THE ITO-2(2), INDORE vs. SMT. MOHAN BAI POKHRANA, INDORE

आदेश /O R D E R PER O.P. MEENA, AM. 1. This appeal by the Revenue is directed against the order dated 20-02-2013 of Commissioner of Income-tax (Appeals)-1 Indore (in short CIT(A)) and relates to assessment yea 2009-10 on following grounds of appeal: 1.On the facts and in the circumstances of the case, the Ld. Commissioner of Income-tax (Appeals)-I, Indore has erred in directing the AO to allow the claim of exemption u/s. 54EC of the Income Tax Act, particularly when the assessee had not made deposit in REC Bond within the specified period of six months from the date of transfer of the asset as specified in section 54EC of the Income Tax Act,1961.

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50,00,000/- in capital gains Bonds. Therefore, the Ld. CIT (A) has held that the appellant actually invested the amount within six months from the date of sale of land in capital gains scheme despite of non-availability of specified Bonds. This act of the appellant shows her intention for investment in specified Bonds eligible for capital gains scheme. The amount in specified Bonds was actually made on 31-03-2009 i.e. within financial year only. The appellant relying on the decision in the case of Lalit Marda 23 SOT 250 (Kol-Trib) and Muneer Khan 41 SOT 504 (Hyd) submitted that for the claiming exemption under section 54EC the same fund is not required to be invested. The Ld. CIT (A), by placing reliance in the case of CIT v. Cello Plast [I.T.A. No. 3731 of 2010 dated 27-07- 2012] / (2012) 209 Taxman 617 (Bom)/ 82 CCH 128 (Mum-HC) 24 taxmann.com 111 (Bom), observed that the appellant has set apart the amount which is supposed to be invested in the specified Bonds, under section 54 EC on 02-12-2008 within 6 month from the date of sale of land and primarily complied with, conditions as imposed within section 54 EC of the Act. And the appellant has finally invested in the specified Bonds on 31-03-2009 during the accounting year itself. Thus on technical grounds, the AO was not justified in denying the exemption under section 54 EC of the Act. 5. Being aggrieved with, the learned Sr. D.R. submitted that the assessee was required to make investment in REC Bonds by 05-12-2008, but same was made on 31-03-2009

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on the ground that that the requite application forms for Bonds were not available. However, the assessee did not give supporting evidences against this claim. Further, as per the AO, the sale consideration was first distributed among the family members by way of loan and the investment is made out of borrowed funds from the family members and some part of sale consideration. The decision relied by learned CIT (A) are distinguishable on facts and delay of 4 months in investment is not justified. The learned Sr. D.R. relied on the decision in the case of Smt. Dakshaben R. Patel v. ACIT 2(1) Baroda [ I.T.A. No. 2803/Ahd/2011 (A.Y. 08-09) dated 31-05-2012] who claimed that section 54EC clearly states that the investment in the specified Bonds is to be made “within six months after the date of such transfer”. As the investment in the specified Bonds has not been made within the period of 6 months from the date of sale, therefore, the assessee is not eligible for exemption under section 54 EC of the Act. 6. On the other hand, the learned counsel for the assessee submitted that the assessee has invested an amount of Rs. 70,00,0 00/-on 02-12-2008 i.e. within six months from the date of sale of asset under the capital gain scheme and finally invested in REC Bonds on 31-03- 2009, out of the maturity amount of fixed deposits. Thus, if the intention of the assessee was not to claim deduction under section 54EC, in that case, the assessee was not required to invest the amount under capital gains scheme, within 6 months from the date of sale of property, i.e. by

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02-12-2088, as the amount in fixed deposits can be invested prior to date of filing of return of income i.e. by 31-07-2009. Hence, the intention of the assessee was very clear to claim exemption under section 54EC of the Act. The assessee has also parted with the money received on sale consideration of land by the depositing the same under the capital gain scheme. In support of this proposition, the learned counsel for the assessee has placed reliance on following case laws: CIT v. Cello Plast [I.T.A. No. 3731 of 2010 dated 27-07-2012] / (2012) 209 Taxman 617 (Bom)/ 82 CCH 128 (Mum-HC) 24 taxmann.com 111 (Bom) , Sunil Kumar Shaha [ I.T.A. No. 1052/Kol/2014 (KOl-TRib) dtd. 22-03-2016 (PB16), CIT v. Akbar Ali Dhala [I.T.A. No.1693/Mds/2012 (Chennai) Dated 25-06-2013] as affirmed in T. C. (A) No. 49 of 2014 dated 14-07-2014 of Hon`ble Madras High Court, Om Electronics [ I.T.A. No. 7681/Mum/2011dtd 31-07-2013] Ashok Chawla [I.T.A. No. 9074/Mum/2010 dtd. 06-02- 2013] and ACIT v. Shri Kamalkar Moghe [ I.T.A. No. 104 of 2013 dated 04-09-2015 of Hon`ble Bombay High Court ] 7. We have heard the rival submissions of both the parties and perused the material available on record. The assessee has sold her capital asset on 05-06-2008 and earned long-term capital gain thereon. The assessee has invested a sum of Rs. 70 lakhs on 02-12-2008 in capital gains scheme within 6 months from the date of sale of land with a view to claim exemption under section 54EC of the Act. When the REC Bonds were available, the assessee has

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made investment of Rs. 50 lakhs in REC Bonds on 31-03- 2009 and claimed exemption under section 54EC of the Act. The CIT(A) held that the intention of the assessee was that to invest in REC Bonds, if that was not the intention, the assessee could have invested in capital gains scheme up to the date of filing of return i.e. by 31-7-2009. Thus, we find that the assessee has invested the amount of Rs.50 lakhs in capital gain scheme within the period of 6 months from the date of sale of asset for purchasing REC Bonds. The learned counsel for the assessee, has relied in the case of CIT v. Akbar Ali Dhala [I.T.A. No. 49 of 2014 dtd 14-07- 2014] of Hon`ble Madras High Court wherein it was held that Para 7 That there is no hard and fast rule that the assessee should invest on a particular date within the six months period specified in the said provision. This is more so taking in to consideration the fact that the assessee is entitled to investment in any such long-term specified assets, specified in Explanation (b) to section 54EC (3) that would be most beneficial to him. It is also possible that the assessee can wait till the last date to see whether any Bond i.e. profitable to him is issued. Similarly the decision of Hon`ble High Court and Hon`ble Bombay High Court in the case of Shri Kamlakar Moghe (supra) wherein the assessee wanted to investment in REC bonds and in facts invested in REC Bonds on 24-01-2007 , his specific stand that the Bonds were not available during this period, is not found to be incorrect and false by any of the authorities. Since, in the present case this claim of the assessee that REC Bond

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application form were available during the relevant period is not substantiated by Revenue, whereas the assessee has invested the same within six months in capital gains scheme. Hence, the ratio of above decision are clearly applicable in the case of the assessee. The assessee has purchased the REC Bonds within the reasonable period when the bonds were made available for investment. Before that, the assessee had invested an amount of Rs. 70 lakhs on 02-12-2008, within the specified time limit under section 54EC of the Act. No contrary decision has been brought to our knowledge by the ld. Sr. D.R. The ld. Sr. D.R. had relied in the case of Smt. Dakhaben R Patel (supra) but the facts of that case are distinguishable. As in the said case the assessee has made investment in REC Bonds before the sale of asset, therefore, the Tribunal has held the investment in REC Bonds has to be within six month from the date of transfer of asset and not before the date of transfer of asset. Whereas in the instant case, the investment in REC Bonds has been made within financial year only and before that the assessee has invested in capital gains scheme within the specified period of six months from the date of transfer of asset. Considering the aforementioned facts, reasons and case laws, we do not find any infirmity and perversity in the order of Ld. CIT (A). In view of this matter, the appeal of the revenue on ground no. 1 and 2 is dismissed. 8. Ground no. 3 and 3.1 relates to allowing claim of the assessee under section 54B of the Act even when

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conditions that agricultural activities are carried out for a period of two years immediately to preceding year on date of transfer are not fulfilled. 9. Facts apropos of this ground are that the assessee has sold agricultural land for Rs. 74.58 lacs on which earned capital gain of Rs. 73.08 lacs which out of this Rs. 15.49 lacs is claimed deduction u/s. 54F and Rs. 50 lacs u/s. 54EC and Rs. 4,35,467/- u/s. 54B however, the claim u/s. 54B was made during the course of assessment proceedings the AO has disallowed the claim under section 54B of the Act on the said agricultural land was found to be diversified use for purpose of other than agriculture. However, Ld. CIT (A) has allowed the same with finding that the land sold by the appellant diverted for non agriculture purposes on 11-11 2003, but the same was still being used by her for agricultural purposes in view of the details filed by the assessee being land record in Form P-II in which the agriculture crops have been shown and accepted the same with documentary evidence with verification. 10. Before the Tribunal, the learned Sr. D.R. vehemently supported the order of the AO and submitted that as per provision of section 54B, the so-called land should be used for agricultural purpose by the assessee in last two years from the date of sale of land. The documentary evidence in form of P-II (PB-77 to 82) are related to year 2010-11n 2001-02, and 2002-03 while form P-II for first two years prior to date of transfer i.e. the year 2006-07 and 2007-08

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have not been filed before the AO. Therefore, the finding of the CIT (A) are incorrect and without verification and therefore, may be set-aside. The evidence in form of P-II admitted are without providing and calling remand report are clearly in violation of Rule 46A of Income-Tax Rules, 1962. 11. On the other hand, the learned counsel for the assessee, submitted that the CIT (A) has dealt with the issue of allowability of claim under section 54B of the Act in para 5.3 of his order. The CIT (A) held that the claim u/s. 54B was not made in the computation of total income, but the information regarding claim under section 54B was available with balance sheet and details furnished during the course of assessment proceedings. The appellant has also claimed exemption under section 54B during the course of assessment proceedings and same was denied by the AO for the reasons stated therein. The learned counsel submitted that the Appellate Authorities are empowered to entertain legal claim as held by the Hon`ble Bombay High Court in the case of Pruthvi Brokers and Shareholders Pvt. Ltd. [I.T.A. No. 390 of 2010 dtd. 21-06-2012] wherein the decision of Goetze (India) Ltd. v CIT [2006] 284 ITR 323 (SC) was analyzed and it was held that legal claim can be entertained by Appellate Authorities. The learned counsel further submitted that the assessee has purchased agricultural land on 10-07-1997. The use of said land was changed from agriculture to non-agricultural on 11-11- 2003. However, till the date of sale of land, the said land

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being used by the assessee for agricultural purposes. The learned counsel referring to Paper Book Page No. 77 to 82 submitted that the land was being used for agricultural purposes. It was submitted that as per provisions of section 54B, the word used is only land and not agricultural land. However, the purpose and use of land must be for agricultural purposes. In the present case, the assessee has used the land for agricultural purposes. Hence, claim of the assessee under section 54B was legal and proper. The learned counsel relying on the decision in the case of CIT v. Smt. Savita Rani (2003) 133 Taxman 712 (P&H) submitted that exemption is available to seller of a capital asset being land. It does not restrict the benefit to the agricultural land only. However, the land against which benefit is sought must have been used by the assessee or his parents for agricultural purposes before two years immediate preceding the date of sale. In the case of Smt. Asha George [I.T.A. No. 114 of 2012 dated 17-02-2012, the Hon`ble Kerala High Court held that what is relevant is the land sold must be used for agricultural purpose before two years prior to date of sale of land and it is immaterial what is the purchaser of land dose it with. It is not necessary that land transferred must be agricultural land as such. 12. We have heard the rival submissions of both the parties and have perused the material available on record. As regards, claim under section 54B is concerned; we are of the view that exemption is available to the seller of a “capital asset being land”. It does not restrict the benefit

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to the agricultural land only. It is suffice that, if the assessee or his parents must have used the land sold by the assessee for agricultural purposes in the two years immediate preceding the date of sale of land. We find that the CIT (A) has verified Form P-II, copy of which is placed at Paper Book Page No. 77 to 82 and find that land was being used as agricultural purpose. These documents were also filed before the AO, as seen from reference made at page No 17 of the order of CIT (A). This fact is also evidenced from para 2.2 of letter dated 06-09-2011 filed by the assessee before the AO during the course of assessment proceedings. Therefore, the claim of the Revenue that these documents have been admitted, as additional evidence by the CIT (A) in violation of Rule 46A of Income-Tax Rules, 1962, does not appears to be correct. Hence, there no violation of Rule 46A of Income-Tax Rules, 1962. We also find that though the land use was diverted for non-agricultural purposes on 11-11-2013. However, the assessee was still using the said land for agricultural purposes. This is evidenced from Form P-II wherein the land used is categorically mentioned as used for the purpose of agriculture activity during year 2010-11, 2001- 02 and 2002-03 meaning thereby that it was being used for agricultural purpose during period of two years before the date of sale of land 05-06-2008. This is also establish from the fact that the assessee has shown the agricultural income in her return of income for the year under consideration. We find that the CIT (A) has verified this

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documentary evidence and observed that the assessee was using the land in question for agricultural purposes in the immediate preceding two years from the date of sale of land. The perusal of Form P-II shows that the remaining part of the said land was being used even after sale i.e. in the year 2010-11. (PB-77). The learned counsel relied in the case of CIT v. Smt. Savita Rani (2003) 133 Taxman 712 (P&H) wherein it was held that exemption is available to seller of a capital asset being land. It does not restrict the benefit to the agricultural land only. However, the land against which benefit is sought must have been used by the assessee or his parents for agricultural purposes before two years immediate preceding the date of sale. This this view is also supported by the above decision. In the case of Smt. Asha George v. ITO (2013) 30 taxmann.com 334 (Kerala) / 351 ITR 123 (Ker)/ 214 Taxman 236 (Ker) held that the emphasis given in section 54B is the use to land is put (in fact , the tribunal has correctly held that it is user of land and not the nature of land that is relevant), in other word it is not necessary that the land which is transferred must be a agricultural land as such. The fact that the land is located in urban area, cannot by itself be relevant to deny the benefit under section 54B. What is essential that it must be used for agricultural purposes for a period of two year prior to date of transfer. The claim made by the Revenue that land was being used for agricultural purpose in the year 2002-03 and there is no evidence if the said land was being used for agricultural

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purpose in the year 2006-07 and 2007-08 is not tenable in view of the facts and evidence that the said land was being used for agricultural purpose in year 2010-11 then it is but natural that the said land must have been being used for agricultural purpose during A.Y. 2006-07 and 2007-08 also. It is also not in dispute that the assessee has utilized an amount of Rs. 40,27,315/- for the purchase of agricultural land after the date of sale of her agricultural land as against the claim of Rs. 4,35,467/- u/s. 54B of the Act. Therefore, we find no error in allowing the claim under section 54B of the Act by the Ld. CIT (A). In view of these facts and circumstances of the case, we do not find any infirmity, perversity and illegality in the order of CIT (A). Accordingly, the order of Ld. CIT (A) is upheld. However, as directed by the CIT(A) that overall exemption allowable under section 54EC and 54B of the Act requires, to the extent of net capital gains as offered by the assessee in her computation of income. In view of this matter, the Ground No. 3 and 3.1 of appeal of Revenue is dismissed. 13. In the result, appeal of the Revenue is dismissed. 14. The order pronounced in the open Court on 24th May 2017.

Sd/- Sd/- ( C.M. GARG) (O.P. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: May 24, 2017/opm