2012 (9) TMI 796 - AT - Income Tax

ITAT grants Section 54EC exemption, allows appeals for disputed amount.

The ITAT allowed the assessee's appeals, granting exemption under Section 54EC for the disputed amount. Other issues were not adjudicated upon, as the ... Deduction u/s 54EC - assessee entered into a development agreement in respect of jointly owned property with developer - sale proceeds arising out of the transfer of capital asset, was invested in specified bonds and exemption u/s 54EC was claimed - denial on ground that last payment of instalment received in pursuance of development agreement dated 21.9.2002, received on 28.3.2003 through cheque (returned 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 beyond the period of six months, hence, not eligible for deduction u/s. 54EC - Held that:- 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 that such an investment can be made within the period of six months from the date of receiving of money from transfer of capital asset. Assessee’s claim for exemption u/s 54EC from capital gains, is allowed - Decided in favor of assessee. Issues Involved:1. Validity of reopening of assessment under Section 147.2. Year of transfer of capital assets and taxability of capital gain in the assessment year 2003-2004.3. Disallowance of deduction under Section 54EC.Issue-wise Detailed Analysis:1. Validity of Reopening of Assessment under Section 147:The assessee challenged the reopening of the assessment under Section 147, arguing that the reopening was based on a 'change of opinion' since the Assessing Officer (AO) had already accepted the capital gain in the assessment year 2004-2005. The AO initiated the reopening based on the objections raised by the revenue audit team, which indicated that the capital gain should have been assessed in the assessment year 2003-2004, not 2004-2005. The AO disallowed the exemption under Section 54EC for an amount of Rs. 47,00,000/- invested beyond the specified period, leading to the reopening of the case. The CIT(A) upheld the reopening, rejecting the assessee's objections.2. Year of Transfer of Capital Assets and Taxability of Capital Gain in the Assessment Year 2003-2004:The assessee argued that the transfer of the property occurred in the assessment year 2004-2005, as the possession was given on 21-8-2003, and all conditions of the development agreement were fulfilled in that year. The AO, however, contended that the transfer occurred in the assessment year 2003-2004 based on the development agreement dated 21-9-2002, and all payments were received within the same period. The CIT(A) supported the AO's view, relying on the decision of the Hon'ble Jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapadia v. Commissioner of Income-tax, which stated that the date of the development agreement is the date of transfer.3. Disallowance of Deduction under Section 54EC:The core issue was the disallowance of the deduction under Section 54EC for the amount of Rs. 47,08,000/- invested on 21.4.2003 and 26.4.2003, beyond six months from the date of the development agreement (21.9.2002). The assessee argued that the period of six months should be reckoned from the date of receiving the payment, not the date of the agreement. The ITAT accepted this argument, citing the CBDT Circular No.791, which clarifies that the period for making investments in specified assets should be taken from the date the sales consideration is realized. The ITAT held that the assessee's claim for exemption under Section 54EC for the amount of Rs. 47,08,000/- was valid, as the investment was made immediately after receiving the payment.Conclusion:The ITAT allowed the appeals of the assessee, granting the exemption under Section 54EC for the disputed amount. The other issues raised were rendered academic and were not adjudicated upon. The decision applied mutatis mutandis to the co-owner's case, allowing the exemption under Section 54EC for them as well. Both appeals were allowed.