JANAK MATHURADAS, MUMBAI V. ITO 14(3)-2, MUMBAI

ITA 67/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62662 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 21-06-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 05-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHSARATHI
• Assessee Lawyers: F V IRANI; DIVYESH SHAH
• Keywords: Reopening of assessment; Capital asset; Date of conversion; Difference of opinion; Benefit of exemption; Reason to believe; Change of opinion
• Section: 45(2); 143(3); 54B; 54

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNALG BENCH, MUMBAI . . , , , . . BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./ ITA NO.1350/MUM/2010 . ( / ASSESSMENT YEAR: 2003-2004 ) YOGESH MATHURADAS, C/O. HEMRAJ CANJI, 683,GOVIND CHOWK, M.J. MARKET, MUMBAI-400 002. VS. ITO 14(3)-2, MUMBAI-400 021. ./ ./PAN NO. ABTPK 3985 A ( /APPELLANT ) : ( / RESPONDENT ) / AND ./ ITA NO.67/MUM/2010 ( / ASSESSMENT YEAR: 2003-2004) JANAK MATHURADAS, C/O. HEMRAJ CANJI, 683,GOVIND CHOWK, M.J. MARKET, MUMBAI-400 002. VS. ITO 14(3)-2, MUMBAI-400 021. ./ ./PAN NO. AAGPM 4432 Q ( /APPELLANT ) : ( / RESPONDENT ) - / APPELLANT/ASSESSEE BY : MR. F.V.IRANI & MR.DIVYESH SHAH - / RESPONDENT-REVENUE BY : MR. PARTHSARATHI / DATE OF HEARING : 21 ST JUNE 2012 / DATE OF PRONOUNCEMENT : 11 TH JULY, 2012 / O R D E R PER AMIT SHUKLA (J.M.) : THIS CONSOLIDATED ORDER SHALL GOVERN THE DISPOSAL OF ITA NO.1350/M/2010 & ITA NO.67/M/2010 (AY2003-2004), AS IN BOTH THE ITA NOS : 1350/10, & 67/10 2 APPEALS, FILED BY THE ABOVENAMED ASSESSEES, COMMON ISSUE IS INVOLVED. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AGREED THAT THE CASE OF YOGESH MATHURADAS I.E. IT A NO.1350/2010, WILL ALSO COVER THE OTHER CASE, THEREFORE, WE ARE PR OCEEDING TO DEAL AND DECIDE THE CASE OF YOGESH MATHURADAS. 2 . THE ASSESSEE HAS TAKEN FOUR GR OUNDS OF APPEAL WITH VARIOUS SUB GROUNDS AGAINST THE ORDER DATED 30-12- 2009, PASSED BY THE CIT(A)-25, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) R.W.S. 147 FOR THE ASSESSMENT YEAR 2003-2004. GROUND NO.1 DEALS WITH THE VALIDITY OF REOPENING OF ASSESSMENT UNDER SECTION 147, WHICH HAS BEEN UPHELD BY THE CIT(A). GROUNDS NO.2 & 3 RELATE TO YEAR OF TRANSFER OF CAPITAL ASSETS AND THE TAXABILITY OF CAPITAL GAIN IN THE ASSESSMENT YEAR 2003-2004. IN GROUND NO.4, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF DEDUCTION UNDER SECTION 54EC. 3. THE BRIEF BACKGROUND OF THE CASE ARE THAT THE ASSESSEE HAD ENTERED INTO A DEVELOPMENT AGREEMENT IN RESPECT OF JOINTLY OWNED PROPERTY WITH M/S SEJ DEVELOPERS VIDE AGREEMENT DATED 21-9-2002 . THE INCOME FROM TRANSFER OF THIS PROPERTY WAS OFFERED FOR LONG TERM CAPITAL GAIN TAX BY THE JOINT CO -OWNER, THROUGH YOGESH MATHURADAS AND SHRI JANAK MATHURADAS IN T HE ASSESSMENT YEAR 2004-2005, AFTER THE COMPLETION OF VARIOUS COVENANTS/CONDITIONS STIPULATED IN THE AGREEMENT. THE SALE PROCEEDS ARISING OUT OF THE TRANSFER OF CAPITAL ITA NOS : 1350/10, & 67/10 3 ASSET, WAS INVESTED IN SPECIFIED BONDS AND EXEMPTION UNDER SECTION 54EC WAS CLAIMED IN THE RETURN OF INCOME AND THE SAME WAS DULY ACCEPTED BY THE ASSESSING OFFICER IN THE ORDER DATED 16-12-2006 PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2004-2005. FOR THE ASSESSMENT YEAR 2003-2004,THE A SSESSEE HAS FILED HIS RETURN OF INCOME ON 30-3-2004 DECLARING THE INCOME OF ` .9,58,130/-, WHICH WAS DULY PROCESSED UNDER SECTION 143 (1). LATER ON, IN VIEW OF THE OBJECTIONS RAISED BY THE REVENUE AUDIT TEAM, THE PROCEEDINGS UNDER SECTION 147 WERE INITIATED AND CASE WAS REOPENED BY ISSUANCE OF NOTICE DATED 25-3-2008 UNDER SECTION 148. THE CASE WAS REOPENED ON THE FOLLOWING REASONS RECORDED WHICH HAVE BEEN INCORPORATED AT PAGE 2 OF THE IMPUGNED ASSESSMENT ORDER :- WHILE SCRUTINIZING THE ASSESSM ENT RECORDS FOR A.YR. 2004-05, IT WAS NOTICED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH MIS. SEJ DEVELOPERS FOR T HE BORIVALI PROPERTY BEARING CTS NO. 603 & 609 FOR A LUMP SUM CONS IDERATION OF RS. 4,52,00,000!- VIDE DEVELOPMENT AGREEMENT DATED 21.9.2002, IN WHICH THE ASSESSEES SHARE WAS 50%. THE DET AILS OF RECEIPTS OF SALE PROCEEDS AND THE INVESTMENTS MADE U/S. 54EC, AS SHOWN BY THE ASSESSEE, IS AS UNDER: DATE OF RECEIPT OF PAYMENTS AMOUNT 26.07.2002 RS. 14,12,500 20.9.2002 RS. 70,62,500 20.11.2002 RS. 47,09,000 20.01 .2003 RS. 47,08,000 28.3.2003 RS. 47,08,000 (AS PER THE ASSESSEE, THE CHEQUE DATED 28.3.2003 RETURNED AND RE-DEPOSITED ON 16.4.2003) -------------------- TOTAL RS. 226,00,000 ITA NOS : 1350/10, & 67/10 4 INVESTMENTS MADE UNDER SEC. 54EC AS UNDER:- DATE INVESTMENTS AMOUNT 20.3.2003 1790 BONDS OF N.H.B. RS. 179,00,000 21 .4.2003 220 BONDS OF NHB RS. 22,00,000 26.4.2003 C.G. SCHEME RS. 25,10,000 RS. 226,00,000 SINCE THE DEVELOPMENT AGREEMENT WAS EXECUTED ON 21.09.2002, THE PERIOD OF 6 MONTHS FOR INVESTMENT IN SPECIFIED ASSETS UNDER SEC. 54 EC EXPI RES ON 21 .3.2003. AS PER THE ABOVE DETAILS, THE INVESTMENTS MADE ON 21.4.2003 & 26.4.2003 AMOUNTING TO RS. 47,10,000!- IS NOT ELIGIBLE FOR EXEMPTION UNDER SEC. 54EC OF THE ACT THE ASSESSEE HAS DEFERRED THE TAX LIABILITY TO A.YR. 2004-05 ON THE PRETEXT OF POSSESSION LETTER DATED 21.08.2003. SINCE THE DEVELOPMENT AGREEMENT HAS BEEN ENTERED INTO BY THE ASSESSEE DURING THE FINANCIAL YEAR 2002- 03 RELEVANT TO A.YR. 2003-04 AND A LL THE PAYMENTS WERE RECEIVED DURING THE SAME PERIOD, THE CAPI TAL GAIN IS TO BE TAXED IN THE A.YR. 2003-04. HENCE, THE CASE IS REOPENED UNDER SEC. 147 OF THE L.T.ACT 1961. 4. AGAINST THE SAID REOPENING THE ASSESSEE MADE HIS DETAILED OBJECTIONS BEFORE THE ASSESSING OFFICER AND SUBMITTED THAT POSSESSION OF THE PROPERTY WAS GI VEN ON 21-8-2003 AND, THEREFORE, ON THAT BASIS, THE DATE OF TRANSFER FALLS IN THE ASSESSMENT YEAR 2004-2005, WHEREIN CAPITAL GAIN HAS BEEN OFFE RED. ALL THE GAINS HAVE BEEN TRANSFERRED TO THE CAPITAL ASSETS, I.E. HAS BEEN INVEST ED IN SPECIFIED BONDS AND EXEMPTION UNDER SECTION 54EC WAS CLAIMED WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFI CER IN THE ORDER PASSED UNDER SECTION 143(3), IN THE ASSESSMENT YEAR 2004-05. THEREFORE, THE REOPENING OF THE CASE FOR DISALLOWANC E OF PART OF THE INVESTMENT MADE ITA NOS : 1350/10, & 67/10 5 IN 54EC AMOUNTS TO CHANGE OF OPINION. FURTHER OBJECTIONS WITH REGARD TO NON-SERVICE OF NOTICE UNDER SECTION 148, REASON TO BELIEVE, THAT NO INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, WERE RAISED BEFORE THE ASSESSING OFFICE R. ALL THESE OBJECTIONS HAS BEEN REJECTED BY THE ASSESSING OFFICER AS PER HIS FINDING GIVEN IN THE ASSESSMENT ORDERS. FINALLY, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF EXEMPTION UNDER SECTION 54EC FOR AN AMOUNT OF ` .47,00,000/- OUT OF ` .2,26,00,000/- IN THE FOLLOWING MANNER :- 6. IN VIEW OF THE DETAILED DISCUSSIONS GIVEN ABOVE, THE YEAR OF CHARGEABILITY OF CAPITAL GAINS IS THE YEAR IN WHICH THE CONTRACT IS EXECUTED AND IN THE CASE OF ASSESSEE, THE DATE OF AGREEMENT IS 21.9.2002 WHICH IS DURING THE FINANCIAL YEAR RELEVANT TO AY.2003-04. THE ASSESSEE WAS REQUIRED TO MAKE THE INVESTMENTS UNDER SEC. 54EC WITHI N 6 MONTHS FROM THE DATE OF AGREEMENT WHICH EXPIRED ON 21. 3.2003. HENCE, EXEMPTION UNDER SEC. 54EC IS ALLOWABLE TO THE EXT ENT OF SALE PROCEEDS INVESTED IN SPECIFIED ASSETS TILL 21.3.2003. IN THIS CASE, THE ASSESSEE HAS MADE INVESTMENT OF ` .1,79,00,000/- OUT OF SALE PROCEEDS OF ` .2,26,00,000/- TILL 21.3.2003. ACCORDING TO THE ASSESSEE, THE CHEQUE FOR ` .47,08,000/- RECEIVED AS LAST PAYMENT GOT RETURNED AND ASSESSEE HAD TO REDEPOSIT IT ON 16.4.2003 AND HENCE THE LAST INSTALMENT RECEIVED IS INVESTED IN SPECIFIED ASSTS ON 21.4.2003 & 26.4.2003. THIS VERSION OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE AS PER SECT ION 54EC, THE SALE PROCEEDS HAVE TO BE INVESTED IN SPECIFIED ASSETS WITHIN A PERIOD OF SIX MONTHS OF DATE OF TRANSFER. THEREFORE, THE ASSESSEE IS ENTITLED TO GET AN EXEMPTION U/S. 54EC TO THE EXTENT OF ` .1,79,00,000/- ONLY AND THE BALANCE AMOUNT OF ` .47,00,000/- INVESTED BEYOND THE SPECIFIED DATE IS TREATED AS LONG TE RM CAPITAL GAIN FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY AND PENALTY ITA NOS : 1350/10, & 67/10 6 PROCEEDINGS UNDER SECTION 271(1)(C) AR E INITIATED ON THIS ISSUE OF DISALLOWANCE. ACCORDINGLY, THE INCOME WAS ASSESSED AT AN INCOME OF ` .56,58,130/-. 5. BEFORE THE CIT(A) ALSO, THE DETAIL OBJECTIONS AND SUBMISSIONS WERE MADE ON THE VALIDITY OF REOPENING UNDER SECTION 147 ON VARIOUS OTHER GROUNDS, HOWEVER, THE SAME HAS BEEN REJECTED BY THE CIT(A) VIDE PARA 6 OF THE APPELLATE ORDER. REGARDING THE ISSUE OF TAXABILITY OF CAPITAL GAIN FOR THE ASSESSMENT YEAR 2003-2004 AND DISALLOWANCE OF DEDUCTION UNDER SECTION 54EC, THE ASSESSEE MADE DETAIL SUBMISSIONS BEFORE THE CIT(A), INTER ALIA, ON THE GROUND THAT FIRSTLY , THE TRANSFER HAS NOT TAKEN PLACE IN THE ASSESSMENT YEAR 2003-2004 EVEN THOUGH BUILDERS AGREEMENT WAS SIGNED IN THIS YEAR AS ALL THE CONDITIONS PRESCRIBED IN THE AGREEMENT WERE NOT FULFILLED AND THE SAME WAS THEREFORE, OFFERED FOR CAPITAL GAINS IN THE ASSESSMENT YEAR 2004-2005. SECONDLY , VARIOUS POST DATED CHEQUES IS SUED BY THE DEVELOPERS TO THE ASSESSEE, THE LAST CHEQUE FOR A SUM OF ` .47,08,000/- DATED 28.3.2003 WAS RETURNED UNPAID BY THE BANK WHICH WAS REDEPOSITED AND CLEARED ON 16-4-2004 AND WAS INVESTED IN THE BOND IMMEDIATELY THEREAFTER AND, THEREFORE, IN SUCH A SITUATION IT CANNOT BE HELD THAT THE TRANSFER HAD TAKEN PLACE IN THE A SSESSMENT YEAR 2003-2004 AS THE FULL AND FINAL PAYMENT WAS MADE AFTER 31 ST MARCH, 2003. VARIOUS OTHER ARGUMENTS WERE ALSO PLACED RELYING UPON VARIOUS JUDICIAL PRONOUNCEMENTS IN SUPPORT OF THE CONT ENTION THAT THE CONDITIONS OF SECTION 2(47)(V) WAS NOT FULFILLED IN THE ASSESSMENT YEAR 2003-04. ITA NOS : 1350/10, & 67/10 7 6 . LEARNED CIT(A) REJECTED ALL THE CONTENTION OF THE ASSESSEE AND AFTER REFERRING TO VARIOUS CLAUSES OF AGREEMENT AND RELYING UPON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA V. COMMISSIONER OF INCOME-TAX, REPORTED IN 260 ITR 491 , DISMISSED THE ASSESSEES APPEAL. THE DETAIL FINDING OF THE CIT(A) ARE GIVEN FR OM PARA 8 TO 8.3 OF THE APPELLATE ORDER. 7. LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE MAIN ISSUE INVOLVED HERE IN THIS CASE IS NON- ALLOWANCE OF DEDUCTION UNDER SECTION 54EC FOR SUMS AMOUNTING TO ` .47,08,000/-, WHICH HAS BEEN IN VESTED ON 21.4.2003 AND 26.4.2003, I.E BEYOND THE PERIOD OF 6 MONTHS FR OM THE DATE OF TRANSFER, WHICH AS PER THE ASSESSING OFFICER IS THE DATE OF DEVELOPMENT AGREEMENT 21.9.2002. IT WAS ON THIS ISSUE ONLY THAT THE REOPENING UNDER SECTION 147 HAS BEEN SOUGHT FOR AND THE TAXAB ILITY OF LONG TERM CAPITAL GAIN HAS BEEN HELD TO BE ASSESSABLE IN THE ASSESSMENT YEAR 2003-2004 BY THE ASSESSING OFFICER AS WELL AS CIT(A). FIRSTLY , ON THE GROUND THAT THE LONG TERM CAPITAL GAIN DO NOT ARISE IN 2003-2004 BUT IN 2004-2005, HE REFERRED TO VARIOUS CLAUSES OF DEVELOPMENT AGREEMENT WHICH HAS BEEN PLACED IN THE PAPER BOOK FROM PAGES 22 TO 42 AND MADE REFERENCE TO VARIOUS CLAUSES LIKE X, XI, XII, XIII, XIV AND FURTHER PARAS 2, 4, 7, 11, 12, 15, 17, 23 & 34 AND CONTENDED THAT FROM THE PLAIN READING OF SUCH CLAUSES, IT IS EVIDENT THAT THE TRANSFER WAS SUBJECT TO ITA NOS : 1350/10, & 67/10 8 CERTAIN CONDITIONS PRESCRIBED THER EIN, WHICH HAD NOT BEEN FULFILLED AND, THEREFORE, IT CANNOT BE HELD THAT TRANSFER HAS TAKEN PLACE ON THE DATE OF AGREEMENT I.E. 21.9.2002 FALLING IN THE ASSESSMENT YEAR 2003-2004. SECONDLY, HE SUBMITTED THAT IN THE ASSESSMENT YEAR 2004-2005, THE ASSESSING OFFICER HAS HIMSELF ACC EPTED THE TRANSFER AND ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 54EC IN THE ORDER PASSED UNDER SECTION 143(3). COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 85 TO 86. THE SAID FINDING IN THE ASSESSMENT ORDER HAS NOW BEEN REOPENED NOT ONLY IN THE ASSESSMENT YEAR 2003-2004 BUT ALOS FOR THE ASSESSMENT YEAR 2004-2005 ON PROTECTED BASIS. THIS ORDER FOR A.Y. 2004-2005 NOW STANDS DELETED BY THE CIT(A) AND NO APPEAL HAS BEEN FILED BEFORE THE ITAT BY THE DEPAR TMENT. HE THUS SUBMITTED THAT IF THE CAPITAL GAIN IN TERMS OF TH E CONDITIONS GIVEN IN THE AGREEMENT AND AS PER THE ASSESSMENT ORDER, FA LLS IN THE ASSESSMENT YEAR 2004- 2005, THEREFORE, THERE IS NO QUESTI ON OF DISALLOWANCE UNDER SECTION 54EC. IN SUPPORT OF HIS CONTENTI ONS, HE RELIED UPON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF ACIT VS. GEETA DEVI PASARI, REPORTED IN (2007) SOT 63 (MUM) (URO) , WHICH HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT IN ITA NO.867/2007 VIDE ORDER DATED 10-7- 2008. IN THIS DECISION, THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKAD AS KAPADIA (SUPRA) , HAS BEEN CONSIDERED. ITA NOS : 1350/10, & 67/10 9 7.1 THE OTHER MAIN PLANK OF HIS AR GUMENT WAS THAT THE PERIOD OF SIX MONTHS FOR MAKING THE INVESTMENT UNDER SECTION 54EC HAS TO BE RECKONED WITH, FROM THE DATE OF THE PAYMENT RECEIVED BY THE ASSESSEE AND NOT FROM THE DATE OF TRANSFER. HE DREW OUR ATTENTION TO THE FACT THAT THE LAST INSTALLMENT OF PAYMENT WA S RECEIVED ON 28.3.2003, WHICH WAS BOUNCED AND THE SAME WAS R EDEPOSITED ON 16.4.2003 AND BONDS WERE PURCHASED IMMEDIATELY ON 21. 4.2003 & 26.4.2003 I.E. WITHIN THE PERIOD OF ONE MONTH. IN SUPPORT OF THIS ARGUMENT HE HAS HEAVILY RELIED UPON THE DECISION OF ITAT KOLKATA BENCH IN THE CASE OF CHANCHAL KUMAR SIRCAR, PASSED IN ITA NO .1146/KOL/2011, VIDE ORDER DATED 21.2.2012 . 8. PER CONTRA , LEARNED SENIOR DR SUBMITTED THAT BY THE TERMS OF BUILDERS/DEVELOPMENT AGREEMENT DATED 21.9.2002, ALMOST ALL THE PAYMENTS WERE RECEIVED PRIOR TO 31 ST MARCH, 2003 AND HENCE THERE WAS A CLEAR CUT PART PERFORMANCE BY THE PARTIES IN VIEW OF SECTION 2(47)(V). ONCE THE PARTIES HAVE A CTED UPON, THE TERMS OF DEVELOPMENT AGREEMENT AND FULL CONSIDERATION HAS BEEN PAID, THE DATE OF TRANSFER HAS TO BE TAKEN FROM THE DATE WHEN THE DEVELOPMENT AGREEMENT WAS ENTERED INTO AS ALL THE RIGHTS VE STED IN THE PROPERTY STOOD TRANSFERRED TO THE DEVELOPER. HE ALSO REFERRED TO THE VARIOUS CLAUSES GIVEN IN THE AGREEMENT SPECIFICALLY CLAUSE 18, 24 GIVEN AT PAGES 31 AND 33 OF THE BUILDERS AGREEMENT. HE ALSO TRIED TO DISTINGUISH THE JUDGMENT OF GEETADEVI (SUPRA) AS HAVE BEEN RELIED BY THE LEARNED AR AND ITA NOS : 1350/10, & 67/10 10 SUBMITTED THAT THIS CASE WAS PURELY DISTINGUISHABLE ON THE FACTS. ON THE OTHER LIMB OF HIS ARGUMENTS, HE HEAVILY RELIED UPON THE FINDINGS OF THE CIT(A). REGARDING THE SECOND AND ALTERNATIVE PLEA OF THE LEARNED COUNSEL, HE SUBMITTED THAT SECTION 54 EC CLEARLY PROVIDES THE TIME PERIOD OF SIX MONTHS FROM THE DATE OF TRANSFER. NOTHING ELSE SHOULD BE READ IN THE STATUTE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECO RD. IN THIS CASE, THE GENESIS OF THE DISPUTE HAS ARISEN FROM THE LAST PAYMENT OF INSTALMENT RECEIVED IN PURSUANCE OF DEVELOPMENT AGREEMENT DATED 21.9.2002, RECEIVED ON 28.3.2003 THROUGH CHEQUE (RETUR NED BACK AND REDEPOSITED ON 16.4.2003) AND THE INVESTMENT IN THE SPECIFIED BOND WAS MADE ON 21.4.2003 AND 26.4.2003, WHICH FALLS BE YOND THE PERIOD OF SIX MONTHS, HENCE, NOT ELIGIBLE FOR DEDUCTION U/S. 54EC. THIS WAS THE SOLE BASIS FOR REOPENING THE CASE UNDER SECTION 147 AS PER THE REASONS RECORDED WHICH HAVE BEEN INCORPORAT ED IN THE FOREGOING PARAGRAPHS. IT WAS FROM THIS FACT, DISPUTE HAD AR ISEN ON THE ISSUE OF ASSESSABILITY OF THE YEAR OF LONG TERM CAPITAL GAI N AND THE VALIDITY OF THE ASSESSMENT UNDER SECTION 147 HAS CROPPED UP. BEING THE CORE ISSUE, WE THEREFORE, FIRST OF ALL, PROCEE D TO EXAMINE WHETHER DEDUCTION UNDER SECTION 54EC FOR AN AMOUNT OF ` .47,08,000/- INVESTED AFTER SIX MONTHS FROM THE DATE OF AGREEM ENT CAN BE ALLOWED OR NOT. ITA NOS : 1350/10, & 67/10 11 9.1 IT IS NOT IN DISPUTE THAT TH E ASSESSEE HAS RECEIVED THE LAST AMOUNT OF INSTALMENT FOR SUM OF ` .47,08,000/-, BEYOND THE PERIOD OF SIX MONTHS FROM THE DATE OF THE DEVELOPMENT AGREEMENT AND THE SAME HAS BEEN DEPOSITED IMMEDIATELY THEREAFTER BY THE ASSESSEE I.E. BEFORE 26.4.2003. SECTION 54EC PRESCR IBES THAT CAPITAL GAIN WILL NOT BE CHARGED IF THE INVESTMENT HAS BEEN MADE IN SPECIFIED BONDS WITHIN A PERIOD OF SIX MONTHS AFTER THE DATE OF TRANSFER OF THE CAPITAL ASSET. HOWEVER, SUCH AN EXEMPTION WILL NOT BE AVAILABLE IF SUCH A CONDITION IS NOT FULFILLED. THIS SECTION T HUS PROVIDES AN EXEMPTION TO AN ASSESSEE FROM TAXING OF LONG TERM CAPITAL GAIN, IF THE CAPITAL GAIN IS INVESTED WHOLE OR ANY PART THERE OF IN THE LONG TERM SPECIFIED ASSETS. THE BENEFIT OF EXEMPTION INTENDED IN THIS SECTION CAN ONLY BE GIVEN, UNLESS AND UNTIL THE ASSESSEE RECEIVES THE PAYMENT FROM TRANSFER OF A CAPITAL ASSET, OTHERWISE IT CANNOT BE EXPECTED FROM AN ASSESSEE TO INVEST THE SAME WITHIN THE PERIOD PRESCRIBED. IT WILL FRUSTRATE THE ENTIRE PURPOSE AND SPIRIT OF THE SECTION ITSELF. LOOKING TO THIS HARDSHIP IN A SIMILAR SITUATION, THE CBDT VIDE CIRCULAR NO.791 DATED 26.2.2000 HAS CLARIFIED APPLICABILITY OF THE SECTION 45(2) READ WITH SECTION 54E, 54EA, 54EB & 54EC IN THE FOLLOWING MANNER :- CIRCULAR NO.791 TAX EXEMPTION ON THE SALE OF CAPITAL ASSETS CONVERTED INTO STOCK-IN-TRADE-CLARIFICATION REGARDING SECTION 45(2) READ WITH SECTIONS 54E, 54EA, 54EB & 54EC OF THE INCOME-TAX ACT, 1961. 02/06/2000 ITA NOS : 1350/10, & 67/10 12 CAPITAL GAINS SECTION 45(2), 54E, 54EA, 54EB, 54EC SECTION 2(47) OF THE INCOME-TAX ACT PROVIDES THAT ANY CONVERSION OF CAPITAL ASSETS INTO STOCK-IN-TRADE SHALL BE REGARDED AS A TRANSFER. THIS TRANSFER ARISES IN T HE YEAR IN WHICH SUCH CONVERSION TAKES PLACE AND, ACCORDINGLY, CAPI TAL GAIN WOULD NORMALLY ARISE IN THAT VERY YEAR. HOWEVER, SECTIO N 45(2) OF THE ACT POSTPONES THE ASSESSMENT OF SUCH CAPITAL GAINS TO THE YEAR IN WHICH THE STOCK- IN-TRADE IS ACTUALLY SOLD OR OT HERWISE TRANSFERRED BY THE ASSESSEE. 2 . IN ORDER TO QUALIFY FOR DEDUCTI ON UNDER SECTION 54E OF THE ACT, THE INVESTMENT IN SPECIFIED ASSETS WERE REQUIRED TO BE MADE WITHIN SIX MONTHS FROM THE DATE OF TRANSFER. A QUESTION HAD ARISES AS TO WHETHER THE DATE OF TRANSFER, AS REFERRED TO IN SECTION 54E OF THE ACT, IS THE DATE OF CONVERSION OF THE CAPITAL ASSET INTO STOCK-IN-TRADE OR THE DATE IN WHICH THE STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY THE ASSESSEE. 3 . THE BOARD HAD EARLIER ISSUED A CIRCULAR NO.560 DATED 18 TH MAY, 1990 [PUBLISHED AT (1990) 84 CT R (ST) 1], IN CONSULTATION WITH MINISTRY OF LAW, CLARIFYING THAT FOR PURPOSES OF SECTION 54E OF THE ACT, THE DATE OF TRANSFER IN SUCH CASES IS THE DATE ON WHICH THE CAPITAL ASSET IS CONVERTED BY THE ASSESSEE INTO STOCK-IN-TRADE AND NOT THE DATE ON WHICH SUCH ST OCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY THE A SSESSEE. SECTION 54E BECAME INOPERATIVE FOR TRANSFERS MADE ON OR AFTER 1 ST APRIL, 1992. 4 . SECTIONS 54EA, 54EB & 54EC ALSO PROVIDE DEDUCTION FROM LONG-TERM CAPITAL GAIN IF THE SALE PROCEEDS/LONG-TERM CAPITAL GAIN IS INVESTED IN SPECIFIED ASSETS WITHIN A PERIOD OF 6 MONTHS FROM THE DATE OF TRANSFER. IT IS NOT POSSIBLE FOR AN ASSESSEE TO MAKE THE REQUIRED INVESTMENT UNDER THE AF ORESAID SECTIONS AT THE POINT OF CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE BECAUSE THE RIGHT TO COLLECT SALES CONSIDERATION IN SUCH CASES ARISES ONLY AT THE POINT OF SALE OR TRANSFER OTHERWISE OF STOCK-IN-TRADE. THE ITA NOS : 1350/10, & 67/10 13 BOARD HAS CONSIDERED THE MATTER AFRESH IN CONSULTATION WITH THE MINISTRY OF LAW AND HAS DECIDED T HAT THE PERIOD OF 6 MONTHS FOR MAKING INVESTMENTS IN SPECIFIED ASSETS FOR THE PURPOSE OF SECTIONS 54EA, 54EB AND 54EC SHOULD BE TAKEN FROM THE DATE SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED, IN TERMS OF SECTION 45(2) OF THE ACT. 5 . THIS MAY BE BROUGHT TO THE KNOWLEDGE OF ALL THE OFFICERS OF YOUR REGION. [F.NO.225/98/2000/ITA-FROM CENTRAL BOARD OF DIRECT TAXES] 9.2 THUS, THE AFORESAID CIRCULAR WAS ISSUED HAVING REGARD TO THE IMPOSSIBILITY OF MAKING THE INVESTM ENT OF THE AMOUNT IN SPECIFIED BONDS/ASSETS WITHIN SIX MONTHS FROM THE DATE OF THE TRANSFER. TO REMOVE SUCH RIGOUR OF LAW, BOARD HAS CLARIFIED THAT SUCH AN INVESTMENT CAN BE MADE ONLY ON THE REALIZATION OF SALES CONSIDERATION. IT IS NEEDLESS TO SAY TH AT CBDT CIRCULAR IS IN THE NATURE OF CONTEMPORANEA EXPOSITIO I.E. CONTEMPORANEOUS EXPOSITION OR CONSTRUCTION OF A STATUTE BY THE ADMINISTRATIVE AUTHORITIES ENTRUSTED WITH THE TASK OF EXECUTING THE STATUTE IS A VERY USEFUL GUIDE AND AID FOR GIVING AN INTERPRETATION IN CASE OF ANY AMBIGUITY. IT IS NOW QUITE SETTLED LAW THAT SUCH CIRCULARS ISSUED BY THE APEX AUTHORITY LIKE CBDT HAS A BINDING EFFECT ON THE INCOME TA X AUTHORITIES. IN OUR CONSIDERED OPINION, THIS INTERPRETATION LAID DOWN BY THE CBDT REGARDING CONDITION OF MAKING THE INVESTMENT WITHIN THE PERIOD OF SIX MONTHS FROM THE DATE OF RECEIVING OF MONEY FROM TRANSFER OF CAPITAL ASSET UNDER SECTION 54EC IS CORRECT AND LOGICAL INTERPRETATION, WHICH GOES TO SUPPORT THE ITA NOS : 1350/10, & 67/10 14 CLAIM OF THE ASSESSEE IN THE PRESENT CASE. THUS, EXEMPTION FOR SUM OF ` .47,08,000/- WOULD BE APPLICABLE TO THE ASSESSEE ON THE INVESTMENT MADE ON 21.4.2003 AND 26.4.2003 IN THE SPECIFIED BONDS/ASSETS. 9.3 THIS VIEW HAS ALSO BEEN TAK EN BY ITAT KOLKATA BENCH ON ALMOST SIMILAR SITUATION IN THE CASE OF CHANCHAL KUMAR SIRCAR, REPORTED IN (2012) 16 ITR (TRIB) 91 (KOL) , WHEREIN THE ITAT AFTER CONSIDERING THE JUDGMENT OF HON BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF S. GOPAL REDDY VS. CIT, REPORTED IN (1990) 181 ITR 378 (AP) , ALLAHABAD HIGH COURT JUDGMENT IN THE CASE OF CIT VS. JANARDHAN DASS (LATE THROUGH LEGAL HEIR SHAYM SUNDER), REPORTED IN (2008) 299 ITR 210 (ALL) AND IN THE CASE OF DARAPANENI CHENNA KRISHNAYYA (HUF) VS. CIT, REPOR TED IN (2007) 291 ITR 98 (AP) , HAD OBSERVED AND HELD AS UNDER :- 9. IN VIEW OF THE ABOVE CONSISTENT PRINCIPLE ADOPTED BY HONBLE HIGH COURTS IN RESPECT TO INTERPRETATION OF A BENEFICIAL PROVISION I.E. EXEMPTION PROVIS ION UNDER CAPITAL GAIN TAX, WE HAVE TO TAKE SIMILAR APPROACH IN DECIDING THE ISSUE IN HAND I.E. THE CLAIM OF ASSESSEE FOR EXEMPTION U/S. 54EC OF THE ACT BECAUSE THIS IS EXACTLY SIMILAR TO SECTION 54E, 54B OR 54EA OR EB OF THE ACT. IN THE PRESENT CASE BEFORE US, ADMITTEDLY ASSESSEE RECEIVED PART PAYMENTS AFTER EXECUTION OF AGREEMENT TO SALE AND HANDING OVER OF POSSESSION THEREBY COMPLETING THE TRANSACTION IN TERMS OF SECTION 53A OF TRANSFER OF PROPERTY ACT BUT INVESTED IN SPECIFIED BONDS I.E. NABARD BONDS WITHIN ONE MONTH OF THE RECEIPT OF SALE CONSIDERATION BE ING PART PAYMENT. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S. 54EC OF THE ACT ON PART PA YMENT RECEIVED AFTER COMPLETION ITA NOS : 1350/10, & 67/10 15 OF TRANSACTION ON 02.07.2004 AND AS DETAILED OUT IN PARA 3 PAGE 3 OF THIS ORDER. AO IS DIRECTED ACCORDINGLY. THIS ISSUE OF ASSESSES APPEAL IS ALLOWED. SIMILAR ARE THE FACTS IN ITA NO.1146/KOL/2011 IN THE CASE OF SHRI CHANCHAL KR. SIRCAR, HENCE, AO WILL ALLOW EXEMPTION IN THIS CASE ALSO. 9.4 THE FACTS OF THE ASSESSEES CA SE IS ALMOST SI MILAR TO ABOVE DECISION. THUS, FOLLOWING THE AFOR ESAID JUDGMENT AND ALSO CBDT CIRCULAR, WE HOLD THAT THE ASSE SSEES CLAIM FOR EXEMPTION UNDER SECTION 54EC WITH REGARD TO LAST IN STALMENT OF PAYMENTS RECEIVED BY THE ASSESSEE IS DULLY AVAILABLE AND ACCORDINGLY, THE AO IS DIRECTED TO GRANT EXEMPTION OF ` .47,08,000/- UNDER SECTION 54EC FROM THE CAPITAL GAINS. 10 . IN VIEW OF OUR FINDING AS ABOVE, OTHER POINTS AND ISSUES AS HAVE BEEN RAISED ARE NOT ADJUDICATED UPON AS THE SAME HAS BEEN RENDERED ACADEMIC. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED ONLY TO THE EXTENT THAT ASSESSEES CLAIM FOR EXEMPTION UNDER SECTION 54EC FROM CAPITAL GAINS, IS ALLOWED. 11. THE OTHER CASE OF JANAK MATHURADAS ITA NO.67/M/2010 , WHICH IS A CASE OF CO-OWNER, WHO HAS RECEIVED 50% OF THE PAYMENT, HAS SIMILAR FACTS. IN VIEW OF OUR FINDING GIVEN IN ITA NO.1350/M/2010, ABOVE, APPLIES MUTATIS MUTANDIS IN THIS APPEAL ALSO. HENCE, THIS APPEAL FILED BY THE ASSESSEE IS TREATED TO BE ALLOWED ALSO ONLY TO THE EXTENT OF GRANTING OF EXEMPTION UNDER SECTION 54EC. ITA NOS : 1350/10, & 67/10 16 12 . IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEES ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH JULY, 2012 . 11 TH JULY, 2012 ( . . ) ( ) ( G.E. VEERABHADRAPPA) ( AMIT SHUKLA) / PRESIDENT /JUDICIAL MEMBER MUMBAI; DATED 11 / JULY /2012 . . / PKM. . ./PS / COPY OF THE ORDER FORWARDED T O : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI