ITO 27(1)(3), NAVI MUMBAI vs. CHANDRU T VAZIARANI, MUMBAI

The appeal filed by the revenue is directed against the order dated 10-10-2014 passed by Ld CIT(A)-33, Mumbai and it relates to the assessment year 2011-12. The revenue is aggrieved by the decision of Ld CIT(A) in holding that the assessee is entitled to claim deduction of Rs.82.00 lakhs u/s 54EC of the Act as against the amount of Rs.40.00 lakhs allowed by the AO.

The facts relating to the issue under consideration are that the assessee sold a flat on 21.01.2011 for a consideration of Rs.1,05,00,000/-. The assessee invested a sum of Rs.40.00 lakhs in REC bonds on 31.3.2011 and further sum of Rs.42.00 lakhs in NHAI bonds on 01.07.2011. The assessee claimed exemption u/s 54EC of the Act in respect of aggregate investment of Rs.82.00 lakhs made by him, since they have been made within six months after the date of transfer of capital asset. It is pertinent to note that the provisions of sec. 54EC of the Act allows deduction of the investment made by an assessee out of capital gains in the long term specified asset within a period of six months after the date of transfer of capital asset.

The AO noticed that the first proviso to sec. 54EC(1) has provided that investment made on or after the 1st day of April, 2007 in the long term specified asset by an assessee during any financial year does not exceed fifty lakhs of rupees. Accordingly the AO held that the first investment of Rs.40.00 lakhs alone is eligible for deduction u/s 54EC of the Act and accordingly restricted the deduction claimed by the assessee to Rs.40.00 lakhs.

The Ld CIT(A) however allowed the claim of the assessee by following the decision rendered by Hon’ble Madras High Court in the case of CIT Vs. C.Jaichander T.C (A) Nos. 419 and 533 of 2014 dated 15-09-2014, wherein the Hon’ble Madras High Court has held as under:- “ In any event, from a reading of section 54EC(1) and the first proviso, it is clear that the time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the (A.Y. 2011-12) ITO vs. Shri Chandru T. Vazirani benefit claimed by assessee cannot be denied. It would have made a difference, if the restriction on the investment in bonds to Rs.50,00,000/- is incorporated in section 54EC(1) of the Act itself. However, the ambiguity has been removed by the legislature with effect from 1.4.2015 in relation to the assessment year 2015-16 and the subsequent years.”

I notice that the above said contentions of the assessee found favour with the Ld CIT(A) in view of the decision rendered by Hon’ble Madras High Court in the case of C. Jaichander (supra). The Ld D.R submitted that the Finance (No.2) Act, 2014 has inserted second proviso to sec. 54EC(1) providing that the overall investments made in two financial years should not exceed Rs.50.00 lakhs. However, I notice that Hon’ble Madras High Court has considered the second proviso and has held that it would apply from AY 2015-16.

Since the Ld CIT(A) has rendered his decision by following the decision rendered by Hon’ble Madras High Court in the case cited above, I do not find any reason to interfere with his order.