2015 (9) TMI 1226 - AT - Income Tax

Disallowance of exemption u/s.54EC - further investment in REC bonds of ₹ 50 lakhs made in the next financial year - CIT(A) deleting disallowance - Held that - The issue is squarely covered by the decision of Hon ble Madras High Court in the case of Jaichander, 2014 (11) TMI 54 - MADRAS HIGH COURT wherein held from a reading of Section 54EC(1) 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 the 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. Also see case of Dr. Kumar M. Dhawale 2015 (2) TMI 624 - ITAT MUMBAI . Thus no infirmity in the order of CIT(A) for allowing further claim of exemption in respect of investment made in subsequent financial year amounting to ₹ 50 lakhs u/s.54EC of the I.T.Act. - Decided against revenue.

Summary

Issues:
- Disallowance of exemption u/s.54EC of the Act in respect of further investment in REC bonds of Rs. 50 lakhs made in the next financial year.

Analysis:
1. The revenue filed an appeal against the order of CIT(A)-8, Mumbai, for the assessment year 2010-11, specifically challenging the deletion of disallowance of exemption u/s.54EC related to further investment in REC bonds of Rs. 50 lakhs made in the subsequent financial year.

2. During the assessment proceedings, the AO observed that the assessee had earned long-term capital gain and claimed deduction u/s.54EC for investment in REC Bonds. The AO found discrepancies in the claim as the assessee had purchased REC Bonds in different financial years, limiting the eligible deduction to Rs. 50 lakhs only as per the provisions of section 54EC.

3. The CIT(A) deleted the disallowance after considering the facts and arguments presented. The CIT(A) referred to a similar case before the Hon'ble Ahmedabad Bench and held that the assessee was entitled to exemption of Rs. 1 crore u/s.54EC as the investment was made within the prescribed time limit of six months across two financial years.

4. The Tribunal noted that the issue was addressed in a decision by the Hon'ble Madras High Court, which clarified that there is no cap on the investment amount in bonds under section 54EC(1) and that the time limit for investment is six months after the property sale. The Tribunal also cited a decision by a coordinate bench in favor of the assessee for further support.

5. Based on the legal precedents and interpretations, the Tribunal upheld the CIT(A)'s decision, allowing the further claim of exemption for the investment made in the subsequent financial year amounting to Rs. 50 lakhs u/s.54EC of the Income Tax Act. Consequently, the appeal of the revenue was dismissed.