2018 (2) TMI 713 - AT - Income Tax

Eligibility for deduction u/s 54E - investment made of ₹ 50 lakhs each of different two Financial Years within a period of six months - Held that - Prior to amendment, the time limit of ₹ 50 lakhs as prescribed u/s 54EC is per year and if the assessee invest ₹ 50 lakh each in two different years, otherwise fulfilling other conditions of section 54EC, thus assessee will be entitle to the benefit of ₹ 1 crore and not merely ₹ 50 lakhs. Thus, the limit of ₹ 50 lakh under the first proviso is not per assessee but per Financial Year. So far as, the amendment made by the Finance Act, 2014 is w.e.f. 01/04/2015 i.e. Assessment Year 2015-16 onwards and cannot be held to be retrospective. Thus, we hold that the assessee is entitle to deduction u/s 54EC as claimed by him and does not restrict the addition as has been done by the Assessing Officer - Decided in favour of assessee Disallowing of non-qualifying expenditure u/s 48 - Held that - Before this Tribunal, claimed that the amount was paid through banking channel and thus so far as payment is concerned there is no dispute. We have also perused the observation made in para 5.1.1 of the impugned order. Considering the totality of facts and the assertion made by the assessee, we are of the view that the whole issue needs reexamination by the AO, afresh. AO is directed to examine the claim of the assessee for which due opportunity of being heard be provided and the true facts may be brought on record. AO is to also to examine the fact and the clauses mentioned in client agreement dated 27/05/2008 (alongwith the scope of work and other attendant facts) between Devidayal Sales Ltd. and Avandus Capital Pvt. Ltd. and genuineness of payment claimed to be made by the assessee. The assessee is also directed to furnish necessary evidence to substantiate the claim, thus, this appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Eligibility for deduction under Section 54EC of the Income Tax Act, 1961 for investments made in different financial years.
2. Treatment of professional fees paid as qualifying expenditure under Section 48 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Eligibility for Deduction under Section 54EC:

The primary issue was whether the assessee could claim a deduction under Section 54EC of the Income Tax Act, 1961 for investments made in different financial years within a period of six months from the date of transfer of a long-term capital asset. The Revenue contended that the legislative intent was to restrict the deduction to ?50 lakhs per financial year, and thus, the assessee should not be allowed a deduction of ?1 crore.

During the hearing, the assessee's counsel argued that the amendment made by the Finance Act, 2014, which restricted the investment to ?50 lakhs per financial year, was applicable only from the Assessment Year 2015-16. The assessee's case pertained to the Assessment Year 2011-12, during which the limit was ?50 lakhs per financial year. The counsel relied on decisions from the Hon'ble Madras High Court in the cases of CIT v. Coromandel Industries Ltd. and CIT v. C. Jaichander.

The Tribunal found that the issue was covered in favor of the assessee by the decision in the case of Bharatkumar M Jain (HUF) & Manekchand G Jain, where it was held that the exemption under Section 54EC is available if the long-term capital gains are invested in specified bonds within six months, even if such investment is made in two different financial years. The Tribunal noted that the first proviso to Section 54EC(1) restricts the investment to ?50 lakhs per financial year, but there is no cap on the total investment made within six months. The Tribunal also referred to the amendment by the Finance Act, 2014, which clarified the restriction on investment in bonds to ?50 lakhs per financial year, applicable from Assessment Year 2015-16.

The Tribunal concluded that prior to the amendment, the limit of ?50 lakhs was per financial year, and if the assessee invested ?50 lakhs each in two different financial years within six months, the assessee was entitled to a deduction of ?1 crore. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) in allowing the full deduction claimed by the assessee.

2. Treatment of Professional Fees as Qualifying Expenditure under Section 48:

The second issue was whether the professional fees paid by the assessee for facilitating the sale of shares could be treated as qualifying expenditure under Section 48 of the Income Tax Act, 1961. The assessee claimed that the fees paid to M/s Avendus Capital Pvt. Ltd. and M/s Khetan & Co. for their professional services should be allowed as expenses incurred wholly and exclusively in connection with the transfer of shares.

The Assessing Officer disallowed the claim, holding that the expenses were incurred by Devidayal Sales Ltd. (DSL) and not by the assessee. The Commissioner of Income Tax (Appeals) affirmed this view.

Before the Tribunal, the assessee argued that the payment was made through banking channels and the entire expenditure was for the purpose of selling the shares. The Tribunal directed the Assessing Officer to re-examine the claim, considering the client agreement between DSL and Avendus Capital Pvt. Ltd., and to verify the genuineness of the payment. The Tribunal allowed the assessee's appeal for statistical purposes, directing the Assessing Officer to provide an opportunity for the assessee to substantiate the claim with necessary evidence.

Conclusion:

The appeal of the Revenue was dismissed, affirming the assessee's entitlement to a deduction under Section 54EC for investments made in different financial years within six months. The appeal of the assessee was allowed for statistical purposes, directing a re-examination of the professional fees paid as qualifying expenditure under Section 48.

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