Capital gains—Deduction under section 54EC—Investment not made with in prescribed time due to non-availability of REC Bonds

short overview : The claim of deduction under section 54EC could not be disallowed since assessee has demonstrated that non–investment in REC Bonds within the stipulated period was due to non–availability of bonds in the market.

Against the gain derived from transfer of lease holds rights the assessee had claimed deduction under section 54EC towards investment made in REC Bonds. AO disallowed assessee’s claim of deduction under section 54EC, as investments in bonds were made after expiry of the prescribed period for making the investment.

it is held that Assessee had invested the amount in REC Bond, as soon as it became available. In the meanwhile, the six month period from the date of transfer of the capital asset had expired. Assessee could not have invested in the REC Bonds within the stipulated period of six months as provided under section 54EC as it was not possible on the part of the assessee to do so due to non–availability of the bonds. Thus, the claim of deduction could not be disallowed since assessee has demonstrated that non–investment in REC Bonds within the stipulated period was due to non–availability of bonds in the market.

Decision: In assessee’s favour.

Referred: CIT, Central III v. M/s. Cello Plast, in (Income Tax Appeal No. 3731 of 2010, dt. 27-7-2012) : 2012 TaxPub(DT) 2269 (Bom-HC), M/s. Heatex Products (P) Ltd. v. ACIT in (I.T.A. No. 8197/Mum/2010, dt. 24-7-2013), Vivek Jairazbhoy v. Dy. CIT (International Taxation) in (I.T.A. No. 236/Bang/2012, dt. 14-12-2012) : 2012 TaxPub(DT) 3445 (Bang-Trib) and Aspi Ginwala v. Asstt. CIT, Circle-5, Baroda (2012) 52 SOT 16 (Ahd) : 2012 TaxPub(DT) 1026 (Ahd-Trib).

IN THE ITAT, MUMBAI BENCH

SAKTIJIT DEY, J.M. & MANOJ KUMAR AGGARWAL, A.M.

Heatex Products (P) Ltd. v. Dy. CIT

ITA No. 5439/Mum./2017

24 May, 2019

Assessee by: Aarti Sathe

Revenue by: Manoj Kumar Singh

Saktijit Dey, J.M.

The aforesaid appeal has been filed by the assessee challenging the Order, dt. 26-5-2017, passed by the learned Commissioner (Appeals)–4, Mumbai, for the assessment year 2007–08.

2. Though, the assessee has raised six grounds, however, the dispute in the present appeal is confined to disallowance of assessee’s claim of exemption under section 54EC of the Income–tax Act, 1961 (for short “the Act”) for an amount of Rs. 50 lakh.

3. Brief facts are, the assessee, a company, filed its return of income for the impugned assessment year on 31-3-2009, declaring total income of Rs. 25,16,545, after claiming deduction under section 54EC of the Act. During the assessment proceedings, the assessing officer, to verify assessee’s claim of exemption under section 54EC of the Act, called for necessary details from the assessee.

From the details furnished, he found that in the previous year relevant to the assessment year under dispute, more precisely, on 19-12-2006 the assessee had transferred a capital asset, being lease hold interest in land, for a consideration of Rs. 1,32,50,000.

Further, he noticed that against the aforesaid sale consideration, the assessee had claimed deduction of Rs. 1 crore under section 54EC of the Act towards investment made in REC Bonds. However, from the details furnished, the assessing officer found that the investment made in REC Bonds was made in two tranches i.e., Rs. 50 lakh on 31-3-2008 and further Rs. 50 lakh on 1-8-2008. Referring to the provisions of section 54EC of the Act, the assessing officer observed that for claiming deduction under the said provision, the assessee had to make the investment within a period of six months from the date of transfer of the capital asset. Since, the first investment of Rs. 50 lakh was made on 31-3-2007, i.e., within six months from the date of transfer of the capital asset, he allowed assessee’s claim of deduction under section 54EC of the Act to that extent. Insofar as the balance investment of Rs. 50 lakh on 1-8-2007, is concerned, the assessing officer disallowed assessee’s claim of deduction on the reasoning that the said investment was not made within the prescribed time limit of six months from the date of transfer of capital asset.

While doing so, he observed that as per the provision of section 54EC of the Act, there is no scope of condonation of delay in making investment. Accordingly, he disallowed assessee’s claim of deduction under section 54EC of the Act in respect of balance amount of Rs. 50 lakh. Being aggrieved with the aforesaid disallowance, the assessee preferred appeal before the first appellate authority.

4. After considering the submissions of the assessee learned Commissioner (Appeals) observed, the assessee was not able to establish that the delay in investing the balance amount of Rs. 50 lakh was due to non–availability of REC Bonds in the market. Therefore, he sustained the disallowance made by the assessing officer.

5. Reiterating the stand taken before the Departmental Authorities learned Authorised Representative submitted, the assessee could not deposit the entire amount of Rs. 1 crore in REC Bonds on 31-3-2007, since the maximum investment to be made by a person in REC Bonds was restricted to the amount of Rs. 50 lakh. Therefore, she submitted, the assessee could not have invested more than Rs. 50 lakh in REC Bonds at a time. She submitted, after 31-3-2007, REC Bonds were not available for investment. REC Bonds again became available between the period 2-7-2007 to 31-3-2008 and by that time the six month period has expired on 18-6-2007. Thus the assessee could not make the investment of balance amount of Rs..50 lakh within the stipulated period. She submitted, after the re–issue of REC Bonds the assessee immediately invested Rs. 50 lakh on 1-8-2008. Thus, she submitted, since non–investment of the balance amount of Rs. 50 lakh in REC Bonds was due to non availability of REC Bonds in the market, the assessee could not be asked to do an impossible act. She submitted, since the delay in investment was due to a situation beyond the control of the assessee, it should not suffer for that and the investment made should be allowed as deduction. To demonstrate that REC Bonds were not available, during the period from 1-4-2007 to 18-6-2007, learned Authorised Representative drew our attention to various documentary evidences furnished in the paper book. Further, learned Authorised Representative submitted, the allegation of learned Commissioner (Appeals) that the assessee did not invest the entire amount of Rs. 1 crore during the availability of REC Bonds till 31-3-2007, is without any basis because the maximum amount one could invest as per the condition imposed was Rs. 50 lakh. She submitted, even though the investments were made in two financial years, but the assessee still can claim exemption under section 54EC of the Act as per the provisions applicable to the impugned assessment year. In support of her contention learned Authorised Representative relied upon the following decisions:–

(i) CIT v. Celloplast, (2012) 253 CTR 246 (Bom.) : 2012 TaxPub(DT) 2719 (Bom-HC);

(ii) Aspi Ginwala v. ACIT, ITA No. 3226/Ahd./2011, dt. 30-3-2012; and

(iii) Vivek Jairaz Bhoy v. DIT, ITA No. 236/Bang./2012, dt. 14-12-2012.

6. The learned Departmental Representative strongly relied upon the observations of learned Commissioner (Appeals).

7. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. As could be seen from the facts on record, against the gain derived from transfer of lease holds rights the assessee had claimed deduction under section 54EC of the Act for an amount of Rs. 1 crore towards investment made in REC Bonds. There is no dispute that the assessee is eligible to claim deduction under section 54EC of the Act, since the assessing officer himself has allowed deduction for an amount of Rs. 50 lakh. It is relevant to observe, this is the second round of litigation on the issue before us. In the original assessment, the assessing officer had disallowed assessee’s claim of deduction under section 54EC of the Act on similar ground. When the issue ultimately came up for consideration before the Tribunal in ITA No. 8197/Mum./2010, vide Order, dt. 24-7-2013 the Tribunal restored the issue to the assessing officer with a direction to verify whether REC Bonds were available during the period of limitation and if the Bonds were not available, the assessee cannot be penalized for not investing in the Bonds within the stipulated time. While in the subsequent assessment order, the assessing officer has not specifically complied with the aforesaid direction of the Tribunal, learned Commissioner (Appeals) has held that the assessee could not establish that REC Bonds were not available during the period of limitation and further, the assessee could not furnish any valid reason why it could not make the investment of Rs. 1 crore when the Bonds were available for investment up to the period of 31-3-2007. Undisputedly, the capital asset was transferred by the assessee on 19-12-2006. So, the assessee was required to invest in REC Bonds within the period of six months from the date of transfer i.e., by 18-6-2007. While the assessee invested an amount of Rs. 50 lakh on 31-3-2007, the balance amount of Rs. 50 lakh was invested by the assessee on 1-8-2007. The explanation of the assessee for not investing the second amount of Rs. 50 lakh on/or before 31-3-2007 is, as per the conditions imposed at the time of issuance of REC Bonds Series–VIA, available between the period from 22-1-2007 to 31-3-2007, the maximum amount one can invest was Rs. 50 lakh.

Therefore, the assessee could not have invested the amount of Rs. 1 crore in REC Bonds. On a perusal of the material placed on record, we find the aforesaid contention of the assessee acceptable. As per the condition of section 50EC Series–VIA Bonds, the maximum amount one can invest is Rs. 50 lakh. Therefore, the assessee could not have invested more than Rs. 50 lakh in the said Bonds on 31st march 2007.

This restriction was also as per the conditions imposed by the CBDT in its notification issued on 29-6-2006. Undisputedly, after 31-3-2007, REC Bonds were not available in the market and REC Bonds Series–VII was again available from 2-7-2007 to 31-3-2008.

It is a fact that the assessee had invested further amount of Rs. 50 lakh on 1-8-2007 after REC Bond Series–VII became available. In the meanwhile, the six month period from the date of transfer of the capital asset expired on 18-6-2007. Therefore, the assessee could not have invested in the REC Bonds within the stipulated period of six months as provided under section 54EC of the Act, as it was not possible on the part of the assessee to do so due to non–availability of the bonds. That being the case, the claim of deduction in respect of balance amount of Rs. 50 lakh cannot be disallowed since the assessee has demonstrated that non–investment in REC Bonds within the stipulated period was due to non–availability of bonds in the market.

This view of ours is supported by the decision of the Hon’ble Jurisdictional High Court in case of CIT v. Celloplast (supra).

Therefore, the delay in investment has to be condoned as the assessee cannot be expected to do or perform an impossible act.

8. Insofar as the issue whether the claim of deduction under section 54EC of the Act is available if the investments are spread over two financial years, we are of the considered opinion that there was no bar in section 54EC of the Act for allowing deduction in respect of investment made in two financial years. The provision as contained in section 54EC r/w its proviso would make it clear that the cap is with regard to the amount to be invested in a particular financial year and it does not restrict the claim deduction even if the investments are made in excess of Rs. 50 lakh spread over two financial years. The decisions cited by the learned Authorised Representative clearly support this view. Therefore, on over all consideration of facts and material on record, we are of the view that the claim of deduction under section 54EC of the Act in respect of the amount of Rs. 1 crore is allowable.

Accordingly, we direct the assessing officer to allow assessee’s claim of deduction in respect of the balance amount of Rs. 50 lakh also. Grounds raised are allowed.

9. In addition to the aforesaid issue in the main ground, the assessee has raised additional ground on the issue of disallowance of claim of TDS of Rs. 1,75,429.

10. We have considered rival submissions and perused the material on record. It is the contention of the learned Authorised Representative that without properly verifying the claim of the assessee including the TDS certificate filed, it has been disallowed. It is seen from the record, while deciding the appeal arising out of original assessment order, learned Commissioner (Appeals) had directed the assessing officer to give credit for TDS as per law.

Therefore, the issue raised in the additional ground can be decided on the basis of facts and material available on record. That being the case, though, we admit the additional ground, however, we restore the issue to the assessing officer for verifying assessee’s claim vis-a-vis the facts and material on record including the TDS certificate furnished by the assessee and allow credit for TDS as per law. The additional grounds are allowed for statistical purposes.

11. In the result, appeal is partly allowed.