Assessee wins Section 54EC exemption case as Rs.50 lakh limit applies per financial year not cumulatively

ITAT Ahmedabad allowed assessee's appeal regarding excess exemption claimed under Section 54EC. AO had restricted exemption to Rs.50 lakhs, but tribunal held that Rs.50 lakh limit applies per financial year, not cumulatively per transaction. Following precedents from Madras HC in Areva T&D India Limited and Coromandel Industries Ltd., and coordinate bench decision in Atushbhai B. Amin, tribunal ruled that investment of Rs.1 crore claimed across two financial years within six months of capital asset transfer was allowable. Addition of Rs.50 lakhs deleted; full exemption of Rs.1 crore granted under Section 54EC.

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Issues:
Interpretation of Section 54EC of the Income Tax Act regarding the quantum of investment allowed for exemption.

Analysis:
The appeal was filed against the order of the National Faceless Appeal Centre for the Assessment Year 2012-13. The original assessment was completed under Section 143(3) of the Income Tax Act, 1961, and later reopened under Section 147 due to claimed exemption u/s.54EC not in accordance with the Act. The re-assessment resulted in an addition of Rs.50 Lakhs on account of excess exemption claimed u/s.54EC. The First Appellate Authority dismissed the appeal, leading to a second appeal before the Appellate Tribunal.

The main issue revolved around the interpretation of Section 54EC of the Act regarding the quantum of investment allowed for exemption. The assessee had invested Rs.1 Crore in NHAI and REC bonds, spread over two financial years, to claim exemption u/s.54EC. The Revenue contended that the investment should be limited to Rs.50 Lakhs in each financial year. However, the Appellate Tribunal noted that the cap of total investment of Rs.50 Lakhs in two financial years was introduced only from 01.04.2015, and not applicable to the current year. The Tribunal found that the assessee had fulfilled all necessary conditions as per Section 54EC and was entitled to the deduction of Rs.1 Crore as claimed.

The Tribunal referred to various judicial pronouncements, including decisions of the Madras High Court, which supported the assessee's claim for deduction of Rs.1 Crore. The Tribunal also cited a Co-ordinate Bench decision that allowed the investment of Rs.1 Crore claimed in two financial years. Consequently, the Tribunal held that the assessee was eligible for the deduction of Rs.1 Crore u/s.54EC, and the addition of Rs.50 Lakhs was deleted.

In conclusion, the appeal of the assessee was allowed, and the addition on account of excess exemption u/s.54EC was deleted. The Tribunal's decision was based on the interpretation of Section 54EC and relevant judicial precedents, supporting the assessee's claim for the full deduction of Rs.1 Crore.

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