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TMI Blog2024 (11) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 54EC as the investments in bonds had been made from out of the proceeds of the mutual funds. There is no dispute, rather it is admitted, that there were no other funds available with the assessee from out of which the investment in bonds could have been made. The nexus between the advances and the amounts invested in bonds is clear, directly traceable to the advances received. In light of this admitted position, we return a finding based on the materials available on record that the source of the investment in bonds are the advances that has been received by the assessee in relation to the subject transaction. In fact, this aspect of the matter has not been lost sight of by the assessing authority. Under notice dated 01.12.2006, the assessee has been called upon to furnish various details prior to finalisation of assessments. A perusal of the above notice informs us that the claim of capital gains has not escaped the attention of the assessing officer. Necessary documents including the agreement have been called for and an explanation has been sought from the assessee that has been duly tendered. Argument of the revenue is that Section 54EC requires the investments to be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax has filed the present Tax Case (Appeal) challenging the order of the Income Tax Appellate Tribunal (in short ITAT / Tribunal ) relating to the assessment year (AY) 2004-05 confirming order dated 27.01.2009 passed under Section 263 of the Income Tax Act, 1961 (in short Act ) revising the order of assessment dated 29.12.2006 passed under Section 143(3) of the Act. 2. The respondent/assessee had filed a return of income within the time provided under the Statute. After an intimation was issued under Section 143(1), the return was selected for scrutiny and notices under Sections 143(2) and 142(1) had followed. An order of assessment had been passed on 29.12.2006 after hearing the authorised representative of the assessee. Though brief, the assessing authority notes inter alia the claim of the assessee of short term capital loss and the verification carried out in that regard, that culminated in a minor addition. 3. The assessment order also contains a note making reference to an agreement between the seller and the purchaser that the seller/its affiliates shall not indulge in certain activities without the express prior written approval of the purchaser. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director in that company and Sali Health Care Private Limited. The sale agreement provides for 120 days for completion of all transfer related formalities and hence the parties covenanted that the transfer would be completed on 30.04.2003. They were unable to complete the transfer as agreed upon and the date was extended to 16.12.2003 on which date the transfer was completed in full. 9. In the meanwhile, since the transfer qua the parties has been finalised as early as on 02.01.2003, the assessee invested the advances received, in the bonds issued by NABARD and REC. He had been advised that such investment was supported by a Circular of the CBDT No.359 dated 10.05.1983 and the decisions of the ITAT. Overriding the explanations tendered, the CIT passed an order dated 27.01.2009, adverse to the respondent. 10. He proceeded on the basis that the investments in bonds had been made prior to the date of transfer and since the source of investments was from redemption of certain securities and not the advances received in connection with transfer, it was not entitled to exemption under Section 54EC. He distinguished the Circular that had been relied upon stating that that Circular had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Learned Standing Counsel has cited the following decisions in support of her submissions: 1.R.Krishnaswamy v. Commissioner of Income-tax, Co. Circle, Chennai [(2014) 43 taxmann.com 177 (Madras)] 2.Bhupendra Kumar Bhaumik v. Union of India [(2002) 125 Taxman 886 (Delhi)] 16. Mr.R.Sivaraman, learned counsel appearing for the respondent defends the order of the Tribunal, citing the following decisions: 1.Commissioner of Income-tax-II, Pune v. Subhash Vinayak Supnekar [(2017) 77 taxmann.com 226 (Bombay)] 2.Mrs.Parveen P.Bharucha v. Deputy Commissioner of Income-tax, Circle 2, Pune [(2012) 28 taxmann.com 274 (Bom.)] 3.Commissioner of Income-tax v. Sunbeam Auto Ltd. [(2010) 189 Taxman 436 (Delhi)] 4.Commissioner of Income-tax v. Future Corporate Resources Ltd. [(2021) 132 taxmann.com 173 (Bombay)] 5.Virtusa Consulting Services (P.) Ltd. v. Deputy Commissioner of Income Tax, Chennai [(2021) 128 taxmann.com 22 (Madras)] 6.Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [(2000) 109 Taxman 66 (SC)] 7.Jeevan Investment Finance (P.) Ltd. v. Commissioner of Income Tax, City-1, Mumbai [(2017) 88 taxmann.com 552 (Bombay)] 17. We have heard the rival contentions and had perused the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 4.2(g), 4.2(h), 4.2(i), 4.2(j), 4.2(m) Payment to be made to the Sellers on the fulfillment of Principal Condition s Precedent to the sole satisfaction of the Purchaser 0.25 0.25 3.00 3.50 Final Payment Fulfillment of all the Conditions Precedent and fulfillment of all Further Obligations Payment to be made to Escrow Account with the Escrow Agent and released to the Sellers on the fulfillment of all the Condition s Precedent and Further Obligation s to the sole satisfaction of the Purchaser and released to Sellers upon the expiry of 9 months from the date of the Agreement to Sell. 3.00 3.00 Total 10.25 0.75 13.00 24.00 19. This schedule reveals clearly that the date of receipt of advances is contemporaneous with the execution of the sale agreement that is dated 02.01.2003. The investments have been made only thereafter and hence it is clear that the source for the investments are the advances received from the purchasers. The respondent has also explained that the advances were initially deposited in mutual funds and the maturity amounts had been credited to its bank account from out of which the investment in bonds had been made. 20. The mere fact that the advances had been depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement for having received this sum. Please furnish a copy of agreement entered into with M/s Orchid Chemicals Pharmaceuticals Ltd. 22. A perusal of the above notice informs us that the claim of capital gains has not escaped the attention of the assessing officer. Necessary documents including the agreement have been called for and an explanation has been sought from the assessee that has been duly tendered. 23. The next argument of the revenue is that Section 54EC requires the investments to be made only subsequent to the date of transfer. In this regard, the respondent has relied upon a Circular issued in the context of Section 54E. The Circular reads thus: CIRCULAR : NO. 359 [F.NO. 207/8/82-IT(A-II)] SECTION 54F OF THE INCOME-TAX ACT, 1961 - CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE - ASSESSEE INVESTING EARNEST MONEY IN SPECIFIED ASSETS BEFORE DATE OF TRANSFER - WHETHER AMOUNT SO INVESTED QUALIFIES FOR EXEMPTION CIRCULAR : NO. 359 [F.NO. 207/8/82-IT(A-II)], DATED 10- 5-1983 1. Section 54E provides for exemption of long-term capital gains if the net consideration is invested by the assessee in specified assets within a period of six months after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of a long-term capital asset, being land or building or both, the capital asset so transferred being hereafter in this section referred to as the original asset and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, (a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45; 25. Section 54 and the provisions thereafter, from Section 54A to Section 54 GB, provide for an exemption from the levy of capital gains in various stipulated circumstances. Section 54E states that the capital gain arising on the transfer of a capital asset prior to 01.04.1992, is not to be charged in certain cases. Similarly, Section EA and EB, applicable in the event of the transfer of a long-term capital asset before 01.04.2000, grants an exempts from capital gain if the gain is invested in specified securities in the manner provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The substantial questions of law in that case were as follows: 1. Whether in the facts and circumstance of the case, the Appellate Tribunal was right in coming to the conclusion that even though the vacant possession of the property was handed over only on 25.03.2004 the capital gains will arise for the assessment year 2003-2004 and not for the assessment year 2004-2005? 2. Whether in the facts and circumstances of the case the Appellate Tribunal was right in coming to the conclusion that the part of the sale consideration was received on 21.12.2002 hence the capital gains will arise only for the assessment year 2003-2004 and not for the assessment year 2004-05? 3. Whether in the facts and circumstances of the case the Appellate Tribunal was right in coming to the conclusion that the sale consideration was received on 21.12.2002 and the property was handed over on the same day even though the possession of the property was handed over only on 25.03.2004? 32. R.Krishnaswamy had entered into a sale agreement on 07.12.1999 and had received advance from the company. The remaining consideration had been received on 21.12.2002 and the sale deeds had been registered on various dates till ..... X X X X Extracts X X X X X X X X Extracts X X X X
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