SANJEET RAJENDRA GUGALE,,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX,, PUNE

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the assessee against the order of CIT(A)-8, Pune, dated 29-11-2016 for the Assessment Year 2013-14.

“1. The Ld.CIT(A) erred in confirming the action of the AO in confirming the deduction u/s.54EC to Rs.50 lakhs, as against the deduction of Rs. One Crore claimed by the appellant u/s.54EC of the Act. 2. The Ld.CIT(A) failed to appreciate that the investments in the bonds u/s.54EC of the Act were made Rs.50 lakhs each in two different financial years. 3. It is submitted that in the facts and circumstances of the case, and in law, no such rejection of the claim was called for.”

the production and trading of Furniture and Interior design. Assessee

filed the return of income declaring income of Rs.63,24,200/-. During

the year, assessee earned capital gains on sale of lands. On this

account, the assessee earned capital gains of Rs.1,46,10,643/-. While

the sum of Rs.1 crore was invested in specified NHAI bonds in two

instalments in two financial years and claimed deduction u/s.54EC of

the Act. The balance of gains was duly offered to tax as per the

provisions. The said sum of Rs. One crore was invested by the assessee

in the bonds in two instalments of Rs.50 lakhs each. Relevant dates

includes that the lands were sold on 08-12-2012 and therefore, the due

date for investment in the bonds is 07-06-2013, i.e. six months from

the date of transfer of assets. Assessee invested Rs.50 lakhs on 26-02-

2013 (A.Y. 2013-14) and another sum of Rs.50 lakhs was invested on

27-05-2013 (A.Y. 2014-15), i.e. two financial years. Assessee claimed

deduction u/s.54EC of the Act in respect of the said investment of

Rs. One Crore. Relying on the provisions of Ist proviso to section 54EC

of the Act, Ld. Counsel for the assessee justified the claim and

explained that the expression ‘that the investment made. . . . . in the long

term specified assets by an assessee during any financial year does not

exceed Rs.50 lakhs’. Thus, the assessee interpreted that the same does

not provide any restriction for claiming the deduction so long as the

investment has not exceeded a sum of Rs.50 lakhs in the financial year.

In the instant case, assessee complied with the said restriction of

investing Rs.50 lakhs in a financial year and however utilized two

financial years for investment in the specified bonds. Further, referring

to the second proviso restricting the maximum ceiling of Rs.50 lakhs in

any of the financial years which has come into the statute only by

Finance (No.2) Act, 2014. w.e.f.01-04-2015, Ld. AR submitted that

these provisions are inapplicable to the assessment year under

consideration. However, rejecting the same, AO restricted the deduction

to only Rs.50 lakhs only and denied the benefit to the other lot of

investment of Rs.50 lakhs made in the financial year relevant to the

A.Y. 2014-15.

the assessee. The expression ‘that the investment made. . . . . in the long

term specified assets by an assessee during any financial year does not

exceed Rs.50 lakhs’ was discussed at length before the order of the AO

was confirmed by the CIT(A) dismissing the appeal of the assessee. In

Para No.8, CIT(A) discussed the Tribunal orders in the case of ACIT Vs.

Rajkumar Jain & Sons (HUF) 19 taxmann 27, CIT Vs. C. Jaichander

370 ITR 0579 (Mad.), CIT Vs. Podar Cement Pvt. Ltd. 226 ITR 625, CIT

Vs. Gold Coin Health Food Pvt. Ltd., Godrej & Boyce Mfg. Co. Ltd. Vs.

DCIT and Another 328 ITR 0081 and CIT Vs. Apar Industries Ltd. 323

ITR 0411 before rejecting the arguments of the assessee. Although the

CIT(A) acknowledged the favourable judgment of Madras High Court in

the case of C. Jaichander 370 ITR 0579 (Mad.) the CIT(A)

hypertechnically distinguishing the judgment stating that the said

judgment is merely relevant for the legal proposition on the prospective

nature of the amendment to section 54EC of the Act. Referring to the

clarificatory amendments brought in by the Finance (No.2) Act, 2014,

CIT(A) attributed the same to the then existing provisions of Ist proviso

before dismissing the appeal of the assessee.

the grounds extracted above.

‘that the investment made. . . . . in the long term specified assets by an

assessee during any financial year does not exceed Rs.50 lakhs’ does

not take away the right of the assessee to invest the capital gains in

subsequent financial years. Further, referring to the amendments, Ld.

Counsel for the assessee argued that the judgment in the case of C.

Jaichander (supra) has clearly established the principle allowing the

assessee to make a claim of deduction u/s.54EC of the Act accepting

Rs.50 lakhs of the capital gains in subsequent assessment years.

Further, referring to the amended provisions of section 54EC of the Act,

Ld. Counsel for the assessee submitted that the interpretation of the AO

and the CIT(A) are legally unsustainable as the said amendment is

merely prospective in nature in both in language and in spirit. The

subsequent amendments cannot be applied to the events of the past

when it comes to the claim of deductions which constitutes a

beneficiary provision.

literal interpretation of the said expression ‘that the investment made. . .

. . . . in the long term specified assets by an assessee during any

financial year does not exceed Rs.50 lakhs’.

orders of the Revenue and other orders of the Tribunal cited by the

CIT(A) in general and the judgment of Madras High Court in the case of

C. Jaichander (supra) in particular. It is an admitted fact that the

second proviso to section 54EC of the Act has come into statute

subsequent to the A.Y. 2013-14. The applicability of these provisions to

the assessment year under consideration is ruled out in view of the

judgment of Madras High Court in the case of C. Jaichander (supra).

ITO Vs. Smt. Bala R. Venkitachalam 71 taxmann.com 219 (Pune-Trib.),

ITO Vs. Ms. Rania Faleiro 33 taxmann.com 611 (Panaji-Trib.) and other

cases have been relied on by the assessee and all of them supports the

case of the assessee.

8.1 Regarding the core issue on hand, it is our view that the

provisions of the Ist proviso needs to be interpreted independent of the

contents of the 2nd proviso, which operates prospectively only.

Therefore, considering the judgment of Hon’ble Madras High Court in

the case of C. Jaichander (supra), we are of the view that the assessee is

entitled to the claim of deduction u/s.54EC of the Act on the entire

investment of Rs.1 crore in the NHAI bonds made in two financial years.

8.2 Further, we find this view is supported by the order of Tribunal in

the case of ITO Vs. Smt. Bala R. Venkitachalam – ITA

No.321/PUN/2015 for A.Y. 2010-11, dated 30-06-2016 where similar

issue of allowability of deduction in respect of the capital gains invested

in two financial years came up for adjudication and the appeal of the

Revenue was dismissed. The finding given by the Tribunal in Para No.9

is extracted as under :

“9. The issue arising in the present appeal is against the claim of deduction under section 54EC of the Act, under which deduction is provided against the income from long term capital gains in case the investment is made in specified assets within time frame of six months from the date of sale of asset. The said section also provides a cap on the investment to be made in the bonds to the extent of Rs.50 lakhs in any financial year. As per the mandate of the said section and the proviso thereunder, where the assessee makes an investment of Rs.50 lakhs in the specified bonds within time frame of six months from the date of sale, in any financial year, then the benefit of said section is to be allowed to the assessee. In case, the period of six months falls within two financial years, then the question which arises for adjudication is whether the assessee can claim the aforesaid deduction under section 54EC of the Act to the extent of Rs.50 lakhs in each of the financial year totaling Rs.1 crore, where the investment is made in the aforesaid bonds in two financial years separately but within period of six months from the date of sale of assets. This issue arose for consideration before the Hon’ble High Court of Madras in CIT Vs. C. Jaichandar (supra) and later in CIT Vs. Coromandel Industries Ltd. (2015) 370 ITR 586 (Mad) have laid down that the exemption granted under the proviso to section 54EC(1) of the Act should be construed not transactionwise but financial year wise, wherein if the assessee was able to invest sum of Rs.50 lakhs each in two different financial years, within period of six months from the date of transfer of capital assets, the said deduction was allowable to the assessee. The Hon’ble High Court of Madras in CIT Vs. C. Jaichandar

(supra) has held that as per the mandate of section 54EC(1) of the Act, time limit for investment is six months and benefit that flows from the first proviso is that if the assessee makes investment of Rs.50 lakhs in any financial year, it would have benefit of section 54EC(1) of the Act. The Hon’ble High Court further held that however, to remove the ambiguity in the above said provisions, legislature by Finance (No.2) Act, 2014 w.e.f. 01.04.2015 had inserted proviso after existing proviso to sub- section (1) of section 54EC of the Act. The second proviso, as per which the investment made by the assessee in long term capital gains specified assets out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in subsequent financial years, does not exceed Rs.50 lakhs. The said amendment was held to be applicable from assessment year 2015-16 and subsequent assessment years. The Hon’ble High Court thus, categorically held that the investment made on or after 01.04.2007 in long term specified assets by an assessee during any financial year should not exceed Rs.50 lakhs. owever, the benefit that flows from the proviso was that where the assessee makes investment of Rs.50 lakhs in any financial year, it could have the benefit of section 54EC(1) of the Act. Applying the aforesaid proposition to the facts of the present case, where the assessee had invested Rs.50 lakhs in REC bonds i.e. specified assets as provided under section 54EC of the Act on 28.02.2010 i.e. in financial year 2009-10 and Rs.22,50,000/- on 30.04.2010 i.e. in financial year 2010-11 as against the capital gains arising of Rs.72,49,401/- on the transfer of long term capital gains i.e. sale of shares on 21.01.2010 falling in financial year 2009-10, the assessee is entitled to the benefit provided by the proviso under section 54EC of the Act and consequently, the order of CIT(A) merits to be upheld. Dismissing the grounds of appeal raised by the Revenue, the appeal of the Revenue is dismissed.”

Similar view was followed by the Tribunal in the cases of Shri

Bimal Desai and Smt. Kinna Patel – ITA Nos. 40 and 41/PUN/2016 for

the A.Y. 2012-13 dated 31-10-2017. Content of Para Nos. 10 to 12 are

relevant and the same are extracted below for the sake of completeness

of this order :

“10. Similar issue of claim of deduction under section 54EC of the Act arose before the Pune Bench of Tribunal in the case of ITO Vs. Smt. Bala R. Venkitachalam (supra) and relying on the ratio laid down by the Hon’ble High Court of Madras in CIT Vs. C. Jaychander (supra) and later in CIT Vs. Coromandel Industries (2015) 370 ITR 586 (Mad), the Tribunal held that the assessee was entitled to claim deduction under section 54EC of the Act. The Tribunal also referred to the amendment made by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 by which proviso was inserted after existing proviso to section 54EC(1) of the Act, which was referred to by the Hon’ble High Court of Madras and it was held by the Hon’ble High Court that second proviso was held to be applicable from assessment year 2015-16 and subsequent assessment years. The relevant findings of the Tribunal are as under:-

“9. The issue arising in the present appeal is against the claim of deduction under section 54EC of the Act, under which deduction is provided against the income from long term capital gains in case the investment is made in specified assets within time frame of six months from the date of sale of asset. The said section also provides a cap on the investment to be made in the bonds to the

extent of Rs.50 lakhs in any financial year. As per the mandate of the said section and the proviso thereunder, where the assessee makes an investment of Rs.50 lakhs in the specified bonds within time frame of six months from the date of sale, in any financial year, then the benefit of said section is to be allowed to the assessee. In case, the period of six months falls within two financial years, then the question which arises for adjudication is whether the assessee can claim the aforesaid deduction under section 54EC of the Act to the extent of Rs.50 lakhs in each of the financial year totaling Rs.1 crore, where the investment is made in the aforesaid bonds in two financial years separately but within period of six months from the date of sale of assets. This issue arose for consideration before the Hon’ble High Court of Madras in CIT Vs. C. Jaichandar (supra) and later in CIT Vs. Coromandel Industries Ltd. (2015) 370 ITR 586 (Mad) have laid down that the exemption granted under the proviso to section 54EC(1) of the Act should be construed not transactionwise but financial year wise, wherein if the assessee was able to invest sum of Rs.50 lakhs each in two different financial years, within period of six months from the date of transfer of capital assets, the said deduction was allowable to the assessee. The Hon’ble High Court of Madras in CIT Vs. C. Jaichandar (supra) has held that as per the mandate of section 54EC(1) of the Act, time limit for investment is six months and benefit that flows from the first proviso is that if the assessee makes investment of Rs.50 lakhs in any financial year, it would have benefit of section 54EC(1) of the Act. The Hon’ble High Court further held that however, to remove the ambiguity in the above said provisions, legislature by Finance (No.2) Act, 2014 w.e.f. 01.04.2015 had inserted proviso after existing proviso to sub- section (1) of section 54EC of the Act. The second proviso, as per which the investment made by the assessee in long term capital gains specified assets out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in subsequent financial years, does not exceed Rs.50 lakhs. The said amendment was held to be applicable from assessment year 2015-16 and subsequent assessment years. The Hon’ble High Court thus, categorically held that the investment made on or after 01.04.2007 in long term specified assets by an assessee during any financial year should not exceed Rs.50 lakhs. However, the benefit that flows from the proviso was that where the assessee makes investment of Rs.50 lakhs in any financial year, it could have the benefit of section 54EC(1) of the Act. Applying the aforesaid proposition to the facts of the present case, where the assessee had invested Rs.50 lakhs in REC bonds i.e. specified assets as provided under section 54EC of the Act on 28.02.2010 i.e. in financial year 2009-10 and Rs.22,50,000/- on 30.04.2010 i.e. in financial year 2010-11 as against the capital gains arising of Rs.72,49,401/- on the transfer of long term capital gains i.e. sale of shares on 21.01.2010 falling in financial year 2009-10, the assessee is entitled to the benefit provided by the proviso under section 54EC of the Act and consequently, the order of CIT(A) merits to be upheld. Dismissing the grounds of appeal raised by the Revenue, the appeal of the Revenue is dismissed.”

proviso to section 54EC(1) of the Act is to be applied prospectively from assessment year 2015-16 onwards. Accordingly, the year under appeal being assessment year 2012-13, the assessee is entitled to claim the deduction under section 54EC of the Act at Rs.1 crore i.e. on account of investment made in the financial year in which the asset was sold at Rs.50 lakhs and further deduction of Rs.50 lakhs which was made in the subsequent financial year, though within period of six months from the date of sale of asset. Accordingly, we allow the claim of assessee and direct the Assessing Officer to allow the deduction under section 54EC of the Act at Rs.1 crore. The ground of appeal raised by the assessee is thus, allowed.

8.3 From the above, it is evident that the expression ‘any financial

year’ is explained as including ‘more than one financial year’ for the

assessment year under consideration and the judgment of Hon’ble

Madras High Court in the case of C. Jaichander (supra) and the order of

Pune Bench of the Tribunal in the case of ITO Vs. Smt. Bala R.

Venkitachalam 71 taxmann.com 219 (Pune-Trib.) were rightly relied

while deciding the issue in favour of the assessees.

Therefore, the reasoning given by the CIT(A) in our opinion is

unsustainable in law. In view of the above, we are of the opinion that

the order of CIT(A) is required to be reversed. Accordingly, the grounds

raised by the assessee are allowed.

Order pronounced in the open court on this 09th day of March, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य

पुणे Pune; �दनांक Dated : 09th March, 2018 सतीश

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत

अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-8, Pune 4. CIT-8, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” Pune; 5. गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune