2014 (12) TMI 886 - AT - Income Tax

Tribunal rules in favor of assessees for Section 54EC exemption, directing Assessing Officer to allow deductions.

Shri Hemant Kumar Nema And Others Versus ACIT, 3(1), INDORE

The Tribunal dismissed the challenge to the assessment order issued in the name of a deceased assessee as an irregularity. However, it ruled in favor of ... Validity of order u/s 143(3) – Jurisdiction of order is viod-ab-initio or not as it was not passed in the name of the deceased assessee – Held that:- Shri Gopaldas Nema in whose name assessment has been made already died on 1.3.2009 - CIT(A) rightly took the view that it was duty of the legal heir of the assessee to bring the fact of the death to the notice of the AO along with the address of the legal heir with documentary proof of being a legal heir - from the assessment order, it appeared the return had been filed through e-filing by Shri Gopal Das - Even though the appeal before the CIT(A) has been filed in Form No. 35 by the legal heir on behalf of Late Shri Gopal Das - no evidence was brought to contradict this fact that the return was filed by the legal representative on behalf of Late Shri Gopal Das – the order of the CT(A) is upheld – Decided against assessee. Denial of exemption u/s 54EC – Investment made in REC bonds on 31.03.2008 - investment made before the date of transfer of the property or not – Held that:- Although the wording in the section are similar to the provisions of Section 54EC that the investment in the specified assets has to be made within period of six months after the date of such transfer but the Board has clearly laid down in the circular under para (2) that in its option it is felt that if statutory interpretation is taken that the investment has to be made after the date of transfer, this interpretation would go against the purpose and spirit of the section - the Board have decided that if the assessee invests the earnest money on the advance received in the specified assets before the date of the transfer of the assets, the amount so invested will qualify for exemption u/s 54E of the Income-tax Act, 1961 - it is apparent that each of the assessee has invested into the REC Bond even though prior to the transfer but out of the part of the consideration received on the sale of the assets in respect of which the capital gain has been assessed – similar matter has been decided in SUBHASH VINAYAK SUPNEKAR Versus ASSTT COMMISSIONER OF INCOME TAX RANGE-2, PUNE [2013 (9) TMI 2 - ITAT PUNE] - the order of the CIT(A) is set aside and the AO is directed to allow deduction to all the assessees u/s 54EC – Decided in favour of assessee. Issues Involved:1. Jurisdiction and validity of assessment order passed in the name of a deceased assessee.2. Denial of exemption under Section 54EC of the Income-tax Act, 1961, for investments made in REC Bonds before the date of property transfer.Issue-wise Detailed Analysis:1. Jurisdiction and Validity of Assessment Order Passed in the Name of a Deceased Assessee:The primary issue was whether the assessment order dated 30.12.2011, passed by the Assessing Officer under Section 143(3) of the Income-tax Act, 1961, was valid, given that it was issued in the name of a deceased person, Shri Gopaldas Nema, who had died on 1.3.2009. The Tribunal noted that the notice under Section 143(2) was also served in the name of the deceased. The CIT(A) held that it was the duty of the legal heir to inform the Assessing Officer about the death of the assessee along with documentary proof. However, the Tribunal observed that no cogent material or evidence was provided to show that the Department was informed about the death. The return was filed through e-filing by the deceased, and the appeal before the CIT(A) was filed by the legal heir. The Tribunal concluded that this could be regarded as an irregularity rather than an illegality and dismissed the ground taken by the assessee.2. Denial of Exemption under Section 54EC for Investments Made in REC Bonds Before the Date of Property Transfer:The second issue involved the denial of exemption under Section 54EC for investments made in REC Bonds before the date of property transfer. The Tribunal examined the facts and noted that the assessee had invested Rs. 50 lakhs in REC Bonds on 25.3.2008, while the property transfer occurred subsequently. The CIT(A) upheld the Assessing Officer's view that the investment was made before the property transfer, thus denying the exemption.The Tribunal referred to Circular No. 359 dated 10th May 1983, which clarified that if earnest money or advance received is invested in specified assets before the date of transfer, it would qualify for exemption under Section 54E. The Tribunal found the logic and language of Sections 54E and 54EC to be similar, emphasizing that the purpose of the exemption is to encourage investment in specified assets from the sale consideration. The Tribunal also cited a similar decision by the Pune Bench of the ITAT in the case of Subhash Vinayak Supnekar, which supported the view that investments made from advance money before the actual sale date qualify for exemption.Based on these considerations, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow the deduction under Section 54EC for all the assessees. Thus, the appeals filed by the assessees were partly allowed.Conclusion:The Tribunal dismissed the ground related to the validity of the assessment order passed in the name of the deceased assessee, considering it an irregularity. However, it allowed the ground related to the denial of exemption under Section 54EC, directing the Assessing Officer to grant the exemption for investments made in REC Bonds before the property transfer date. All four appeals by the assessees were partly allowed.