC. The order was pronounced in the open court on July 10, 2015.
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