Assessee wins deduction under Section 54EC

The Tribunal partly allowed the appeal, holding that the assessee is entitled to a deduction of Rs. 1 crore under Section 54EC as investments were made in two different financial years within the stipulated period. However, the addition of Rs. 5,00,000 on account of outstanding sundry creditors was upheld due to lack of supporting evidence from the assessee.

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Issues Involved:
1. Deduction under Section 54EC of the Income Tax Act.
2. Addition on account of sundry creditor outstanding.

Issue-wise Detailed Analysis:

1. Deduction under Section 54EC of the Income Tax Act:

The primary issue is whether the assessee is entitled to a deduction of Rs. 1 crore under Section 54EC, given that the investment was made in two different financial years within the stipulated six-month period. The assessee sold a residential flat and earned a Long Term Capital Gain of Rs. 1,08,94,526/-. The assessee claimed a deduction of Rs. 1 crore under Section 54EC by investing Rs. 50,00,000/- in REC bonds on 5.2.2008 and another Rs. 50,00,000/- on 20.07.2008.

The Assessing Officer restricted the deduction to Rs. 50,00,000/- as per the proviso to Section 54EC(1) and CBDT's Circular No. 3 of 2008, limiting the investment in specified bonds to Rs. 50,00,000/-. The CIT(A) confirmed this action, holding that the proviso to Section 54EC(1) clearly sets a ceiling of Rs. 50,00,000/- for investment in specified assets in a financial year.

The assessee argued that the ceiling of Rs. 50,00,000/- applies only to investments in a particular financial year. Since the investments were made in two different financial years, the assessee should be entitled to a deduction of Rs. 1 crore. The assessee relied on the Hon'ble Madras High Court's decision in CIT Vs. C. Jaichander, which held that the benefit of Section 54EC(1) is available to the extent of Rs. 50,00,000/- in any financial year, even if the investment spans two financial years.

The Tribunal considered the rival submissions and relevant material on record. It noted that the identical issue was addressed by the Hon'ble Madras High Court in CIT Vs. C. Jaichander, which upheld the Tribunal's decision allowing the deduction of Rs. 1 crore when the investment was made within six months but in two different financial years. The Tribunal concluded that the existing provisions of Section 54EC allow for a deduction of Rs. 1 crore, provided the investments of Rs. 50,00,000/- each were made in two different financial years within six months from the sale of the asset.

2. Addition on account of sundry creditor outstanding:

The second issue pertains to the addition of Rs. 5,00,000/- on account of sundry creditors outstanding. The Assessing Officer noted that the assessee followed a cash system of accounting and had an outstanding balance of Rs. 17,61,000/-. The assessee explained that Rs. 12.61 lakhs was a temporary loan from her husband, which was accepted by the Assessing Officer. However, the remaining Rs. 5,00,000/- was added to the total income for want of explanation.

The assessee contended before the CIT(A) that the Rs. 5,00,000/- was an advance received towards the sale of a shop at Pune. The CIT(A) sought a remand report from the Assessing Officer, who stated that the assessee failed to produce evidence supporting the claim. The assessee asserted that the sale did not materialize, and the amount was offered as income in the A.Y. 2010-11. The CIT(A) confirmed the addition due to the lack of evidence.

The Tribunal reviewed the submissions and material on record. It noted that the assessee reiterated the explanation that Rs. 5,00,000/- was an advance for the sale of a shop, which was eventually offered to tax in A.Y. 2010-11. However, the assessee failed to produce evidence supporting this claim. Consequently, the Tribunal upheld the addition of Rs. 5,00,000/- as the assessee could not substantiate the nature of the cash credit.

Conclusion:

The appeal was partly allowed. The Tribunal held that the assessee is entitled to a deduction of Rs. 1 crore under Section 54EC, given the investments were made in two different financial years within the stipulated six-month period. However, the addition of Rs. 5,00,000/- on account of sundry creditors was upheld due to the lack of supporting evidence from the assessee.

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