2012 (8) TMI 527 - HC - Income Tax

High Court Decision: Legal Charges Disallowed, Depreciation Allowed, Section 54EC Deduction Permitted

Commissioner of Income Tax, Central III Versus M/s. Cello Plast,

The High Court ruled in a tax case that legal and professional charges were disallowed due to insufficient evidence, favoring the revenue. Depreciation ... Deduction u/s 54EC - long term capital gain on sale of factory building on 22.03.2006 - investment in REC bonds on 31.01.07 - denial on ground that investment was not made within specified time of six months expiring on 21.09.06 which was however extended upto 31.12.06 by CBDT circular - assessee contended non-availability of bonds during the period - Held that:- Lex not cogit impossibila (law does not compel a man to do that which he cannot possibly perform). Contention of the revenue that assessee should have purchased the bonds before 3/8/2006 when they were available is not sustainable as the time given by the statue is six months from the date of sale and, therefore, the respondent was entitled in law to wait till 21/9/2006 to invest in the bonds. In present case, bonds were not available from 4/8/2006 to 22/1/2007. Last date for investment had been 21/9/2006 which was extended upto 31/12/2006. The respondents admittedly invested in the bonds on 31/1/2007 i.e. within nine days of their being available once again from 22/1/2007. Considering that the bonds were not available for such a long period, an extension of merely nine days is extremely reasonable. Further, contention of Revenue that assessee should have invested in bonds of National Highway Authority is also not sustainable since choice of investing in one of the two organizations is with the respondent and the appellant revenue contrary to the statue cannot force the respondent to invest only in the bonds of one in preference to the other. Deduction allowed - Decided in favor of assessee Legal and professional charges - dis-allowance - non furnishing of details of expenses - Held that:- It is found that respondent has not submitted the details of the legal and professional expenses allegedly incurred by it viz, reasons for consultation, the dates of consultation and names of the Consultants. Hence, dis-allowance directed - Decided in favor of Revenue Depreciation - dis-allowance - Held that:- same is answered in favor of assessee by decision in case of CIT vs G. R. Shipping Ltd Issues Involved:1. Disallowance of legal and professional charges.2. Allowance of depreciation.3. Allowance of deduction under Section 54EC of the Income Tax Act, 1961.Issue-wise Detailed Analysis:Re Question (a): Disallowance of Legal and Professional ChargesThe respondent-assessee claimed a deduction of Rs.1.37 lacs for legal and professional charges. The Assessing Officer disallowed this expenditure due to a lack of detailed evidence, a decision upheld by the Commissioner of Income Tax (Appeals). The Tribunal reversed this decision, citing that details were submitted to the Commissioner. However, the High Court found that the respondent had not provided sufficient details, such as reasons, dates, and names of consultants, to substantiate the claim. Consequently, the High Court answered this question in the negative, favoring the revenue and against the assessee.Re Question (b): Allowance of DepreciationBoth parties agreed that this issue was covered by a previous decision of the court in Commissioner of Income Tax v. G. R. Shipping Ltd. The High Court, therefore, answered this question in the affirmative, favoring the assessee and against the revenue.Re Question (c): Allowance of Deduction under Section 54ECThe respondent sold a factory building on 22/3/2006, earning a long-term capital gain of Rs.49.36 lacs, and sought exemption by investing Rs.43.36 lacs in REC Bonds. To qualify for the exemption, the investment had to be made within six months, i.e., by 21/9/2006. However, the bonds were purchased on 31/1/2007. The Tribunal allowed the appeal, noting the impossibility of compliance due to the unavailability of bonds, and the respondent's interim investment in fixed deposits with the intent to purchase bonds when available.The High Court detailed the chronology of events and the unavailability of REC bonds during critical periods. It emphasized legal maxims like 'Lex non cogit impossibila' (law does not compel the impossible) and 'impossibilum nulla oblignto est' (law does not expect a party to do the impossible). The Court held that the statutory provision must be interpreted to avoid injustice, extending the six-month period reasonably due to bond unavailability. The Court found the respondent's actions reasonable, as the bonds were purchased within nine days of their availability.The revenue's argument that the respondent should have purchased National Highway Authority bonds was rejected. The statute grants the choice of bonds to the assessee, and the revenue cannot dictate this choice.Conclusion:- Question (a) was answered in the negative, favoring the revenue.- Question (b) was answered in the affirmative, favoring the assessee.- Question (c) was answered in the affirmative, favoring the assessee.The appeal was disposed of with no order as to costs.