Capital gains exemption under section 54E: reasonable doubt on source of investment was resolved in favour of the assessee.

Where the source of investment for capital gains exemption under section 54E could not be conclusively traced to a particular sale transaction, the factual doubt was resolved in favour of the assessee. The assessee was permitted to correlate the sale proceeds of one block of shares with the purchase of the unit trust investment, and appropriation of those identified proceeds to the qualifying investment was accepted. On that basis, the exemption was treated as available to the extent of the capital gain embedded in the relevant sale proceeds, and the Revenue's computation was not sustained.

---

---

Issues: Whether the assessee was entitled to exemption under section 54E of the Income-tax Act, 1961 on the entire capital gain claimed, where the source of the investment in units could not be conclusively traced to a particular sale transaction.

Analysis: The available record did not establish with certainty as to out of which sale proceeds the units were acquired. In such circumstances, the factual doubt as to the source of investment was resolved in favour of the assessee. The assessee's co-relation of the sale proceeds of one block of shares with the purchase of the unit trust was found to be probable, and the assessee was allowed to appropriate the relevant sale proceeds towards the investment for the purpose of section 54E.

Conclusion: The assessee was entitled to the claimed exemption to the extent of the capital gain embedded in the relevant sale proceeds, and the computation made by the Revenue was not sustained.

Final Conclusion: The appeal was allowed and the exemption under section 54E was granted on the assessee's claimed basis.

Ratio Decidendi: Where the source of investment for the purpose of capital gains exemption is not conclusively traceable from the records, reasonable factual doubt may be resolved in favour of the assessee, permitting appropriation of identified sale proceeds to the qualifying investment.

---