IN THE ITAT CHENNAI BENCH ‘C’
Smt. Anuradha Venkatesan
IT APPEAL NO. 952 (MDS.) OF 2011
[ASSESSMENT YEAR 2006-07]
NOVEMBER 20, 2012
S.S. Godara, Judicial Member
The assessee has filed the instant appeal against the order of the Commissioner of Income Tax Chennai – IV, Chennai dated 23.03.2011 in C.No. 1321(8)/2010-11/IV for the assessment year 2006-07 in proceedings under section 263 of the Income Tax Act 1961 [in short the “Act”].
2. Brief facts of the case are that the assessee, who is an individual, had sold her agricultural land on 10.01.2006 for a consideration of Rs. 36,24,868/-. Thereafter, she invested an amount of Rs. 35.00 lakhs in Rural Electrification Corporation Limited (REC) bonds on 27.01.2007 (per CIT order). On 29.03.2007, she filed her ‘return’ declaring income of Rs. 79,695/-; wherein, she had disclosed income from capital gains as Rs. NIL. The ‘return’ was accepted under section 143(1) of the “Act”. In pursuant to scrutiny proceedings initiated under CASS, she explained her claim of exemption under section 54EC of the “Act” qua the amount of Rs. 35.00 lakhs invested in REC bonds and explained the details therein as under:
“Further to my earlier submissions and hearing proceedings I wish to furnish the following facts and details for your kind consideration.
In respect of transfer of long term capital assets between 1.1.2006 and 30.6.2006 the time limit for investment in REC bonds for exemption u/s 54EC was extended upto 31.12.2006 (vide notification F.No. 142/09/2000 TPL dt. 30.6.2006 enclosed).
In terms of the notification REC opened the bonds for issue upto a sum of Rs. 4,500/- crores on 20.7.2006. The bonds issued earlier and available for investment were closed on 29.3.2006. There was no other bonds notified and available for investment thereafter u/s 54EC till 20.7.2006 when the above notified bonds were issued by REC.
The above bonds opened for issue by REC upto a limit of Rs. 4,500/- crores was fully subscribed within 10 days from the date of issue 20.7.2006 and the bonds were not available and closed for public investment from 2.8.2006 (vide copy of REC letter dt. 1.8.2006 issued to all collecting banks).
After 2.8.2006 no bonds were available for investment upto 22.1.2007 when the present bonds invested by me was opened for issue by REC in terms of notification no. SO 2146(E) dt. 22.12.2006 (vide copy enclosed).
Therefore, in view of non availability and earlier closure of REC bonds, I could not invest in REC bonds before 31.12.2006 I have invested in REC bonds immediately on their notification on 31.1.2007 and accordingly claimed exemption u/s 54EC of the Act.”
The assessment order dated 07.11.2008 reveals that the Assessing Officer finalized assessment under section 143(3) of the “Act” and assessed the gross total income as Rs. 79,695/- and deduction under section 80C of Rs. 79,695/- was also granted to the assessee. Similarly, her income from capital gains as Rs. NIL also stood accepted. In this manner, the total income of the assessee was assessed by the Assessing Officer as Rs. NIL.
3. It is noticed that 01.03.2011, the CIT issued noticed to the assessee under section 263 of the “Act” on the ground that the assessment order was ‘erroneous causing prejudicial to the interests of the Revenue’ & prima facie observed that her claim of deduction under section 54EC was not entitled to be accepted as it was made beyond the time period of six months from the date of sale deed i.e. January, 2006. More particularly even ‘beyond’ the extended date i.e. 31.12.2006.
4. In reply dated 21.03.2011, the assessee contended before CIT that though her investment in REC bonds had to be made within six months of the sale deed, but since there was scarcity of the bonds, therefore, she could not make it. She also stated that vide Notification F.No. 142/09/2006 TPL dated 30.06.2006, the time limit for investment in REC bonds was extended upto 31.12.2006 and clarified that again on 01.08.2006, the issuance of the bond was closed by REC from 02.08.2006. In this manner, by pleading extreme hardship due to shortage of bonds, she explained before the CIT that she was able to invest the amount of Rs. 35.00 lakhs by 27.01.2007. In the light thereof, she stated that the Assessing Officer had rightly accepted her case of exemption under section 54EC of the “Act” and prayed for dropping the proceedings.
5. The CIT, however, was not convinced with the assessee’s explanation tendered. Accordingly, vide impugned order he directed Assessing Officer to withdraw the exemption accepted under section 54EC and make fresh assessment by observing as under:
“Submissions of the assessee are considered. Exemption from capital gains tax by making investments in various prescribed assets is a benevolence extended to the assessee by the Government. The assessee should have taken care that she complies with the investments within the time. If REC Bonds are not available the assessee in order to comply could have taken other available avenues that were not in short supply for the purpose of claiming exemption u/s 54EC. Having not done that, investment beyond the permitted time cannot be said to be within the parameters of the said Circular when it is specifically stated the last date for making investment. The AO has not applied the provisions of the Income Tax Act properly which has resulted in under-assessment. The AO is hereby directed to withdraw the exemption granted for u/s 54EC as discussed hereinbefore and make fresh assessment after giving opportunity to the assessee. The assessment should be modified to the extent stated above.”
Therefore, the assessee is aggrieved.
6. Reiterating he submissions made in the ground of appeal, the AR representing the assessee has vehemently argued before us that the assessee’s claim of exemption had been rightly accepted by the Assessing Officer by taking capital gains as NIL in the assessment order. Thereafter, he has submitted that the order passed by the CIT is merely substitution of the opinion of the Assessing Officer, which is not permissible in the eyes of law. He further referred to the letter of the assessee addressed to the Assessing Officer explaining her case of exemption and submitted that even if the Assessing Officer has not specifically dealt with the issue of exemption under section 54EC in so many words, but since the material was duly explained by the assessee. Therefore, it has to be assumed that the Assessing Officer has duly applied his mind.
On merits as well, it has been argued by the AR that the assessee executed sale deed on 10.01.2006. However, she could not invest the amount in REC bonds because of that scarcity of the same. Then she referred to notification dated 30.06.2006 extending the time limit of investment in bonds for claiming exemption under section 54EC upto 31st December, 2006. To buttress her plea, he has referred to the correspondence dated 01.08.2006 by REC Ltd. stating therein that it had decided to close to issue of bonds from 02.08.2006. The contention of the assessee is that she cannot be found guilty of shortage of bonds which were available only in January, 2007. In support of assessee’s contentions challenging the legality of 263 proceedings as well as on merits, reliance has been placed on the following case law.
1. Cello Plast v. Dy. CIT [IT Appeal No. 2200 (Mum.) of 2009, dated 19-1-2010]
2. Ram Agarwal v. Jt. CIT  81 ITD 163 (Mum.)
3. Aspi Ginwala, Shree Ram Engg. & Mfg. Industries v. Asstt. CIT  52 SOT 16/
4. Bajaj Tempo Ltd v. CIT  196 ITR 188
5. Malabar Industrial Co Ltd. v. CIT  243 ITR 83
6. CIT v. Mepco Industries Ltd  294 ITR 121
8. CIT v. Honda Siel Power Products Ltd  333 ITR 547
In the light thereof, the AR prayed for acceptance of the appeal.
7. The Revenue, on the other hand, has chosen to strongly support the order of the CIT revising the assessment order under section 263 of the “Act” and prayed for upholding the same.
8. We have heard both parties at length and also perused relevant materials referred as well as case law cited. Undisputed facts of the case are that on 10.01.2006, the assessee had sold her agricultural land for Rs. 36,24,863/- and chose to invest an amount of Rs. 35.00 lakhs in the REC bonds in January, 2007 for claiming exemption under section 54EC of the “Act”. At this stage, we deem it appropriate to reproduce the statutory provision as under:
54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,-
(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45 :
A bare perusal of the above provision makes it amply clear that it grants relief to those assessees, who transfer a long term capital asset resulting in capital gains by making investment in various bonds with in within a period of six months from the date of transfer. The Legislature intent in enacting the provision is to provide benefits to those assessees who park their consideration received in REC bonds or those issued by the National Highway Authority of India. It appears that the purpose behind prescribing time limit of six months is to prevent belated investments by the concerned assessees. Coming to the facts of the instant case, it is evident that from the date of sale deed i.e. on 10.01.2006 per CIT’s order, the assessee had time limit of six months upto 10.07.2006 so as to invest the consideration for claiming exemption under section 54EC. However, as the paper book reveals, there is no effort stated to have been made by the assessee, which could lead to conclusion that she had applied for investment in bonds, but because of their non-availability, the investment could not be made.
It is further noticed that vide notification dated 30.06.2006 (supra), the time limit of six months envisaged by section 54EC was extended upto 31.12.2006 which was followed by REC correspondence dated 01.08.2006 (supra). Even if we presume that the assessee the bonds would not be issued. Still, no evidence is forthcoming that the assessee ever applied for the bonds from any day upto 01.08.2006. There is no assertion on her part as to when the bonds are available thereafter. She only pleaded that on 22.12.2006, a cap was imposed on the maximum amount which could be invested in bonds i.e. Rs. 50.00 lakhs. In our opinion, the same is not relevant in the present case as the assessee’s case is admittedly of investment of Rs. 35.00 lakhs. The assessee herself admitted that she did not invest in the bonds upto 31.12.2006. Rather her case is that she invested only on 27.01.2007 and the delay is attributed to non-availability of REC bonds. This, in our opinion is not in consonance the express provision prescribing six months time limit which stood extended upto 31.12.2006. We reiterate here that relief of exemption under section 54EC can be granted within time limit as prescribed by the legislative provision and not beyond that. Hence, we are unable to concur with assessee’s contention that the time limit for investment which was admittedly extended by notification upto 31.12.2006 can be stretched upto 27.01.2007 (supra) by exercising jurisdiction under the “Act”.
9. Coming to the case law cited by the assessee, we observe that in case of Cello Plast (supra), the assessee led ample evidence corresponding her intention to invest in the bonds even during the time limit prescribed i.e. six months which further stood extended upto 31.12.2006. In the said case, the sale deed was executed on 22.03.2006. While dealing with her submission, the Coordinate Bench of Mumbai ITAT has held as under:
“11. We have heard the rival submissions and considered them carefully. After taking into consideration all the facts and material on record, we find that the assessee deserves to succeed in this ground also. There is no dispute that the assessee has sold its capital asset i.e. plant and machinery during the year under consideration. For claiming exemption u/s 54EC, upto Rs. 50 lac has to be invested in purchase of specified bonds. The assessee approached the concerned authorities. However, the bonds were not available. Various entities approached CBDT. Taking into consideration the hardship faced by various entities, the CBDT vide circular o. 142/9/2006 TPL dt 30.6.2006 extended the time for purchasing the specified bonds up to 1.12.2006. The assessee approached the appropriate authorities to buy the bonds; however, they were not available. Therefore, it was an impossible task for the assessee to comply with the conditions of sec. 54EC. The assessee ultimately purchased FDs of Rs. 50 lacs with a view to buy specified bonds whenever they are available. Letter was issued to the 5BI while purchasing FDs of Rs. 50 lacs that the bonds are not available in the market and therefore, FD for an initial period of 90 days which may be extended further or may be redeemed prior to expiry date for investing the same in bonds qualified u/s 54E of the Act. Copy of the letter dated 30.10.2006 is placed at page 6 of the compilation. Copies of the FDs are placed at pages 7 & 8 of the compilation. Copy of the letter issued by Rural Electrification Corpn Ltd along with copy of bond certificate is placed at pages 9 of the compilation. In this allotment, it is clarified that the assessee applied for purchase of bonds on 27.1.2007 and they are allotted on 31.1.2007. 500 bonds for a consideration of Rs. 50 lacs were allotted. The bond certificate is also placed at page 10 of the compilation.
11.1 From these facts, it is clearly established that there was reasonable cause in not/’Purchasing these specified bonds within the specified time allowed as they were not available in the market. As soon as the bonds were available in the market, the assessee immediately purchased the same. Therefore, in our considered view, under these circumstances, the assessee is entitled for exemption u/s 54EC.
12 On similar facts, the Tribunal in the case of Ram Agarwal reported in 81 ITD 163 has allowed the deduction to the assessee. In this case, the facts are that the assessee had claimed an exemption u/s 54F in respect of long term capital gain. The return of income originally was filed on 31.8.1995 in which the assessee had shown a business income apart from income from other sources and long term capital gains on sale of property. The requisite deposit to avail exemption u/s 54F was made by the assessee on 1.9.1995. The AO disallowed the claim of the assessee for exemption u/s 54F on two grounds viz first the assessee did not have regular business income and so the prescribed date for filing the return was 30.6.1995 treating it as income from other sources instead of 31.8.1995; secondly, even if the assessee was having business income the deposit was still not made within the prescribed time i.e. 31.8.1995, and the deposit was made on 1.9.1995. The CIT(A) found that there was a strike in the bank and that it was also certified by the concerned bank official of PNB in which the deposit was made. 50 according to the CIT(A), the aspect of deposit being made on 1.9.1995 had no particular relevance; accordingly, he held that commission earned by the assessee was not business income and since commission income was not business income, the due date for filing the return as 30.6.1995. On appeal, the Tribunal allowed the claim of the assessee by holding that due to exceptional circumstances the assessee could not deposit the amount within the prescribed time.
13. In view of the facts and in the view of the decision of the Tribunal in the case of Ram Agarwal (supra), we held that the assessee is eligible for deduction u/s 54EC; accordingly, we direct the AO to allow the claim of exemption, as claimed.”
We have considered the above said case law and find that unlike in the said case, the present assessee has not led any cogent proof of her intention to invest the consideration amount in the REC bonds and efforts undertaken in pursuance of the same. Therefore, same is distinguishable on facts. Aspi Ginwala, Shree Ram Engg. & Mfg. Industries case (supra), it is noticed that the said case law also does not apply qua peculiar facts in case of the assessee. So, we are of the opinion that the assessee’s claim of exemption under section 54EC was not entitled to be accepted. The same also leads us to the conclusion that since the assessment order accepting the assessee’s claim of exemption suffered from ‘error causing prejudice to the interests of Revenue’, the CIT has rightly taken recourse to revision of assessment by directing the Assessing Officer to withdraw the exemption. Therefore, we hold that the case law cited by the assessee regarding legality of 263 proceedings also does not apply qua the peculiar facts of the instant case.
10. Hence, we neither find any legality nor infirmity in the order of the CIT’s order passed under section 263 of the “Act”. The assessee’s appeal is therefore, dismissed.