2024 (10) TMI 865 - AT - Income Tax

Excess deduction claimed u/s. 54EC - capital gain arising on the sale of the property was invested in Bonds of REC NHAI - as argued investment in each financial year does not exceed the prescribed threshold limit - HELD THAT - This cap of total investment of Rs. 50 Lakhs was not applicable in the current year and as per the scheme of the Act the assessee was entitled to make investment of Rs. 50 lakh each in two financial years, within the outer limit of six months from the date of transfer of the asset. The second proviso was introduced precisely to eliminate the differential treatment on the basis of date of transfer and to eliminate the ambiguity in the provision of section 54EC. This amendment was effective only from 01.04.2015 for the assessment year 2015-16 and subsequent years and can t be extended to the current year as the legislature had not provided for retrospective application to the second proviso of section 54EC. AR has relied upon the decision of Coromandel Industries Ltd. 2014 (12) TMI 852 - MADRAS HIGH COURT wherein held that exemption of Rs. 50 Lakhs each claimed in two financial years, within six months period from the date of transfer of capital asset, was eligible for exemption u/s 54EC of the Act. In the case of C. Jaichander 2014 (11) TMI 54 - MADRAS HIGH COURT had held that in the absence of any cap of investment in bonds, the investment of Rs. 50 Lakhs each made in two financial years, within period of six months from the date of transfer could not have been disallowed. The Hon ble Court further held that the amendment made w.e.f. 01.04.2015 was prospective in nature and applicable to A.Y. 2015-16 and subsequent years. We are of the considered opinion that CIT(A) was not correct in holding that the assessee was eligible for deduction of Rs. 50 Lakhs only u/s. 54EC of the Act. As the assessee had fulfilled all the necessary conditions as stipulated in Section 54EC of the Act at the relevant point of time, he was eligible for deduction of Rs. 1 Crore as claimed u/s. 54EC of the Act. Accordingly, the addition of Rs. 50 Lakhs on account of excess deduction u/s. 54EC of the Act is deleted. Appeal of the assessee is allowed.

Summary

Issues:
Assessment of excess deduction under Section 54EC of the Income Tax Act, 1961 for the Assessment Year 2014-15.

Analysis:
The appeal was filed against the order of the National Faceless Appeal Centre, Delhi, confirming the addition of Rs. 50 Lakhs as excess deduction claimed under Section 54EC of the Act. The assessee had initially declared a total income of Rs. 2,19,54,960/-, which was revised to Rs. 2,24,26,160/-. The assessment was completed with a total income of Rs. 2,74,26,160/-, including the disputed deduction. The First Appellate Authority dismissed the appeal, leading to the second appeal before the ITAT.

The grounds of appeal challenged the disallowance of the deduction under Section 54EC, claiming that the investment made by the assessee in REC and NHAI bonds within the stipulated time and amount limits complied with the statutory provisions. The appellant contended that the AO erred in restricting the exemption to Rs. 50 Lakhs only, arguing that the cap introduced in 2015 did not apply retrospectively to the relevant assessment year.

The ITAT analyzed the provisions of Section 54EC of the Act and the amendments introduced regarding the investment limits in bonds. The tribunal noted that the assessee had invested Rs. One crore in two bonds over two financial years, satisfying the conditions of the Act. The tribunal emphasized that the cap of total investment of Rs. 50 Lakhs was not applicable in the relevant year, as the amendment was effective from 2015-16 onwards. Referring to judicial precedents, including decisions of the Madras High Court, the ITAT concluded that the assessee was entitled to the claimed deduction of Rs. 1 Crore under Section 54EC.

The ITAT rejected the AO's and CIT(A)'s decision, citing consistency in tribunal rulings and judicial interpretations supporting the assessee's position. The tribunal allowed the appeal, deleting the addition of Rs. 50 Lakhs on account of excess deduction under Section 54EC of the Act. The judgment emphasized adherence to statutory provisions and relevant case laws in determining the eligibility for the claimed deduction.

In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal and overturning the disallowance of the deduction under Section 54EC. The judgment highlighted the importance of complying with statutory provisions and judicial interpretations in assessing tax liabilities and deductions under the Income Tax Act, 1961.