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,

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