Assessee wins appeal on Section 54EC deduction for REC/NHAI bonds investment exceeding Rs. 50 lakh limit

ITAT Ahmedabad allowed the assessee's appeal regarding excess deduction claimed under Section 54EC. The assessee invested capital gains from property sale in REC/NHAI bonds, claiming Rs. 1 crore deduction across two financial years within six months of transfer. The tribunal held that the Rs. 50 lakh investment cap was not applicable for the relevant assessment year, as the restrictive amendment was introduced prospectively from AY 2015-16. Following HC precedents, the tribunal deleted the Rs. 50 lakh addition made by CIT(A).

---

---

Issues:
Assessment of excess deduction under Section 54EC of the Income Tax Act, 1961 for the Assessment Year 2014-15.

Analysis:
The appeal was filed against the order of the National Faceless Appeal Centre, Delhi, confirming the addition of Rs. 50 Lakhs as excess deduction claimed under Section 54EC of the Act. The assessee had initially declared a total income of Rs. 2,19,54,960/-, which was revised to Rs. 2,24,26,160/-. The assessment was completed with a total income of Rs. 2,74,26,160/-, including the disputed deduction. The First Appellate Authority dismissed the appeal, leading to the second appeal before the ITAT.

The grounds of appeal challenged the disallowance of the deduction under Section 54EC, claiming that the investment made by the assessee in REC and NHAI bonds within the stipulated time and amount limits complied with the statutory provisions. The appellant contended that the AO erred in restricting the exemption to Rs. 50 Lakhs only, arguing that the cap introduced in 2015 did not apply retrospectively to the relevant assessment year.

The ITAT analyzed the provisions of Section 54EC of the Act and the amendments introduced regarding the investment limits in bonds. The tribunal noted that the assessee had invested Rs. One crore in two bonds over two financial years, satisfying the conditions of the Act. The tribunal emphasized that the cap of total investment of Rs. 50 Lakhs was not applicable in the relevant year, as the amendment was effective from 2015-16 onwards. Referring to judicial precedents, including decisions of the Madras High Court, the ITAT concluded that the assessee was entitled to the claimed deduction of Rs. 1 Crore under Section 54EC.

The ITAT rejected the AO's and CIT(A)'s decision, citing consistency in tribunal rulings and judicial interpretations supporting the assessee's position. The tribunal allowed the appeal, deleting the addition of Rs. 50 Lakhs on account of excess deduction under Section 54EC of the Act. The judgment emphasized adherence to statutory provisions and relevant case laws in determining the eligibility for the claimed deduction.

In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal and overturning the disallowance of the deduction under Section 54EC. The judgment highlighted the importance of complying with statutory provisions and judicial interpretations in assessing tax liabilities and deductions under the Income Tax Act, 1961.

---