SAURABH PRASANNAVADAN VAKIL,VADODARA, GUJARAT V. INCOME TAX OFFICER, WARD 1(2)(4)VADODARA(NOW DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1)) , VADODARA, GUJARAT

ITA 975/AHD/2024

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The case revolves around the dispute concerning the deduction claimed under Section 54EC of the Income Tax Act, 1961, by the assessee, Saurabh Prasannavadan Vakil, following the sale of an immovable property. The assessee had initially claimed an exemption of Rs. 1 Crore for investments made in REC and NHAI bonds, which was later restricted to Rs. 50 Lakhs by the Income Tax Officer (ITO) and upheld by the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, Delhi. The Tribunal's decision reversed the lower authorities' rulings, allowing the full deduction claimed by the assessee.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 33031 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-09-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 08-05-2024
• Other Referred Cases: CIT vs. Coromandel Industries Ltd., CIT, Chennai vs. C. Jaichander, Shangar vs. DCIT, Rajkumar Jain & Sons (HUF) vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KETKI DESAI
• Assessee Lawyers: MILIN MEHTA; AMRIN
• Keywords: Capital asset; Revised return; Capital Gains
• Section: 143(3); 54; 271(1)(c); 54EC

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 975/Ahd/2024 (Ǔनधा[रण वष[ / Assessment Year : 2014-15) Saurabh Prasannavadan Vakil E 402 Nilamber Bellissimo, Vasna Bhayli Road, Vadodara 391410, Gujarat बनाम/ Vs. Income Tax Officer Ward 1(2)(4) (Now Deputy Commissioner of Income Tax Circle 1(1)(1), Vadodara èथायी लेखा सं./जीआइआर सं./PAN/GIR No.: AALPV8393C (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri Milin Mehta & Ms. Amrin Pathan, AR Ĥ×यथȸ कȧ ओर से/Respondent by : Ms. Ketki Desai, Sr. DR Date of Hearing 26/09/2024 Date of Pronouncement 15/10/2024 O R D E R PER SHRI NARENDRA PRASAD SINHA, AM: This appeal is filed by the assessee against the order of the National Faceless Appeal Centre, Delhi, (in short ‘the CIT(A)’), dated 06.05.2024 for the Assessment Year (A.Y.) 2014-15. 2. The brief facts of the case are that the assessee had filed his original return of income for A.Y. 2014-15 on 30.07.2014 declaring total income of Rs.2,19,54,960/- and subsequently a revised return with total income of Rs.2,24,26,160/-. The assessment was completed under Section 143(3) of the Income ITA No. 975/Ahd/2024 [Saurabh P Vakil vs. ITO] A.Y. 2014-15 - 2 – Tax Act, 1961 (in short ‘the Act’) on 29.11.2016 on total income of Rs.2,74,26,160/-, wherein addition of Rs.50 Lakhs was made on account of excess deduction claimed u/s.54EC of the Act. 3. Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority, which has been decided by the ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. 4. Now, the assessee is in second appeal before us and has taken the following grounds in this appeal: 1. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)”] erred in fact and in law in confirming the action of the learned Income Tax Officer, Ward – 1(2)(4), Vadodara (“the AO”) in disallowing deduction of Rs. 50,00,000 u/s. 54EC of the Income Tax Act, 1961 (“the Act”). 2. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance of deduction u/s 54EC of Rs. 50,00,000 despite the fact that investment in each financial year does not exceed the prescribed threshold limit. 3. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in restricting the deduction u/s 54EC to Rs. 50 lakhs without appreciating the fact that the investment in bonds was made within six months from date of transfer. 4. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in restricting the deduction u/s 54EC of the Act to Rs. 50 lakhs without appreciating the fact that the second proviso to section 54EC(1) is applicable from 01.04.2015 and does not apply retrospectively. ITA No. 975/Ahd/2024 [Saurabh P Vakil vs. ITO] A.Y. 2014-15 - 3 – 5. The learned CIT(A) erred in fact and in law in passing the order without granting the opportunity of virtual hearing despite making request for the same. 6. The learned CIT(A) erred in fact and in law in passing the order which is not in consonance with the Faceless Appeal Scheme, 2021. 7. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initiating penalty proceeding u/s 271(1)(c) of the Act. 8. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO erred in fact and in law in charging interest u/s. 234D of the Act. 5. Shri Milin Mehta, Ld. AR appearing for the assessee submitted that the assessee had sold an immovable property for a consideration of Rs.4,86,86,000/- on 22.02.2014. The capital gain arising on the sale of the property was invested in Bonds of REC & NHAI and exemption of Rs.1 Crore was claimed u/s.54EC of the Act. The Ld. AR explained that as per the provisions of Section 54EC of the Act, the assessee was required to invest the capital gains within a period of six months from the date of transfer of the long-term capital asset and that the quantum of investment was restricted to Rs.50 Lakhs only in one financial year. The Ld. AR submitted that the assessee had invested Rs.50 Lakhs on 31.03.2014 in REC bond (in F.Y. 2013-14) and another Rs.50 Lakhs in NHAI bond on 30.04.2014 (in F.Y. 2014-15). Thus, the twin conditions as stipulated in Section 54EC of the Act were satisfied as the assessee had made the investment within the period of six months from the date of transfer and the quantum of investment also did not exceed Rs.50 Lakhs in each of the financial year. The Ld. AR contended that the AO was not correct ITA No. 975/Ahd/2024 [Saurabh P Vakil vs. ITO] A.Y. 2014-15 - 4 – in restricting the exemption u/s.50EC of the Act to Rs.50 Lakhs only and disallowing the investment of Rs.50 Lakhs. He explained that the limit of Rs.50 Lakhs for the total investment was introduced on the statute vide 2nd Proviso to Section 54EC of the Act vide Finance (No.2) Act, 2014 w.e.f. 01.04.2015 and that this provision was applicable to A.Y.2015-16 and subsequent years only and was not applicable to earlier years. In this regard, he has placed reliance on the decision of Hon’ble Madras High Court in the case of CIT vs. Coromandel Industries Ltd., [2015] 5 taxmann.com 209 (Madras) and in the case of CIT, Chennai vs. C. Jaichander, [2015] 53 taxmann.com 466 (Madras). He further submitted that the Co-ordinate Bench of Tribunal has also taken identical view in the case of Shangar vs. DCIT (158 taxmann.com 113)(Ahmedabad-Trib.) 6. Per contra, Ms. Ketaki Desai, the Ld. SR. DR submitted that the limit of Rs.50 Lakhs in the investment of bonds as stipulated u/s.54EC of the Act was cumulative investment in respect of each transaction of transfer of long-term capital asset. She contended that the law doesn’t envisage differential treatment on the basis of date of transfer. She explained that the situation of investment in two financial years will arise only if the transfer was effected after 30th September. In the case where the asset was transferred during first half of the year, the investment can be made only in one financial year as the period of six months will expire during that year only. She submitted that the intention of the legislature from the very beginning was to allow investment of Rs. 50 lakhs ITA No. 975/Ahd/2024 [Saurabh P Vakil vs. ITO] A.Y. 2014-15 - 5 – only in respect of each transaction of transfer of long-term capital asset. She strongly relied upon the decision of the Ld. CIT(A) and supported the addition as made by the AO. 7. We have carefully considered the rival submissions. The assessee has complied with the provision of Section 54EC of the Act, so far as making the investment within the period of six months from the date of transfer of long-term capital asset is concerned. The dispute is only about the quantum of investment. The assessee had invested Rs. One crore in two bonds spread over two financial years whereas as per Revenue investment of Rs. 50 lakhs only could have been made. The limit for investment in the bonds notified u/s.54EC of the Act was introduced vide first Proviso to Section 54EC of the Act w.e.f. 01.04.2007 which specified that investment made on or after 1st April, 2007 should not exceed Rs.50 Lakhs during any financial year. The assessee had fulfilled this condition as the period of six months was spread over two financial years and accordingly the assessee had made investment in bonds of Rs.50 Lakh each in the two financial years. The cap of total investment of Rs.50 Lakhs in the two financial years was introduced vide Finance (No.2) Act, 2014 w.e.f. 01.04.2015 only, whereby the second Proviso to section 54EC was introduced. This second Proviso clarified that the total investment, in the financial year in which the asset is transferred or in the subsequent financial year, should not exceed fifty lakh rupees. It is, thus, found that this cap of total investment of Rs.50 Lakhs was not applicable in the current year and as per the ITA No. 975/Ahd/2024 [Saurabh P Vakil vs. ITO] A.Y. 2014-15 - 6 – scheme of the Act the assessee was entitled to make investment of Rs. 50 lakh each in two financial years, within the outer limit of six months from the date of transfer of the asset. The second proviso was introduced precisely to eliminate the differential treatment on the basis of date of transfer and to eliminate the ambiguity in the provision of section 54EC of the Act. However, this amendment was effective only from 01.04.2015 for the assessment year 2015-16 and subsequent years and can’t be extended to the current year as the legislature had not provided for retrospective application to the second proviso of section 54EC of the Act. 8. The Ld. CIT(A) has confirmed the disallowances made by the AO following the decision of Hon’ble Rajasthan High Court in the case of Rajkumar Jain & Sons (HUF) vs. CIT in (ITA No.157/2012) dated 20.09.2017. The Ld. AR has relied upon the decision of Hon’ble Madras High Court in the case of Coromandel Industries Ltd. (supra) wherein the Hon’ble High Court had held that exemption of Rs.50 Lakhs each claimed in two financial years, within six months period from the date of transfer of capital asset, was eligible for exemption u/s 54EC of the Act. In the case of C. Jaichander (supra) also, the Hon’ble Madras High Court had held that in the absence of any cap of investment in bonds, the investment of Rs.50 Lakhs each made in two financial years, within period of six months from the date of transfer could not have been disallowed. The Hon’ble Court further held that the amendment made w.e.f. 01.04.2015 was ITA No. 975/Ahd/2024 [Saurabh P Vakil vs. ITO] A.Y. 2014-15 - 7 – prospective in nature and applicable to A.Y. 2015-16 and subsequent years. The relevant portion of the judgment is reproduced below: “7. 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 month 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.” 9. The Co-ordinate Bench of this Tribunal has also consistently held that the investment of Rs.1 Crore claimed in two financial years was allowable as deduction. In the case of Shangar (supra) decided by the Co-ordinate Bench of this Tribunal on 20.12.2023, the assessment year 2014-15 was identical and it was held that the investment of Rs. 50 lakhs each in two bonds made on 31.03.2014 and 30.06.2014 were both eligible for deduction u/s 54 EC of the Act. 10. In view of the above facts and the judicial pronouncements, we are of the considered opinion that Ld. CIT(A) was not correct in holding that the assessee was eligible for deduction of Rs.50 Lakhs only u/s. 54EC of the Act. As the assessee had fulfilled all the necessary conditions as stipulated in Section 54EC of the Act at the relevant point of time, he was eligible for deduction of ITA No. 975/Ahd/2024 [Saurabh P Vakil vs. ITO] A.Y. 2014-15 - 8 – Rs. 1 Crore as claimed u/s.54EC of the Act. Accordingly, the addition of Rs.50 Lakhs on account of excess deduction u/s.54EC of the Act is deleted. 11. In the result, the appeal of the assessee is allowed. This Order pronounced on 15/10/2024 Sd/- Sd/- (SUCHITRA KAMBLE) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 15/10/2024 S. K. SINHA True Copy आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंͬधत आयकर आयुÈत / Concerned CIT 4. आयकर आयुÈत(अपील) / The CIT(A)- 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad "