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Income Tax Appellate Tribunal, BANGALORE BENCHES “ C ” BENCH: BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B.R. BASKARAN
O R D E R PER SHRI B.R. BASKARAN, A.M. : The appeals filed by the respective assessees are directed against the orders passed by Ld CIT(A)-7, Bengaluru in their respective hands and they relate to the assessment year 2008-09. Both the assessees have filed stay applications also. Since the issue contested in their respective appeals is identical in nature, both the appeals were heard together and are being disposed of by this common order.
In both the appeals, the assessees are contesting following issues:- (a) Validity of reopening of assessment (b) Addition made by way of disallowance of claim made u/s 54EC of the Act.
The Ld A.R submitted that Smt. Hiriyur Nagaraj Savithri is the wife of Shri B. Vishwanath. Both the assessees herein and the mother of Shri Vishwanath named B K Lalithamma held entire issued share capital numbering 1895 equity shares in a company named M/s PAL Technology Private Limited. By an agreement dated 20th December, 2006, all the three persons agreed to sell the above said company by transferring entire share capital to M/s Lite Tecnicks India P Ltd & Shri N Ramachandran. The aggregate amount of sale consideration of 1895 shares was fixed at Rs.1,95,00,000/- plus interest component of Rs.3,50,000/- for delayed payment of consideration. As per the agreement, all the above three persons 3 & 2462/Bang/2019 & S.P.Nos.115 & 117/Bang/2020 received a sum of Rs.1,05,00,000/- on the date of signing of agreement and balance consideration was agreed to be received in monthly instalments, the last instalment was agreed to be paid by 15.09.2007.
As per the agreement, “Share transfer date” is fixed as 15th September, 2007, by which date transfer of shares shall be effected in favour of the purchasers when the aggregate sale consideration shall be paid to the Vendors.
According to the assessees, the actual transfer of shares took place on 11th April, 2008, when the share certificates along with share transfer forms were handed over to the purchasers. According to Ld A.R, both the assessees have declared long term capital gains in AY 2009-10, since the shares were actually transferred on 11th April, 2008. They also claimed deduction u/s 54EC of the Act against the long term capital gain declared by each of the assessees, on the strength of investment made by each of them in the bonds issued by Rural Electrification Corporations Limited. The cheques were issued for purchase of above said bond in September, 2008, credited into the bank account of above said company on 01-10-2008 and bonds were allotted on 31.10.2008. It is pertinent to note that Shri B. Vishwanath has claimed Rs.50.00 lakhs u/s 54EC of the Act and Smt. Hiriyur Nagaraj Savithri has claimed Rs.19.00 lakhs u/s 54EC of the Act.
The AO, however, took the view that the transfer is deemed to have taken place in September, 2007 and hence the capital gain is assessable in AY 2008- 09. He also noticed that the investment in bonds has not been made within the stipulated time prescribed in sec.54EC and hence both the assessees are not eligible for deduction u/s 54EC of the Act. It is pertinent to note that the investment in bonds should be made within six months from the date of transfer as per the provisions of sec.54EC of the Act. According to AO, the transfer has taken place in September 2007 and the investments have been made in October, 2008. Accordingly, the AO has taken the view that the 4 & 2462/Bang/2019 & S.P.Nos.115 & 117/Bang/2020 investment in bonds have been made beyond the stipulated period of six months. Accordingly, the AO reopened the assessment by issuing notice u/s 148 of the Act. In the reasons for reopening the AO has expressed the view that the capital gain is assessable in AY 2008-09.
However, in the reopened assessment, the AO added Rs.50.00 lakhs in the hands of Shri B Vishwanath and Rs.19.00 lakhs in the hands of Smt. Hiriyur Nagaraj Savithri by disallowing the claim made u/s 54EC of the Act. It is pertinent to note that the AO did not assess long term capital gains in the reopened assessment. The Ld CIT(A) also confirmed the order passed by AO in the hands of both the assessees.
The Ld A.R submitted that the assessee has not claimed any deduction u/s 54EC of the Act in AY 2008-09 and hence the question of making any disallowance of the claim made u/s 54EC of the Act does not arise in AY 2008- 09. Accordingly he submitted that there is no escapement of income as held by AO in AY 2008-09 and hence the reopening itself is bad in law.
The Ld D.R, on the contrary, submitted that the transfer of shares has taken place in September, 2007 and hence the AO has made disallowance in AY 2008-09.
We heard the parties and perused the record. The admitted fact is that the assessee has declared long term capital gains and claimed deduction u/s 54EC of the Act in AY 2009-10. The AO, in the reasons for reopening, has taken the view that the capital gains is assessable in AY 2008-09. Hence, the correct course of action as per the reasons for reopening was that the AO should have assessed long term capital gains in AY 2008-09. We notice that the AO has not assessed the capital gains in assessment year 2008-09. Instead, he has disallowed claim of deduction made u/s 54EC of the Act in assessment year 2008-09, while the assessee has actually claimed the said deduction in AY 2009-10. Hence the question of disallowing claim made u/s 5 & 2462/Bang/2019 & S.P.Nos.115 & 117/Bang/2020 54EC of the Act shall arise only in assessment year 2009-10 and not in AY 2008-09.
Since the assessee has not claimed any deduction u/s 54EC of the Act in AY 2008-09, the question of making any disallowance of the said claim does not arise in AY 2008-09. Hence the AO was not justified in making disallowance of any amount, which was not claimed at all in AY 2008-09. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the said disallowance. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of Rs.50.00 lakhs made in the hands of Shri B Vishwanath and Rs.19.00 lakhs made in the hands of Smt. Hiriyur Nagaraj Savithri in AY 2008-09.
Since we have decided the issue urged on merits, we do not find it necessary to adjudicate the legal ground relating to validity of reopening of assessment.
Since we have disposed of appeals of the assessees, the stay applications filed by them shall become infructuous.
In the result, both the appeals of the assessees are allowed and the stay applications filed by them are dismissed. Pronounced in the open court on the date mentioned on the caption page.