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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: SHRI N.K. BILLAIYA & SHRI MAHAVIR PRASAD
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
With this appeal, the Revenue has challenged the correctness of the order of the Ld. CIT(A), Gandhinagar, Ahmedabad dated 13.05.2014 pertaining to A.Y. 2010-11.
ITA No. 2257/Ahd/2014 2 . A.Y. 2011-12 2. The only grievance of the revenue is that the ld. CIT(A) has erred in law and on facts in allowing deduction u/s. 54EC of the Act at Rs. 50 lakhs on the erroneous presumption that the investment of Rs. 50 lakhs per year is allowed to the assessee in respect of u/s. 54EC of the Act.
Briefly stated the facts of the case are that in her return of income which was filed electronically on 27.08.2012, the assessee has declared total income of Rs. 16,49,410/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.
During the course of the scrutiny assessment proceedings, the A.O. found that the assessee has entered into transaction of sale of house property in Ahmedabad for a sale consideration of Rs. 1,80,00,000/- on which the assessee has declared long term capital of Rs. 15.83 lakhs after deducting indexed cost of acquisition of the property at Rs. 64.16 lakhs and after claiming exemption u/s. 54EC of the Act at Rs. 1,00,00,000/-.
The A.O. was of the opinion that the deduction claimed by the assessee u/s. 54EC of the Act at Rs. 1 crore is in violation of the provisions of the said section. The A.O. was of the firm belief that the assessee was entitled for a deduction of Rs. 50 lakhs only. The assessee was asked to show cause why the claim of deduction should not be restricted to Rs. 50 lakhs. Assessee filed a detailed reply referring to the CBDT circular and the notification of the Central Government which did not find any favour with the A.O. who
ITA No. 2257/Ahd/2014 3 . A.Y. 2011-12 proceeded by restricting the claim of deduction to Rs. 50 lakhs only and treated the balance of Rs. 50 lakhs in contravention to the provisions of Section 54EC of the Act.
Aggrieved by this, the assessee carried the matter before the ld. CIT(A) and reiterated its claim of deduction.
It was strongly contended that u/s. 54EC of the Act, it has been stated that exemption for investment cannot exceed Rs. 50 lakhs in a financial year. Therefore, if the assessee is able to invest Rs. 50 lakhs in two financial years each and still, if the investment is made within six months of the transfer, the assessee is eligible for the claim of deduction. For this proposition, strong reliance was placed on several decisions of the Tribunal.
The ld. CIT(A) was convinced with the claim of deduction in the light of the decision of the Co-ordinate Benches and held as under:- 6. l have considered the facts of the case, assessment order and the submission made by the appellant. I have also gone through the ratio of the various ITAT decisions relied upon by the appellant, including the decision of the jurisdictional TTAT in the case of Aspi Ginwala (supra). On due consideration of the same, I am inclined to agree with the contentions of the appellant, that keeping in view the facts of her case, the issue under consideration is squarely covered by the ratio of the aforesaid decisions, including the jurisdictional HAT. As correctly argued by the AR for the appellant, the respective ITATs have laid down the clear cut ratio that, "it is clear from this proviso that where assessee transfers his capital asset after 30th September of the financial year he gets an opportunity to make an investment of Rs. 50 lakhs each in two different financial years and is able to claim exemption upto Rs. 1 Crore u/s 54EC of the Act." The AO has not been able to dispute the basic fact on record that the investments in NHAI Bonds had been duly made by the appellant. The AO has no doubt relied on a decision of the ITAT
ITA No. 2257/Ahd/2014 4 . A.Y. 2011-12 Jaipur Bench in the case of Raj Kumar Jain HUF (supra). However, in her submissions, the appellant has invited my attention to the decision of the ITAT Panaji Bench which has distinguished the same and also highlighted the fact that the decision of the ITAT Ahmedabad Bench has been respectfully followed by both the ITAT Bangalore and Chennai Benches.
In view of the above, respectfully following the ratio of the aforesaid ITAT decisions, more particularly the binding decision of the jurisdictional ITAT Ahmedabad Bench, I hold that the disallowance of Rs.50,00,000/- made by the A.O. is not justified. The A.O. is therefore directed to fully allow the claim of exemption of the appellant under Sec. 54EC for Rs. 1,00,00,000/-. The relevant grounds of appeal are therefore, allowed.
Before us, the ld. D.R. could not controvert the findings of the First Appellate Authority. The ld. Counsel for the assessee drew our attention to the decision of the Hon’ble Madras High Court in the case of C. Jaichander 370 ITR 579 and Coromandel Industries Ltd. 370 ITR 586 in support the findings of the First Appellate Authority.
We have carefully considered the orders of the authorities below. The undisputed fact is that the transfer of house property took place on 11th February 2011, the assessee purchased capital gain exemption bond of NHAI on 28.02.2011 for 50 lakhs and 50 lacs bonds on 30.04.2011. Thus, it can be safely concluded that the investment in NHAI bonds were made by the assessee within six months from the date of transfer which is the upper limit for investment provided in Section 54EC of the Act. Accordingly, the investment on 28.02.2011 fell into the financial year 2010-11 and investment made on 30th April, 2011 fell into the financial year 2011-12.
ITA No. 2257/Ahd/2014 5 . A.Y. 2011-12 Thus, the investment was made in two financial years within a period of six months from the date of transfer of capital asset.
On identical facts, the Hon’ble High Court of Madras in the case of C. Jaichander (supra) was, interalia, seized with the following substantial question of law: “(i) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the assessee is eligible for deduction of Rs.l Crore under Section 54EC, in respect of investment of Rs.50 Lakhs made in two different financial years?”
And the Hon’ble High Court held as under:- (6) For better understanding of the issue, it would be apposite to refer to Section 54EC(1) of the Act, which reads as under: "Section 54EC. Capital gain not to be charged on investment in certain bonds.— (1) Where the capital gain arises from the transfer of a long-term capital asset (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 ; (b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of
ITA No. 2257/Ahd/2014 6 . A.Y. 2011-12 acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45. Provided that the 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 lakh rupees."
On a plain reading of the above said provision, we are of the view that Section 54EC(1) of the Act restricts the time limit for the period of investment after the property has been sold to six months. There is no cap on the investment to be made in bonds. The first proviso to Section 54EC(1) of the Act specifies the quantum of investment and it states that the investment so made on or after 1.4.2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees. In other words, as per the mandate of Section 54EC(1) of the Act, the time limit for investment is six months and the benefit that flows from the first proviso is that if the assessee makes the investment of Rs.50,00,000/- in any financial year, it would have the benefit of Section 54EC(1) of the Act. 8. The legislature noticing the ambiguity in the above said provision, by Finance (No.2) Act, 2014, with effect from 1.4.2015, inserted after the existing proviso to sub-section (1) of Section 54EC of the Act, a second proviso, which reads as under: "Provided further that the investment made by an assessee in the long-term specified asset, from 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 the subsequent financial year does not exceed fifty lakh rupees." 9. At this juncture, for better clarity, it would be appropriate to refer to the Notes on Clauses - Finance Bill 2014 and the Memorandum explaining the provisions in the Finance (No.2) Bill, 2014, which read as under:
ITA No. 2257/Ahd/2014 7 . A.Y. 2011-12 "Notes on Clauses - Finance Bill 2014: Clause 23 of the Bill seeks to amend section 54EC of the Income-tax Act relating to capital gain not to be charged on investment in certain bonds. The existing provisions contained in sub-section (1) of section 54EC provide that where capital gain arises from the transfer of a long-term capital asset and the assessee has within a period of six months invested the whole or part of capital gains in the long-term specified asset, the proportionate capital gains so invested in the long- term specified asset out of total capital gain shall not be charged to tax. The proviso to the said sub-section provides that the investment made in the long- term specified asset during any financial year shall not exceed fifty lakh rupees. It is proposed to insert a proviso below first proviso in said sub-section (1) so as to provide that the investment made by an assessee in the long-term specified asset, from 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 the subsequent financial year does not exceed fifty lakh rupees. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent years. Memorandum: Explaining the provisions in the Finance (No.2) Bill, 2014: Capital gains exemption on investment in Specified Bonds The existing provisions contained in sub-section (1) of section 54EC of the Act provide that where capital gain arises from the transfer of a long-term capital asset and the assessee has, at any time within a period of six months, invested the whole or any part of capital gains in the long-term specified asset, out of the whole of the capital gain, shall not be charged to tax. The proviso to the said sub- section provides that the investment made in the long-term specified asset during any financial year shall not exceed fifty lakh rupees. However, the wordings of the proviso have created an ambiguity. As a result the capital gains arising during the year after the month of September were invested in the specified asset in such a manner so as to split the investment in two years
ITA No. 2257/Ahd/2014 8 . A.Y. 2011-12 i.e., one within the year and second in the next year but before the expiry of six months. This resulted in the claim for relief of one crore rupees as against the Intended limit for relief of fifty lakhs rupees. Accordingly, it is proposed to insert a proviso in sub-section (1) so as to provide that the investment made by an assessee in the long-term specified asset, out of capital gains arising from transfer of one or more original asset, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years." 10. The legislature has chosen to remove the ambiguity in the proviso to Section 54EC(1) of the Act by inserting a second proviso with effect from 1.4.2015. The memorandum explaining the provisions in the Finance (No.2) Bill, 2014 also states that the same will be applicable from 1.4.2015 in relation to assessment year 2015-16 and the subsequent years. The intention of the legislature probably appears to be that this amendment should be for the assessment year 2015-2016 to avoid unwanted litigations of the previous years. Even otherwise, we do not wish to read anything more into the first proviso to Section 54EC(1) of the Act, as it stood in relation to the assessees. 11. 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 benefit claimed by the assessee cannot be denied. It would have made a difference, if the restriction on the investment in bonds to Rs.50,00,0007- 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.
ITA No. 2257/Ahd/2014 9 . A.Y. 2011-12 For the foregoing reasons, we find no infirmity in the orders passed by the Tribunal warranting interference by this Court. The substantial questions of law are answered against the Revenue and these appeals are dismissed. No costs.
As the issue is now well settled in favour of the assessee and against the revenue, we do not find any reason to interfere with the findings of the First Appellate Authority.
Appeal filed by the Revenue is accordingly dismissed.
Order pronounced in Open Court on 19 - 05- 2017
Sd/- Sd/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad: Dated 19 /05/2017 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad