Koshu V. Mahtaney, CHENNAI V. ACIT, CHENNAI

ITA 2305/CHNY/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5423 (ITAT-CHENNAI)
• Duration Of Justice: 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 30-12-2013
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset; Rectification of order

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 2305/MDS/2013 ASSESSMENT YEAR : 2007-08 KOSHU V. MAHTANEY, 86-E/2, AMBATTUR INDISTRIAL ESTATE, AMBATTUR, CHENNAI 600 058. [PAN: AAFPM 2483 A] (APPELLANT) VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-XIII, CHENNAI (RESPONDENT) APPELLANT BY : SHRI T. BANUSEKAR, CA., RESPONDENT BY : SHRI T.N. BETGERI, JCIT DATE OF HEARING : 09-01-2014 DATE OF PRONOUNCEMENT : 23-01-2014 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VI I, CHENNAI, DATED 19-11-2013 RELEVANT TO THE ASSESSMENT YEAR (A Y) 2007-08. 2. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 06-11-2007 DECLARING HI S TOTAL INCOME I.T.A. NO. 2305/MDS/2013 2 AS ` 61,67,597/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) OF THE INCOME TAX AC T, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE A SSESSEE. THE INCOME RETURNED BY THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER VIDE ORDER DATED 30-12-2009. SUBSEQUENTLY , NOTICE U/S.154 WAS ISSUED TO THE ASSESSEE ON 01-02-2013 FO R RECTIFYING THE MISTAKE. THE ASSESSEE HAD CLAIMED EXEMPTION OF ` 6,43,45,425/- U/S. 54EC OF THE ACT AGAINST CAPITAL GAIN ARISING FROM SALE OF SHARES. THE ASSESSING OFFICER VIDE OR DER DATED 01-03-2013 PASSED U/S.154 RESTRICTED THE EXEMPTION U/S.54EC TO ` 50.00 LAKHS ONLY. AGGRIEVED AGAINST THE RECTIFICATION ORDER DATED 01 -03-2013, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APP EALS). THE CIT(APPEALS) VIDE IMPUGNED ORDER, DISMISSED THE APP EAL OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING O FFICER PASSED U/S.154 OF THE ACT. AGAINST THIS ORDER OF THE CIT( APPEALS) DATED 19-11-2013, THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL. 3. THE ASSESSEE HAD EARNED LONG TERM CAPITAL GAIN O F ` 6,43,45,425/- ON SALE OF SHARES ON 14-06-2006. THE SALE I.T.A. NO. 2305/MDS/2013 3 CONSIDERATION WAS RECEIVED BY THE ASSESSEE ON 16-06 -2006 ` 4,23,88,250/- AND 29-06-2006 ` 2,85,25,558/-. ON 17-06-2006 THE ASSESSEE TRANSFERRED THE SALE PROCEEDS RECEIVED ON 16-06-2006 TO HSBC BANK FIXED DEPOSIT ACCOUNT AND ON 03-07-2006, THE ASSESSEE INVESTED THE SALE CONSIDERATION RECEIVED O N 29-06-2006 IN MUTUAL FUNDS. THE CENTRAL GOVT. VIDE NOTIFICATI ON NO. 142/2006 AND NOTIFICATION NO.143/2006 BOTH DATED 29-06-2006 NOTIFIED BONDS ISSUED BY NATIONAL HIGHWAYS AUTHORITY OF INDIA [NHA I] AND RURAL ELECTRIFICATION CORPORATION LTD., RESPECTIVELY AS LONG TERM SPECIFIED ASSET FOR THE PURPOSE OF INVESTMENT U/S.54EC OF TH E ACT. THE ASSESSEE WITHDREW THE SUM INVESTED IN FIXED DEPOSIT S AND MUTUAL FUNDS AND INVESTED THE ENTIRE CAPITAL GAINS ` 6.44 CRORES IN NHAI BONDS ON 27-07-2006. THE BONDS WERE ALLOTTED TO TH E ASSESSEE ON 31-07-2006. THEREAFTER, THE GOVT. ISSUED ANOTHE R NOTIFICATION ON 22-12-2006 WHEREIN THE INVESTMENT IN THE AFORESA ID BONDS WAS RESTRICTED TO ` 50.00 LAKHS. SINCE THE ASSESSEE HAD ALREADY INVESTED ` 6.44 CRORES IN NHAI BONDS, THE ASSESSING OFFICER IN PURSUANCE OF SUBSEQUENT NOTIFICATION DATED 22-12-20 06 RESTRICTED THE CLAIM OF THE ASSESSEE U/S.54EC TO ` 50.00 LAKHS ONLY. 4. SHRI T. BANUSEKAR, APPEARING ON BEHALF OF THE AS SESSEE SUBMITTED THAT THE ASSESSEE HAD INVESTED ` 6.44 CRORES IN THE I.T.A. NO. 2305/MDS/2013 4 NOTIFIED BONDS MUCH PRIOR TO THE ISSUANCE OF SUBSEQ UENT NOTIFICATION RESTRICTING THE INVESTMENT TO ` 50.00 LAKHS. THEREFORE, THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SECTION 54EC ON THE ENTIRE AMOUNT INVESTED. 5. ON THE OTHER HAND, SHRI T.N. BETGERI, APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF THE C IT(APPEALS) AND PRAYED FOR THE DISMISSAL OF THE APPEAL OF THE A SSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS NOTIFICATIONS REFE RRED TO DURING THE COURSE OF SUBMISSIONS. SECTION 54EC OF THE ACT PROVIDES THAT CAPITAL GAIN IS NOT TO BE CHARGED, WHERE THE CAPITAL GAIN ARISING FROM THE SALE OF LONG TERM CAPITAL ASSET IS INVESTED AT ANY TIME WITHIN A PERIOD OF SIX MONTHS AFTER THE DATE OF TRANSFER IN THE LONG TERM SPECIFIED ASSET. THE PROVISO WHICH WAS INTRODUCED W.E.F. 01-04-2007 BY THE FINANCE ACT, 2007 STATES THAT THE INVESTMENT MADE O N OR AFTER APRIL, 2007 IN THE LONG TERM SPECIFIED ASSET BY AN ASSESSEE DURING ANY FINANCIAL YEAR SHOULD NOT EXCEED ` 50.00 LAKHS. THE I.T.A. NO. 2305/MDS/2013 5 EXPLANATION TO SECTION 54EC FURTHER DEFINES LONG TE RM SPECIFIED ASSET. THE SAME IS REPRODUCED HEREIN BELOW: S.54EC: (B) LONG-TERM SPECIFIED ASSET FOR MAKING ANY INVESTMENT UNDER THIS SECTION DURING THE PERIOD CO MMENCING FROM THE 1ST DAY OF APRIL, 2006 AND ENDING WITH THE 31ST DAY OF MARCH, 2007, MEANS ANY BOND, REDEEMABLE AFTER THREE YEARS AND ISSUED ON OR AFTER THE 1ST DAY OF APRIL, 2006, BUT ON OR BEFORE THE 31ST DAY OF MARCH, 2007, (I) BY THE NATIONAL HIGHWAYS AUTHORITY OF INDIA CONSTITUTED UNDER SECTION 3 OF THE NATIONAL HIGHWAY S AUTHORITY OF INDIA ACT, 1988 (68 OF 1988); OR (II) BY THE RURAL ELECTRIFICATION CORPORATION LIMIT ED, A COMPANY FORMED AND REGISTERED UNDER THE COMPANIES ACT, 1956 (1 OF 1956), AND NOTIFIED BY THE CENTRAL GOVERNMENT IN THE OFFIC IAL GAZETTE FOR THE PURPOSES OF THIS SECTION WITH SUCH CONDITIO NS (INCLUDING THE CONDITION FOR PROVIDING A LIMIT ON THE AMOUNT O F INVESTMENT BY AN ASSESSEE IN SUCH BOND) AS IT THINKS FIT:] [PROVIDED THAT WHERE ANY BOND HAS BEEN NOTIFIED BEF ORE THE 1ST DAY OF APRIL, 2007, SUBJECT TO THE CONDITIONS S PECIFIED IN THE NOTIFICATION, BY THE CENTRAL GOVERNMENT IN THE OFFI CIAL GAZETTE UNDER THE PROVISIONS OF CLAUSE (B) AS THEY STOOD IM MEDIATELY BEFORE THEIR AMENDMENT BY THE FINANCE ACT, 2007, SU CH BOND SHALL BE DEEMED TO BE A BOND NOTIFIED UNDER THIS CL AUSE;] I.T.A. NO. 2305/MDS/2013 6 7. THE ASSESSEE IN PURSUANCE TO THE PROVISIONS OF S ECTION 54EC AND NOTIFICATION NO.142/2006 DATED 29-06-2006, INVESTED A SUM OF ` 6.44 CRORES IN NHAI BONDS ON 27-07-2006. SUBSEQUENTLY, CENTRAL GOVT. VIDE NOTIFICATION NO.38 0/2006 DATED 22-12-2006, RESTRICTED THE INVESTMENT IN THE BONDS TO ` 50.00 LAKHS. THE RELEVANT EXTRACT OF THE CONDITIONS IMPO SED BY THE CENTRAL GOVT. FOR MAKING INVESTMENT IN THE BONDS AR E RE-PRODUCED HEREIN BELOW: (I) A PERSON WHO HAS MADE AN INVESTMENT OF AN AMOU NT AGGREGATING MORE THAN FIFTY LAKHS RUPEES IN THE BON DS NOTIFIED AS LONG-TERM SPECIFIED ASSET BY THE CENTRAL GOVER NMENT FOR THE PURPOSES OF SECTION 54EC OF THE INCOME-TAX ACT 1961 (43 OF 1961) IN THE OFFICIAL GAZETTE VIDE NOTIFICATION NUMBER S.O. 963(E), DATED THE 29 TH JUNE, 2006 OR NOTIFICATION NUMBER S.O. 964(E), DATED THE 29 TH JUNE, 2006, SHALL NOT BE ALLOTTED ANY BONDS NOTIFIED AS LONG-TERM SPECIFIED ASSET BY TH IS NOTIFICATION; (II) A PERSON WHO IS NOT COVERED BY CLAUSE (I), SHA LL NOT BE ALLOTTED THE BONDS NOTIFIED AS LONG-TERM SPECIF IED ASSET BY THIS NOTIFICATION, FOR ANY AMOUNT WHICH EXCEEDS THE AMOUNT OF FIFTY LAKHS RUPEES AS REDUCED BY THE AGGREGATE OF T HE INVESTMENT, IF ANY, MADE BY HIM IN THE BONDS NOTIFI ED AS LONG- TERM SPECIFIED ASSET BY THE CENTRAL GOVERNMENT FOR THE PURPOSES OF SECTION 54EC OF THE INCOME-TAX ACT 1961 (43 OF 1961) IN THE OFFICIAL GAZETTE VIDE NOTIFICATION NUM BER S.O. 963(E), DATED THE 29 TH JUNE, 2006 OR NOTIFICATION NUMBER S.O. 964(E), DATED THE 29 TH JUNE, 2006. I.T.A. NO. 2305/MDS/2013 7 8. THE ASSESSING OFFICER IN VIEW OF THE CONDITIONS IMPOSED BY THE SUBSEQUENT NOTIFICATION DATED 22-12-2006, INITI ATED PROCEEDINGS U/S.154 FOR RECTIFICATION OF THE ORDER FOR DIS-ALLOWING THE EXEMPTION CLAIMED BY THE ASSESSEE U/S.54EC IN E XCESS OF ` 50.00 LAKHS. THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESSING OFFICER IN RESTRICTING THE BENEFIT U/S.54 EC BEFORE THE CIT(APPEALS). THE CIT(APPEALS) NOT ONLY UPHELD THE FINDINGS OF THE ASSESSING OFFICER BUT FURTHER HELD THAT THE ASS ESSEE HAS NOT INVESTED THE WHOLE OF CAPITAL GAINS IN THE LONG TER M SPECIFIED ASSET DIRECTLY. THE CAPITAL GAIN ARISING FROM THE TRANSF ER OF LONG TERM CAPITAL ASSET WAS UTILIZED FOR THE PURPOSES OTHER T HAN INVESTING IN BONDS THOUGH FOR A SHORTER DURATION AND IS THEREFOR E, NOT IN CONSONANCE WITH THE LETTER AND SPIRIT OF THE ENACTM ENT AND HENCE THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S.54EC OF THE ACT. 9. WE ARE OF THE CONSIDERED OPINION THAT THE ASSESS EE HAD MADE INVESTMENT IN NHAI BONDS ON 27-07-2006 I.E., M UCH PRIOR TO THE NOTIFICATION RESTRICTING THE INVESTMENT TO ` 50.00 LAKHS BY SUBSEQUENT NOTIFICATION DATED 22-12-2006. FURTHER, CLOSE SCRUTINY OF THE CONDITIONS MENTIONED IN THE NOTIFICATION DAT ED 22-12-2006 WOULD SHOW THAT THE CENTRAL GOVERNMENT HAS PUT CAP ON INVESTMENT IN BONDS BEYOND ` 50.00 LAKHS, BUT NO WHERE IT HAS I.T.A. NO. 2305/MDS/2013 8 BEEN MENTIONED IN THE NOTIFICATION THAT THOSE WHO H AVE ALREADY INVESTED BEYOND ` 50.00 LAKHS ARE NOT ENTITLED FOR CLAIMING EXEMPTION U/S.54EC BEYOND THE CAP OF ` 50.00 LAKHS. THE RESTRICTION ON INVESTMENT BEYOND ` 50.00 LAKHS HAS BEEN INTRODUCED IN THE ACT BY FINANCE ACT, 2007 W.E.F. 0 1-04-2007. IN THE PRESENT CASE, THE ASSESSEE HAS INVESTED HUGE SUM BEYOND THE CAP MUCH PRIOR TO THE RESTRICTION IMPOSED BY TH E GOVT. TO AVAIL THE BENEFIT OF SECTION 54EC. EVEN THE AMENDMENT IN TRODUCED BY FINANCE ACT, 2007 HAS NO IMPLICATION ON THE AY UNDE R CONSIDERATION. IN OUR OPINION, THE RESTRICTION IN INVESTMENT IMPOSED BY NOTIFICATION DATED 22-12-2006 SHALL BE A PPLICABLE TO INVESTMENTS MADE IN LONG TERM SPECIFIED ASSETS ON LY ON INVESTMENTS MADE ON OR AFTER 22-12-2006 AND SHALL H AVE NO APPLICATION RETROSPECTIVELY. 10. AS REGARDS THE OBSERVATION OF THE CIT(APPEALS), THAT THE ASSESSEE HAS NOT INVESTED CAPITAL GAINS DIRECTLY IN LONG TERM SPECIFIED ASSET FOR CLAIMING EXAMINATION U/S.54EC, THE SAME IS NOT TENABLE. THE PROVISIONS OF SECTION 54EC SPECIF IES THE TIME PERIOD WITHIN WHICH THE LONG TERM CAPITAL GAIN HAS TO BE INVESTED IN LONG TERM SPECIFIED ASSETS. THE ACT DOES NOT SPECIFIES THAT INVESTMENT HAS TO BE MADE DIRECTLY AFTER RECEIVING CAPITAL GAINS. IN I.T.A. NO. 2305/MDS/2013 9 THE INSTANT CASE, THE ASSESSEE HAS RECEIVED SALE CO NSIDERATION ON 16-06-2006 AND 29-06-2006. THE ASSESSEE MADE INVES TMENTS IN NHAI BONDS ON 27-07-2006 I.E. WITHIN THE PERIOD OF SIX MONTHS AFTER THE DATE OF TRANSFER OF LONG TERM CAPITAL ASS ET. THUS, THE ASSESSEE IS ENTITLED TO EXEMPTION U/S.54EC TO THE E XTENT OF INVESTMENT MADE IN LONG TERM SPECIFIED ASSET U/S.54 EC. IN VIEW OF OUR ABOVE FINDINGS, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 23 RD JANUARY, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 23 RD JANUARY, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR