ITAT Remands Section 54EC Claim as Bond Availability Issue Required Verification

B J Fernandez Vs ITO (ITAT Chennai)

The appeal before the Income Tax Appellate Tribunal (ITAT), Chennai, arose from an order of the Commissioner of Income Tax (Appeals) for Assessment Year 2021-22 concerning the assessee’s claim of exemption under Section 54EC of the Income Tax Act, 1961.

The assessee, a retired Armed Forces employee, owned 7,200 square feet of land that was compulsorily acquired by the Government of Tamil Nadu for establishing an industrial estate under SIPCOT at Sriperumbudur. Compensation of ₹1,05,68,050 was received on 12 February 2021. The assessee computed long-term capital gains and claimed exemption under Section 54EC by investing ₹1 crore in specified bonds.

The return of income disclosed total income of ₹4,01,880 and long-term capital gains after claiming exemption under Section 54EC. While processing the return under Section 143(1), the Central Processing Centre (CPC) restricted the exemption under Section 54EC to ₹50 lakh instead of the claimed ₹1 crore. Consequently, an addition was made to the long-term capital gains and tax demand was raised. The assessee filed a rectification application under Section 154, which was rejected by the CPC.

The assessee thereafter appealed before the Commissioner of Income Tax (Appeals), contending that the compensation amount had been reinvested through banking channels in Section 54EC bonds within the prescribed period and that all supporting documents, including bank statements and proof of investments, had been furnished. The assessee also argued that the appellate authority failed to verify the facts or obtain a remand report before dismissing the appeal.