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2024 (11) TMI 25 - AT - Income TaxDisallowance of deduction u/s. 54EC - investment in bonds of the National Highway Authority of India (NHAI) - HELD THAT - Circular No. 359 dated 10.05.1983 specifies that if the assessee invest the earnest money or advance money in specified assets before the date of transfer of asset, the amounts so invested will qualify of exemption u/s 54EC of the Act. We observe that in the case of CIT vs. Subhash Vinayak Supnekar 2017 (1) TMI 58 - BOMBAY HIGH COURT held that when amount received as advance by the assessee under an agreement to sell a capital asset is invested in specified Bonds, benefit of Section 54EC of the Act is available to the assessee. We are of the considered view that the assessee is eligible to claim deduction u/s 54EC of the Act since the assessee has been above to establish the direct nexus between the advance so received by the assessee towards sale of property and the investment made by the assessee in NHAI Bonds. Appeal of the assessee is allowed.
Issues:
Admissibility of deduction under Section 54EC of the Income Tax Act for an investment in NHAI Bonds. Analysis: The appeal was filed against the order passed by the Ld. Commissioner of Income Tax(Appeals) regarding the disallowance of a deduction of Rs. 50,00,000/- u/s. 54EC of the Act for A.Y. 2009-10. The property in question was jointly owned by multiple parties, and a portion was sold with a claimed consideration of &8377;8,25,00,000/-. The AO determined a market value for the entire property, leading to a calculated sale value. The primary issue was the admissibility of the deduction claimed under Section 54EC for an investment in NHAI Bonds. The AO initially allowed the deduction but later disallowed it, stating that the investment was made before the property transfer date, violating Section 54EC conditions. In appeal, the Ld. CIT(Appeals) confirmed the disallowance, stating that the assessee failed to meet the burden of proof. The ITAT remanded the case to the AO for reconsideration based on a CBDT Circular. The assessee submitted bank statements showing a direct nexus between the advance received and the investment in NHAI Bonds. The Circular No. 359 dated 10.05.1983 was cited, allowing exemption if earnest money is invested in specified assets before the transfer date. The Bombay High Court's judgment further supported this interpretation, stating that investing advance money in specified Bonds qualifies for Section 54EC benefits. The Tribunal found the assessee eligible for the deduction under Section 54EC as the bank statement proved the direct nexus between the advance received and the investment in NHAI Bonds. Citing the Circular and the High Court's judgment, the Tribunal allowed the appeal, emphasizing the eligibility based on the established connection between the advance and the investment. In conclusion, the Tribunal allowed the appeal, stating the assessee's eligibility for the deduction under Section 54EC based on the direct nexus between the advance received for the property sale and the investment in NHAI Bonds.
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