Section 54EC Deduction Allowed for Investments Across Two Financial Years: ITAT Bangalore

DCIT Vs Shri Borkatte Ganapathi Hegde (ITAT Bangalore)

Summary: ITAT Bangalore dismissed the Revenue’s appeal and upheld the CIT(A)’s deletion of the disallowance of Rs.49,09,181 relating to deduction under Section 54EC for AY 2012-13. The assessee had sold two immovable properties and invested the resultant capital gains in REC bonds. The investments were spread across the financial year in which the transfers occurred and the immediately succeeding financial year, but were made within the prescribed six-month period. The Assessing Officer restricted the exemption to Rs.50 lakh, relying upon ACIT Vs Shri Raj Kumar Jain & Sons (HUF), and disallowed the excess claim. The CIT(A), however, allowed the claim by relying on the Madras High Court decision in CIT vs. C. Jaichander and the Bangalore Tribunal’s interpretation of Section 54EC.

The Tribunal held that under the provision as it stood for the relevant assessment year, an assessee could invest Rs.50 lakh in specified bonds in each of two financial years where the six-month investment period extended across those years. It relied upon the Madras High Court rulings in C. Jaichander and CIT vs. Coromandel Industries Ltd., which construed the then-existing Rs.50 lakh restriction financial-year-wise. The Tribunal further noted that the Legislature inserted a second proviso to Section 54EC(1) through the Finance (No.2) Act, 2014 with effect from 01.04.2015, limiting the aggregate investment relating to transfers of one or more original assets during the financial year and subsequent financial year to Rs.50 lakh. For the period applicable to the assessee, however, that subsequent restriction did not govern the claim. Following the cited decisions, including ITO vs. Smt. Bala R. Venkitachalam, the Tribunal found no fallacy in the CIT(A)’s reasoning and dismissed the Revenue’s appeal.