Case Law Details
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.
The CIT(A) dismissed the appeal, holding that the investments in specified bonds were not made within the time limit prescribed under Section 54EC.
Before the Tribunal, the assessee submitted that the first investment of ₹50 lakh in specified bonds was made on 25 March 2021 and the second investment of ₹50 lakh was made in August 2021. It was argued that REC bonds, which qualify as specified bonds under Section 54EC, were unavailable for subscription during the period from April 2021 to August 2021. Therefore, the delay in making the second investment was due to non-availability of bonds and not attributable to any fault on the part of the assessee. It was also contended that the disallowance of the exemption claim was beyond the scope of adjustments permissible under Section 143(1).
The Revenue supported the order of the CIT(A) and argued that the restriction of exemption was in accordance with the legal provisions.
After considering the submissions and examining the record, the Tribunal observed that the second investment in specified bonds had admittedly been made beyond six months from the date of transfer of the original asset. However, the assessee’s contention was that the specified REC bonds were not available for subscription during the relevant period from April 2021 to August 2021 and therefore the assessee should not be penalized for circumstances beyond his control.
The Tribunal held that this contention required factual verification. Accordingly, it found it appropriate to remit the matter to the jurisdictional Assessing Officer for verification of the assessee’s claim regarding the non-availability of specified bonds during the relevant period.
The impugned order was therefore set aside on this issue, and the matter was remanded to the Assessing Officer for necessary verification. The appeal was partly allowed for statistical purposes.
Assessee represented by: Mr. R.S.Balaji, Advocate
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal is filed by the Assessee against the order of Learned Additional/Joint Commissioner of Income Tax (A)-1, Ahmedabad dated 07.10.2025 passed u/s.250 of the Income Tax Act, 1961 for the Assessment Year 2021-22.
2. The Assessee has raised the following grounds of appeal:
“1. The order of the Commissioner of Income-tax (Appeals) is contrary to the law, facts and circumstances of the case.
2. The CIT (Appeals) erred in rejecting the several objections raised in the Grounds of the Appeal to the Total income determined and the status in which the assessment has been made (in so far as the addition as LTCG income is concerned) and dismissing the appeal.
3. The impugned order Under Section 250 of the Act, passed by the First Respondent is totally illegal, arbitrary, violative of principles of natural justice, vitiated by prejudged and pre-determined approach, malice in law and in fact and therefore liable to be quashed 4. The petitioner submits that he has correctly reinvested the sale proceeds through banking channel with in the due date as prescribed by Section 54EC of the income-tax act, 1961 on sec 54EC bonds and the details also clearly mentioned in the ITR form submitted before the respondents.
5. In support of the above facts, the petitioner, during the course of the appellate hearing proceedings, produced all the bank statements, proof for re-investments in Section 54EC Bonds, various highest judicial forums case laws.
6. Without verifying the facts & circumstances of the case and even without getting a remand report, the Ld. CIT (Appeals) has dismissed the appeal petition is completely bad in law.
7. The appellant is a retired service personal from Indian Air Force and source of income for to run my day to day lively hood is interest on bank deposits and other meagre income and expired on 08.08.2025.
8. The appellant states that he is an Income-tax assessee and regularly filing his return of income through e filing method with PAN: AAA PF4980G.
9. The appellant submits that in the course of the financial year 2020-21, the Government of Tamil nadu, has acquired 7,200 square feet of lands of the petitioner for the purposes of setting up an Industrial Estate under SIPCOT at Sriperumbudur.
10. The land of the petitioner was acquired under land acquisition act by government of Tamil Nadu and the compensation was received on 12.02.2021 Rs.84,54,440 and Rs.21,13,610, in total Rs.1,05,68,050, after deducting Tax Deducted at Source (TDS) through NEFT /Government of Tamilnadu.
11. The appellant submits that he submitted his return of income in ITR 3-Detailed ITR FORM for the assessment year 2021-22 on 02.01.2022 under section 139(1) of the Income-tax Act, i.e filed within the stipulated time as per the ACT and admitted a total income of Rs.4, 01,880/- along with detailed Long term capital gain workings with his investments under section 54EC of the ACT.
(It is available in Page 36 & 37 of the above said ITR Form)
12. The appellant submits that the CPC, Bengaluru, while processing the return of income under section 143(1) of the ACT, on 22.03.2022 has considered the total investments under section 54EC is Rs.1,00,00,000 (it is available in Page No. 5 of the above said intimation) but in subsequent columns, mentioned as Rs.50,00,000/- only towards my re-investments and made a demand of Rs.49,32,978/-in the head of Long Term Capital Gain and also raised a demand of Rs. 11,48,970/-.
13. After receiving the above impugned intimation, the petitioner in utter shock, that even after correctly reinvested the sale proceeds under section 54EC of the Act with Government of India Bonds that too through banking channel only, the CPC Bengaluru in one place allowed full deduction of Rs.1,00,00,000/- and in subsequent columns made addition of Rs. 49,32,978. It is bad in law.
14. The appellant submits that for to rectify the above defect, the Petitioner made an application under section 154 of the ACT with second respondent on 22.08.2022 vide ack. No. 438959420220822.
15. While so, again utter shock of the petitioner, the CPC Bengaluru has not at all considered the facts of my case and passed the order under section 154 of the ACT, on the same day, i.e. 22.08.2022.
16. The appellant submits that for to redressal of my grievance, the petitioner has filed an appeal petition with Commissioner of Income-tax (Appeals) on 10.09.2024 vide ack. No. 436768780100924 and attended all the hearing proceedings without fail, conducted from time to time.
17.In that appeal petition, the appellant has correctly mentioned the facts of my case, re-investment particulars and the details of rectification order passed under section 154 of the act by the CPC Bengaluru.
18. The appellant submits that again on 01.11.2023 made another e-response vide ack.no.498364661011123 to the respondent stated that the highest judicial forums has considered the re-investments made in the Government of bonds as per the provisions of Section 54EC of the 70 SH ACT, ACT, and a quoted various case laws, including the Hon’ble Jurisdictional Madras High Court case law.
19. In the meantime, my father Mr.B.J Fernandez was expired on 08.08.2025 and the respondent has passed the Impugned order on 07.10.2025. It is also against the rule of law and against the precedents of Hon’ble Jurisdictional Madras High Court.
20. The CIT (Appeals) has failed to see that he has ample powers under the Act to entertain a new claim, admit a new grounds/ evidences and decide the issue on merits and cannot reject a new claim merely on the ground that it had not been made before the assessing officer.
21. For that the balance of convenience and merit of this appeal is lying in favour of the appellant.
22. For these and other grounds that may be adduced at the time of hearing the appellant prays that the Hon’ble ITAT be pleased to allow the appeal and render justice.
23. So, the appellant has humbly requested the Hon’ble ITAT to delete the unjustified addition and render justice thus.”
3. Briefly the facts of the case are that the appellant is an Individual and retired employee of Armed Forces. The return of income for the Assessment Year 2021-22 was filed on 24.06.2024 disclosing income of Rs.4,01,880/- after claiming exemption u/s.54EC of the Income Tax Act in respect of Long Term Capital Gain arising of sale compulsory acquisition of land by Government of Tamilnadu. The appellant also shown Long Term Capital Gain of Rs.93,32,978/- after claiming exemption u/s.54EC of Rs.1 crores. The said return of income was processed by CPC u/s.143(1) vide intimation dated 22.03.2022 by restricting the exemption u/s.54EC of the Act to Rs.50 lakhs on receipt of said intimation, the appellant moved a petition u/s.154 of the Act on 22.08.2022 which was rejected by CPC.
4. Being aggrieved by the order u/s.154 of the Act, an appeal was filed before the ld.CIT(A) who vide impugned order dismissed the appeal by holding that the specified investments u/s.54EC was not made within the time limit prescribed u/s.54EC of the Income Tax Act, 1961.
5. Being aggrieved, the appellant is in appeal before us in the present appeal. The learned Counsel submits that during the previous year relevant to assessment year under consideration, the Government of Tamilnadu acquired 7200 sq.ft of land belonging to the appellant for the purpose of setting up of industrial estate under SIPCOT at Sriperumbudur received compensation of Rs.1,05,68,050/- on 12.02.2021 the Long Term Capital Gains were shown of Rs.99,32,976/- were computed before claiming exemption u/s.54EC of the Income Tax Act of Rs.1 crore. The investment as specified bonds of Rs.1 crore u/s.54EC was made of Rs.50 lakhs on 25.03.2021 and 28.08.2021 another of Rs.50 lakhs was made as the specified bonds were not available during the period from April 2021 to August 2021 and therefore, the CPC is not justified by disallowing claim for exemption u/s.54EC of the Income Tax Act. He further submits that disallowance of claim for exemption u/s.54EC is beyond the scope of adjustments u/s.143(1) of the Act.
6. On the other hand, Learned Sr.DR submits that thus ld.CIT(A) after careful consideration of all the relevant fact of the case rightly confirmed the action of the CPC by referring correct legal position and therefore no interference is called-for.
7. We heard rival submissions and perused the material available on record. The issue that arises for our consideration is whether the CPC justified in making the disallowance of claim for deduction u/s.54EC of the Act or not!. Admittedly, the appellant had made the second round investment in specified bonds only on 20.08.2021 which is beyond the period of six months from the date of sale of original asset. It is the contention of the appellant that the REC Bonds which are specified bonds for the purpose of Section 54EC were not available for subscription during the period commencing from April 2021 to August 2021 and the appellant cannot be punished for no fault of him. Therefore, we are of the considered opinion that the matter requires remand to the file of Jurisdictional Assessing Officer to verify the contentions of the appellant. Accordingly, the file is set-aside to the file of Jurisdictional Assessing Officer for necessary verification.
8. In the result, appeal of the assessee stands partly allowed for statistical purpose.
Order pronounced in the open court on 19th May, 2026.
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