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2024 (7) TMI 437 - AT - Income TaxLTCG - Deduction u/s 54EC - investments made in REC bonds - bonds purchases prior to the sale of property which resulted in LTCG - CIT(A) held that the investment in long term asset eligible for deduction u/s 54EC is not restricted to Rs 50 Lacs - scope of amendment in Proviso I of the Section 54EC to be prospective or retrospective in nature - HELD THAT - CIT(A) considered notes and clauses of Finance Act, 2014 and Memorandum explaining provision of (Bill no.2) of the Finance Act, thereby Parliament has to remove the ambiguity in the proviso to section 54EC(1) of the Act, by insertion of second proviso with effect from 01.04.2015 onwards, which is applicable prospectively. It is undisputed fact that the investments made by the assessee in REC Bonds on 31.03.2010, 08.04.2010 and 21.07.2010 for Rs. 50,00,000/- each which are much before the insertion of 2nd proviso to section 54EC(1) of the Act with effect from 01.04.2015. Further, the above amendment was considered in the case of Aspi Ginwala and Shree Ram Engg. Mfg 2012 (4) TMI 195 - ITAT AHMEDABAD the above decisions are also extracted in his order passed by Ld.CIT(A) at parahraph 4.3. Thus, we do not find any infirmity in the order passed by the Ld.CIT(A), therefore, the ground raised by the Revenue is devoid of merits and liable to be dismissed.
Issues Involved:
1. Eligibility for deduction under Section 54EC of the Income Tax Act, 1961. 2. Interpretation of the proviso to Section 54EC(1) regarding the investment limit and time frame. 3. Application of amendments to Section 54EC(1) from Finance Act, 2014. 4. Condonation of delay in filing the appeal by the assessee. Detailed Analysis: 1. Eligibility for Deduction under Section 54EC of the Income Tax Act, 1961: The primary issue revolves around the eligibility of the assessee to claim a deduction of Rs. 1.5 crore under Section 54EC of the Act. The assessee had invested in REC bonds against long-term capital gains from the sale of three pieces of land. The Assessing Officer (AO) initially allowed the claim, but later revised the assessment under Section 263, disallowing Rs. 94.90 lakh of the deduction on the grounds that the investments were not made within the stipulated six-month period post the sale of the properties. 2. Interpretation of the Proviso to Section 54EC(1) Regarding the Investment Limit and Time Frame: The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed the appeal, permitting a deduction of Rs. 1 crore while disallowing Rs. 44.90 lakh. The CIT(A) interpreted Section 54EC(1) and its proviso, concluding that the assessee could invest Rs. 50 lakh each in two different financial years if the capital asset was transferred after September 30 of the financial year. This interpretation was supported by various judicial precedents, including the decision in Aspi Ginwala and Shree Ram Engg. & Mfg. Industries vs. ACIT, which allowed a similar claim. 3. Application of Amendments to Section 54EC(1) from Finance Act, 2014: The CIT(A) and the Tribunal both noted that the Finance Act, 2014 introduced a second proviso to Section 54EC(1), effective from April 1, 2015, which limited the total investment eligible for deduction to Rs. 50 lakh in the financial year of transfer and the subsequent financial year. However, this amendment was prospective and not applicable to the assessment year 2011-12 under consideration. The Tribunal upheld the CIT(A)'s view that the assessee was entitled to a deduction of Rs. 1 crore, as the investments were made before the amendment came into effect. 4. Condonation of Delay in Filing the Appeal by the Assessee: The assessee filed an appeal with a delay of 1654 days, which was condoned by the Tribunal. The delay was attributed to a misunderstanding of the law and subsequent realization of the eligibility for further deduction based on judicial precedents. The Tribunal found the reasons for the delay satisfactory and proceeded to hear the appeal on merits. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the investments made by the assessee in REC bonds before the amendment were eligible for a deduction of Rs. 1 crore. Additionally, the Tribunal allowed the assessee's appeal, directing the AO to grant a deduction of Rs. 1.5 crore under Section 54EC, as the investments were made before the insertion of the second proviso to Section 54EC(1). Thus, the combined result was that the assessee's appeal was allowed, and the Revenue's appeal was dismissed.
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