ITAT Ahmedabad

Rahul G. Patel

ITA No. 2767/Ahd/2016

26/09/2018

1. In the next ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in not granting deduction/exemption under section 54EC of the Act amounting to Rs.50 lakhs.

2. Brief facts of the case are that after agreement to sell the assessee has received sale consideration from the vendee. He has made investment in NHAI bonds and claimed deduction under section 54EC. The ld.AO has observed that such investments were made before the registration of sale deed, and therefore, he is not entitled for the exemption. The issue is, whether investment made from the advance received on sale of capital asst will qualify for grant of exemption under section 50EC or not. Board has issued a circular whereby it has laid down that such assessee would be entitled for exemption. Circular bearing no.359 dated 10.5.1983 reads as under:

CIRCULAR : NO. 359 [F.NO. 207/8/82-IT(A-ll)], DATED 10-5-1983

1. Section 54E provides for exemption of long-term capital gains if the net consideration is invested by the assessee in specified assets within a period of six months after the date of such transfer. A technical interpretation of section 54E could mean that the exemption from tax on capital gains would not be available if part of the consideration is invested prior to the date of execution of the sale deed as the investment cannot be regarded as having been made within a period of six months after the date of transfer.

2. On consideration of the matter in consultation with the Ministry of Law, it is felt that the foregoing interpretation would go against the purpose and spirit of the section. As the section contemplates investment of the net consideration in specified assets for a minimum period and as earnest money or advance is a part of the sale consideration, the Board have decided that if the assessee invests the earnest money or the advance received in specified assets before the date of transfer of asset, the amount so invested will qualify for exemption under section 54E.

3. Considering the above circular, we allow this ground of appeal and direct the AO to grant exemption under section 54EC of the Act.