2019 (1) TMI 881 - AT - Income Tax

Exemption u/s. 54EC - investment in REC Bonds is made beyond the stipulated time - no opportunity of explanation to the assessee given - Held that - We note that the assessee has duly issued the cheque for the investment in accordance with the act. The delay of the bank in clearing the amount is a meager delay of only four days. This delay is attributable to the banking channel and, hence, in our considered opinion, adverse inference cannot be drawn against the assessee on the technical ground of delay of merely four days in clearance of the cheque. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee.

Summary

Issues involved:
1. Disallowance of exemption u/s. 54EC for investment in REC Bonds made beyond stipulated time.
2. Lack of observance of natural justice in confirming disallowance u/s. 54EC without giving opportunity of explanation.
3. Disregard to the intent of the assessee to pay the amount due within stipulated time.

Analysis:

Issue 1: Disallowance of exemption u/s. 54EC for investment in REC Bonds made beyond stipulated time:
The assessee earned long term capital gain (LTCG) and claimed deduction u/s. 54EC by investing in REC bonds. The AO disallowed the exemption as the investment was made after the stipulated time limit. The assessee argued that the delay was due to the bank's clearance process, with the cheque issued on time but cleared four days later. The ITAT found that the delay was minimal and beyond the assessee's control, attributing it to the banking channel. Consequently, the ITAT set aside the lower authorities' orders and ruled in favor of the assessee, allowing the appeal.

Issue 2: Lack of observance of natural justice in confirming disallowance u/s. 54EC without giving opportunity of explanation:
The assessee contended that the disallowance under u/s. 54EC lacked observance of natural justice as no opportunity for explanation was provided. However, the ITAT did not delve deeply into this issue as the primary focus was on the timing of the investment in REC bonds. The ITAT's decision in favor of the assessee on the substantive issue rendered this procedural aspect moot.

Issue 3: Disregard to the intent of the assessee to pay the amount due within stipulated time:
The assessee argued that the intent to invest within the stipulated time was evident, despite the delay caused by the bank's clearance process. The ITAT acknowledged the assessee's compliance with issuing the cheque on time and emphasized that the slight delay in clearance should not be held against the assessee. By considering the intent and the minimal delay, the ITAT concluded that the assessee's actions were in line with the law's requirements, ultimately deciding in favor of the assessee and allowing the appeal.

This judgment highlights the importance of considering the circumstances surrounding a delayed investment and the need to balance technical compliance with the underlying intent of the tax provisions.