Case Law Details
Jatender Singh Marvaha Vs D.DI.T (ITAT Kolkata)
It is an admitted fact that the amount in question to the extent of Rs. 49,00,000/- was seized by the IT Authority. The facts in respect of sale of land, search & seizure operation, issuance of notice u/s. 153A of the Act and filing of return for the A.Y under consideration are undisputed.
It is also not disputed that the amount of sale of said land was lying in the custody and in the account of Government. We find that in response to notice issued u/s. 153A of the Act, the assessee filed his return of income on for the A.Y under consideration and claimed exemption of Rs.40,00,000/- u/s. 54EC of the Act.
Both AO & CIT-A have denied the claim of exemption of Rs.40,00,000/- for want of proper evidence showing the capital gains were invested in specified bonds i.e provided by the Government of India, National Highway Authority Bonds (NHAI). The deduction u/s. 54EC of the Act is permissible if the amount representing the long term capital gain is invested in specified bonds within prescribed time.
In the present case, the assessee had admitted that he had not made any investments in specified bonds notified u/s. 54EC of the Act. The assessee only claims that since the major portion of the sale proceeds of the property amounting to Rs. 49,00,000/- was seized by the Income-tax Department pursuant to search on 26-01-2011. No money was left with the assessee to make investments in specified bonds. Since the monies were lying to the account of the Central Government, the ld.AR pleaded that the same should be construed as amount being invested by the assessee as per section 54EC Bonds. This argument of the ld.AR cannot be accepted and is untenable in law.
We find that the assessee had not taken any steps to recover the said seized cash for onward investment in 54EC Bonds or had not communicated to the AO regarding his intention of doing so. The assessee made a claim of deduction u/s. 54EC in the return of income without making any investment in the notified bonds as per section 54EC of the Act.
The ld. AR also argued that a situation of impossibility of performance that the law cannot compel a man to perform, which he could not possibly perform. In our opinion, this argument would not come to the rescue of the assessee in as much as claim of deduction u/s. 54EC of the Act, which is governed by certain conditions to be complied with.
Section 54EC mandates that investment in specified bonds to be made within prescribed time by the assessee either out of sale proceeds of capital asset or out of any other means. In the present case, admittedly the assessee had not made any investments in the specified bonds as per provisions of section 54EC of the Act, which has rightly been denied by the AO and confirmed by the CIT-A. In view of aforesaid discussion, we hold that since no amount was invested in the specified bonds mandated u/s. 54EC of the Act, the lower authorities have rightly rejected the claim of assessee in this regard.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the Assessee is against the order dt: 21-102014 of the CIT-A, VI, Kolkata for the A.Y 2011-12.
2. Brief facts of the case are that the assessee is an individual and a citizen of United Kingdom. A search & seizure operation was conducted u/s. 132 of the Act on the assessee at the Netaji Subhash Chandra Bose International (NSCB) Airport on 26-01-2011. In consequence of the said search & seizure operation, the AO issued notice u/s. 153A of the Act to the assessee to file the return of income for the A.Y under consideration. In response to said notice issued u/s. 153A, the assessee filed his return for the A.Y under consideration on 23-02-2012 by declaring total income at Rs.500/-. Under scrutiny, the notices us/. 143(2) and 142(1) of the Act along with questionnaire were issued. In response to which, the A/R of the assessee appeared and filed submissions in respect of questionnaire issued along with details. On perusal of the said return and submissions of the assessee, the AO disallowed of Rs. 4,50,000/- under the head brokerage & other expenses and Rs.40,00,000/- towards claim of exemption u/s. 54EC of the Act and determined the long term capital gains at Rs.70,06,500/-vide his order dt. 13-03-2013 u/s. 143(3), 153A and 153B(1)(b) of the Act.
3. Ground no.1 relates to restriction of disallowance to Rs.1,50,000/- under the head ’brokerage & other expenses’ by the CIT-A against Rs.4,50,000/- made by the AO.
4. The facts relating to ground no.1 are that a search & seizure operation was conducted on the assessee u/s. 132 of the Act at the Netaji Subhash Chandra Bose International (NSCB) Airport on 26-012011. According to AO, the said search & seizure operation was conducted on receipt of information from DDIT, AIU, New Delhi, wherein the search team found cash of Rs. 51.50 lakhs roughly and 20,000 Pounds Sterling from the assessee. But, for not providing any supporting evidence and documents in respect of source of said cash a warrant of authorization u/s. 132(1) of the Act was issued. The said warrant was executed on the assessee at NSCBI Airport, Kolkata and returned an amount of Rs.2,19,000/- to the satisfaction and seized amount of Rs. 49,00,000/- and 20,000 Pound Sterling was handed over to AD, Directorate of Enforcement, Kolkata on 27-01-11.
5. According to AO, as per the statement recorded u/s. 131 of the Act the assessee was coming from Phagwara, Dist: Jalandhar, Punjab by Flight No. SG 212, Delhi to Kolkata. The said cash amount found in the search & seizure operation was relating to sale proceeds of an ancestral land measuring 18 Marlas situated in Phagwara, Punjab @ Rs. 4.25 lakhs per Marlas and the said amount was received by the assessee in cash from sale of said property through through property dealer, Shri Avtar Singh. A statement of Shri Avtar Singh was recorded u/s. 131 of the Act, wherein he stated that the assessee sold an ancestral land measuring 18 Marlas to Shri Mukesh Kumar @ Rs.4.25 lakhs per Marlas. The assessee received Rs. 1,00,000/- as token money and Rs.10,00,000/- as advance money and remaining balance of Rs.66,00,000/- in cash on 24-01-2011, but the land was registered at Rs.20,00,000/- instead of actual value received. The AO requested the assessee to furnish the evidences of payment of brokerage and other expenses. In response to which, the assessee stated that the brokerage of Rs. 1,50,000/- was paid to Shri Avtar Singh and remaining Rs.3,00,000/- lakhs were incurred for assessee towards travelling, lodging & food expenses in connection with said transaction. For non production of any supporting evidences, the AO disallowed the sum of Rs.4,50,000/- under the head ‘brokerage & other expenses’ and added the same by stating as under:-
13. The submission of the AR is considered but found to be not tenable. As per section 48, the assessee can claim deduction of only those expenses which have been incurred wholly and exclusively in connection with the transfer of the capital asset. The expressions “wholly” should be understood to mean the quantum of expenses and “exclusively” to mean the purpose of incurring such expenditure and both the situations have to be cumulatively satisfied and demonstrated by the assessee by way of production of tangible evidences. In the written submission, the AR argues that payment of brokerage of Rs.l,50,000/- should be allowed for deduction as it was within the generally accepted practice of paying up the property brokers in the real estate business. The argument of the AR cannot be accepted at face value in the absence of any proof that such expenditure was actually incurred by the assessee. Since no such evidence is adduced in this regard, the argument of the AR is rejected and the claim for deduction of Rs.1, ,50,000/- on account of brokerage payment is held to be inadmissible.
14. As regards the other expenses also, the AR was unable to produce any documentary evidence which could prove a nexus between the alleged expenditure and the sale of the property. In the written submission, the AR stated that the assessee came to India for 15 days with a purpose to sell the property in question. He also made a very naive and simplistic statement that ‘the cheapest round-trip airfare for economy class between London and India is approx. Rs.50,000/- and lodging expenses in India is normally @ Rs.7,000/- per day. So, in the case of his client, lodging expenses comes to Rs. 1,05,0001- ( i.e., Rs.7,000 x 15) and fooding expenses in hotels comes to approx. Rs.75,000/- for 15 days. For visiting here and there, cab hire charges was approx. Rs.70,000/-‘. The submission of the AR is not tenable for several reasons. First, no documentary evidence is furnished in support of such claims. The AR is also not sure of the actual amount of expenditure, if any incurred and he has only made some guesstimate of figures like “approx.”. Second, lodging and fooding charges have been estimated for 15 days, for the period of assessee’s stay in India from J 7th January, 2011 to 2nd February, 2011. It is evident from record of proceedings that the assessee landed in New Delhi Airport on 17th January,2011 and conveyance of the sold out property was given to the purchaser on 24th January 2011 after receipt of the entire sale consideration of Rs.76,50,000/- in the forenoon of 24th January itself, all these happened within a period of 7 days only. So the period commencing from 25th January, 2011 to 2nd February, 2011 for the assessee’s stay in India is not even remotely connected with the sale of the property in question. Third, the assessee’s claim of board and lodging in a hotel is also not supported by any evidence.
In the light of above facts and circumstances of the case, it is held that the assessee’s claim for deduction of aforesaid expenses is not tenable, which was ostensibly made to reduce his tax liability. The claim is, accordingly, rejected.
In view of above, the AO disallowed the sum of Rs.4,50,000/- under the heads ’Brokerage & Other expenses’ and added the same to the total income of the assessee.”
6. Aggrieved, the assessee filed appeal before the CIT-A. Before him the assessee contended that the said expenditure were incurred during the course of sale of said ancestral property (land) and they were directly related to the source of income, thereby deducted the same from sale consideration. The assessee submitted that the payment of brokerage of Rs.1,50,000/- was generally accepted practice of paying up the property brokers in the real estate business. The AO also accepted the fact of that during the assessment proceedings the said land was sold through an agent. The agent stated the same before the AO under statement u/s. 131 of the Act and the assessee also stated in response to the Q.2 that the brokerage of 2% sale consideration of the said land was paid to said agent. It was also submitted the airfare, travelling, lodging and fooding expenses incurred by the assessee during the course of sale transaction of said ancestral property. The assessee travelled from London to India and stayed in India from 17-01-2011 to 2-2-2011 to complete the said transaction and urged to allow the same as it were incurred during the course of said transaction.
7. The CIT-A considering the submissions of assessee deleted the disallowance of Rs.1.5 lakhs towards brokerage and for the balance of Rs.3 lakhs towards other expenses, directed the AO to restrict the same to Rs.1.5 lakhs i.e. 50% of disallowance of Rs.3 lakhs by stating as under:-
3.2. I have considered the facts of the case. The claim of Rs. 4.5 lakhs made by the appellant consists of two parts. The first part relates to brokerage of Rs. 1.5 lakhs paid to Shri Avtar Singh, broker. The assessing officer has disallowed the same on account of lack of documentary evidence. However, it is noted that in the statement recorded u/s 131 of the IT Act, 1961 on 27.1.2011 i.e. during the search proceedings itself, the appellant had stated that the cash found on him was out of sale proceeds of land which was carried out through Shri Avtar Singh, broker. In the subsequent statement dated
28.1.2011, he stated that he had paid brokerage of Rs.1.5 lakhs to Shri Avtar Singh. The appellant is a citizen of UK and had few local contacts at Phagwara, Punjab. Therefore, it is quite reasonable to expect that he would be carrying out land deal through some broker. In fact, involvement of Shri Avtar Singh as a broker in the land deal has been confirmed by the ADIT(lnv.), Jalandhar also. Thus, it is not disputed, that the deal was done through the broker, who must have Charged brokerage. It is true, that the appellant could not produce documentary evidence for brokerage. However, it is quite common that for such transaction no proper bills or other documentary evidence is maintained by the parties. The land sold was for Rs.76.5 lakhs and brokerage of Rs.1.5 lakhs which comes to around 2%. It is common knowledge that brokers normally charge brokerage in that range for land transaction. Considering these facts, I am of the view that the claim for brokerage of Rs. 1.5 lakhs made by the appellant is reasonable. The disallowance of brokerage is therefore, deleted.
3.3. Coming now to the balance claim of deduction of Rs. 3 lakhs, the appellant has stated that he had travelled from UK only for the purpose of land deal and has spent an amount of Rs. 3 lakhs approximately on ticket, food and lodging etc., although no documents were maintained in respect of the expenses. The assessing officer has disallowed the entire amount claimed stating that the appellant could not produce evidence in respect of the expenses incurred and to establish that they were incurred only for purpose of sale of land. However, it is undisputed that the appellant was based at UK and had made trip to Phagwara, Punjab and had sold land there. Obviously, he must have incurred expenses on travel as well as food and lodging. However, though the appellant is a citizen of UK, he is a person of Indian origin and had ancestral property at Phagwara, Punjab. It is quite reasonable to expect that his visit to Phagwara would also be utilized to meet friends and relatives etc. Moreover, as pointed out by the assessing officer, the expenses have been claimed for the period from 17.1.2011 to 2.2.2011, though the deal had been completed on 24.1.2011 and expenses incurred beyond that date could not have been incurred for purpose of deal. Therefore, it is different to accept the contention that the entire expenditure on the visit was wholly and exclusively for purpose of sale of land. It is would be more reasonable to say, that the expenses incurred on the visit were incurred partly for purpose of sale of land and partly for personal and social purpose. Considering all these facts, I am of the view that it would meet ends of justice if claimed for the said expenses on travelling, food and lodging is allowed to the extent of 50%.
3.4. Considering the above discussion the assessing officer is directed to reduce the disallowance of Rs.4.5 lacs to Rs. 1.5 lakhs.”
8. Before us the ld.AR reiterated the same submissions made before the authorities below. He further submits that all the details were submitted before the AO, but, he did not consider the same in terms of the transaction, which were related to the sale of said ancestral property. The CIT-A ought to have allowed the entire expenses of Rs. 3 lakhs. The assessee came to India to complete transaction of sale of ancestral landed property and the said expenditure were incurred during his stay in India i.e the period of sale of said property. The assessee is entitled to claim the remaining expenditure of Rs.1.5 lakhs towards other expenses and prayed to allow ground no.1 raised by the assessee.
9. On the other hand, the ld.DR argued that the break-up of other expenses and supporting evidences towards such claim were not given by the assessee before the AO & CIT-A. The assessee only produced some calculation and on that basis sought allowance without there being any evidence. For non submission of evidence the AO has rightly disallowed the same and relied on the order of AO.
10. Heard rival submissions and perused the material on record. We find that the facts relating to the issue in hand are that the assessee came to India to complete the sale transaction of the said ancestral property. During the sale transaction, the assessee stayed in India and incurred other expenses of Rs.3 lakhs towards airfare, fooding & lodging expenses. We find that the assessee did not produce any documentary evidence either before the AO or the CIT-A in support of the claim of towards lodging, fooding and travelling expenditure incurred by the assessee during the said transaction. However, the CIT-A considering the submissions of assessee has restricted the same to Rs.1.50 lakhs i.e. 50% of Rs. 3 lakhs under the head ‘other expenses’. In our opinion, it is quite, reasonable and justified in the facts and circumstances of the case. Therefore, our interference is uncalled for on this issue. We uphold the order of the CIT-A in restricting the same on this issue. Therefore, the ground no. 1 relating to other expenses is dismissed.
11. Ground nos. 2 & 3 relating to confirmation of disallowance of Rs.40,00,000/- towards claim of exemption u/s. 54EC of the Act by the CIT-A.
12. During the assessment proceedings the AO found that the assessee claimed exemption for an amount of Rs.40,00,000/- u/s. 54EC of the Act. But, for non-submission of any evidence of investment of Rs.40,00,000/- the AO show caused the assessee questioning why the claim to an extent of Rs. 40,00,000/- should not be disallowed. In reply, the assessee through a letter dt. 6-2-2013 stated that the assessee intended to purchase bonds of National Highway Authority of India, but due to seizure of Rs.49,00,000/- by the search team during the said search & seizure operation, the assessee could not actually invest the said amount as per section 54EC of the Act. The AO found the submission of the assessee not acceptable and for non submission of any evidence as required by him, disallowed the claim of exemption by stating as under:-
Disallowance of claim for exemption u/s. 54EC:
” 15. It is pertinent to note that the AR of the assessee vide order sheet noting dt.06.03.20 13 has submitted that the assessee had no bank account in India for the A.Y.2011-12. However, the assessee in his computation of income for the relevant A.Y.2011-l2 has claimed exemption u/s 54 EC of the Income Tax Act, 1961 to the extent of Rs. 40,00,000/- on account of ‘Proposed NHAI Bond) (Not made due to money seized)’. Section 54EC(I) of the Income Tax Act provides that
[Capital gain not to be charged on investment in certain bonds.
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 :
Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees. ] [Emphasis added]
16. In light of the above provision, the AR of the assessee vide order sheet noting dt.04.03.20 13 was requested to show cause why in the absence of evidence of investment made u/s. 54EC, the assessee’s exemption claim to the extent of Rs.40,00,000/- should not be disallowed. The AR of the assessee in his reply dt. 06.02.2013 submitted that the assessee ‘intended to purchase’ the National Highways Authority of India Bonds of Rs.40,00,000/- but failed to do the same due to seized cash amount of Rs.49,00,000/-. It is, therefore, evident that no actual investment u/s. 54EC of the Income Tax Act amounting to Rs.40,00,000/- was made by the assessee. The assessee has claimed the said exemption based on his intention to invest in such bonds however, the Section 54EC(1) of the Act specifically provides that exemption can be allowed ‘provided’ that the investment has been made within a period of six months from the date of transfer of the capital asset. In the instant case, it is evident that no investment as required u/s. 54EC was made by the assessee. Therefore, the exemption claimed u/s. 54EC to the extent of Rs.40,00,000/- is disallowed. “
13. Before the CIT-A in the first appellate proceedings, it was contested that the assessee received sale consideration on 24-012011 and the amount of Rs. 49 lakhs was seized by the IT Authorities on 26-01-2011 and, therefore, no money left in the hands of assessee. The assessee also submitted that within two days of receipt of sale consideration of the said property was seized by the I.T Authority. Further, it was contended that the seized amount was not received by the assessee and was not in possession of sale consideration to invest in specified bonds and as such, the assessee was prevented from making such investments. The assessee also submitted that the seized amount was in the account of the Government and the same was used for welfare of the country and the assessee is entitled to claim the benefit of exemption u/s. 54EC of the Act. The submission of the assessee before the CIT-A is reproduced herein below:-
4.1 The appellant has made the following submission in the matter:-
” The appellant had deducted an amount of Rs. 40,00,0001- as exemption U/s. 54EC while computing his capital gain. The Ld. Assessing Officer disallowed the same and made in his findings that” no actual investment U/s. 54EC of the Income Tax Act, 1961 amounting to Rs.40,00,000/- was made by the assessee. The assessee has claimed the said exemption based on his intention to invest in such bonds however, the section 54EC(1) of the act specifically provides that exemption can be allowed ‘provided’ that he investment has been made within a period of six months from the date of transfer of the capital asset. In the instant case, it is evident that no investment as required u/s. 54 C was made by the assessee. “
In this regard, I would like to draw the attention of your honour towards the dates of incidents and facts of the case. The appellant sold the property on 24th January 2011 and received the sale proceeds on 24th January 2011. The appellant while coming to Kolkata from Delhi after selling the land was brought under the proceedings of section ,132A of the Income Tax Act, 1961 on 26th January 2011 and on the same day the whole amount of the sate proceed was seized by the officials and taken away from the appellant. Ultimately the amount received by the appellant from the sale proceeds was taken over and the appellant had nothing in his hands. However the appellant while computing the capital gain had taken exemption of Rs. 40,00,000/- U/s. 54EC Of the Income Tax Act, 1961. Section 54EC of the Income Tax Act, 1961 states that: .
“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:”
It is to be noted that for the investment in specified bond within the time limit as specified in the above section the appellant must be in possession of the sale consideration which he had received by sale proceeds. The section explains about the exemption amount and the time limit of investments from the date of transfer but it is no where mentioned in the section about the receiving of the sale consideration or about the time limit o/keeping the sale proceedings received in hands. In the Present case the facts of the case clearly signifies that although the appellant had sold the asset but just within two days of this sale the whole amount of the sale consideration was seized by the Income Tax Authority of India. As such the appellant was prevented to invest the amount and hence in this circumstance the intention of the appellant had to be given a thought. Moreover it shall be noted by your honour that till date the seized amount is not been received by the appellant and hence it can be rightly concluded that the appellant was in no position to invest the amount as he was not having the possession of the sale consideration. It is to be note that the sale consideration was not laying anywhere else but, was in the account of the Government it elf. As such being the amount being ultimately used for the welfare of the country (as the amount was in Government’s account) the benefit U/s. 54EC should be provided to the appellant.
Further, we would like to submit that from the reading of section 54EC of the Income Tax Act 1961 it can be said that the exemption would be allowed to the assessee only when the amount of capital gain derived from the transfer of capital asset is invested in the long term specified asset. To clear it more, we can state that to make the investment in the specified asset the assessee will require cash realized from the transfer of the asset. In the instant case it was impossible for the appellant to make payments in specified bonds and in natural justice law cannot compel anybody to do the impossible which your honour clearly exist in the present case. It is to be noted that a taxing statue or any other statute has to be construed reasonably and every effort should always be made to ascertain the intention of the parliament from the words employed and, as far as possible, an interpretation which lead to absurdity should be avoided. If the consideration is not received or is not in the hands of the assessee the question of investing it does not arise and hence the exemption on provisional basis as computed by the appellant is justified and should be allowed.
Moreover to support the same [would like to refer the decision taken by the hon’ble lTAT, Calcutta Bench, in the case of [Chanchal kumar Sircar Vs. lNCOME TAX OFFICER Wd 32(1) (ITA No. 1146/kol/2011)] whereby it was held that – “In view of the above consistent principle adopted by Hon’ble High Courts in respect to interpretation of a beneficial provision i.e. exemption provision under capital gains tax, we have to take similar approach in deciding the issue in hand i.e. the claim of assessee for exemption u/s. 54EC of the Act because this is exactly similar to section 54E, 54B or 54EA or EB of the Act. In the present case before us, admittedly assessee received part payments after execution of agreement to sale and handing over of possession thereby completing the transaction in terms of section 53A of Transfer of Property Act but invested in specified bonds i.e. NABARD bonds within one month of the receipt of sale consideration being part payment. Hence, we are of the considered view that the assessee is eligible for exemption u/s.54EC of the Act on part payment received after completion of transaction on 02,07.2004 and as detailed out in para 3 page 3 of this order. AO is directed accordingly. This issue of assessee’s appeal is allowed. Similar are the facts in ITA No. 1146/Kol/2011 in the case of Shri Chanchal Kr. Sircar, hence AO will allow exemption in this case also.
I would like to draw the attention of your honour towards the decision taken in the case of Mahesh Nemichandra Ganeshwade Vs. income tax officer ([2012]17 ITR (trib.)116(pune)) wherein the Hon’ble ITAT had made the following decision – “Though s. 54EC requires the investment to be made within 6 months of the date of transfer, a technical interpretation cannot be adopted but it has to be interpreted having regard to the purpose and spirit of the section. In Circular No. 791 dated 2.6.2000 the CBDT held in the context of capital gains arising u/s. 45(2), that though the transfer arises in the year of conversion of a capital asset into stock-in-trade, the period of 6 months for investment u/s. 54E has to be reckoned from the date of sale of the stock-in-trade. The CBDT appreciated the impossibility of the assessee being able to invest the amount in specified assets within six months from the date of transfer. This interpretation of the CBDT supports the assessee’s claim that where the consideration is received much after the date of transfer and it is not possible to invest the same within 6 months of the date of transfer, the period of 6 months must be reckoned from the date of receipt of consideration.”
“Keeping in consideration the above decisions given by the Hon’ble courts and the facts of the case and in the present circumstances the exemption of section 54EC is justified and must be allowed as the appellant was not in possession of the consideration received but claiming the exemption in his computation clearly shows his intention of investment. The Ld. Assessing Officer was not justified in not considering the facts of the case and ignored the fact that the appellant was not having the cash with himself and was prevented to make the investment in the specified bonds and vehemently and wrongly disallowed the exemption without considering the merits of the case.”
14. The CIT-A considering the submissions of the assessee confirmed the order of the AO by observing that the assessee could have arrange funds from some other sources to make the investment within prescribed time. Relevant portion is reproduced herein below:
“4.2 It is undisputed, that the appellant has not made any investment in eligible bonds within the prescribed period. However, the appellant has stated that he intended to make investment but could not do so because of the money being under seizure. The appellant has also referred to the decisions of the tribunal in the cases of Chanchal Sirkar (supra) and Mahesh Nemichandra Ganeshwada (supra). On going through the said decisions, it is seen, that they were delivered on entirely different facts. In both the cases, investments had been made but there was some delay due to late receipt of sale consideration. In the appellant’s case, on the other hand, no investment has been made at all. It is true that cash out of sale receipt has been seized by the department but the appellant could have arranged funds from some other source to make investment within the prescribed time, if he wanted to avail the exemption. The provisions of section 54EC are quite categorical and no exemption can be granted in absence of actual investment. Considering this, the disallowance of exemption of Rs. 40 lakhs is upheld. “
15. Before us the ld.AR submits that there was no money left with the assessee to invest in the bonds required u/s. 54EC of the Act. Further, it was argued that if the money was with the assessee, he could have invested the same as required u/s. 54EC of the Act to claim exemption thereon. The whole amount was seized within 2 days of sale rarely prevented the assessee to invest in the specified bonds. The assessee has rightly claimed the exemption u/s. 54EC as the money was kept in the account of government and it should be treated as investments made in specified bonds required to be invested under the scheme of National Highway Authority. The ld. AR argued that the finding of the AO is incorrect and the finding of the CIT-A is perverse and referred to para 4.2 of the CIT-A’s order. The ld.AR also argued that the CIT-A was wrong in observing that the assessee could have arranged from other sources to make investment within prescribed time and as such finding of the CIT-A is uncalled for in view of peculiar circumstances in the present case. The ld.AR prayed to allow the ground nos. 2 & 3 by treating the sum of Rs. 40 lakhs as if invested in the Bonds.
16. On the other hand, the ld.DR submits that in order to claim exemption u/s. 54EC of the Act, the assessee must show the investment made as per provisions of relevant section. The assessee failed to show any investment before the AO and CIT-A for claim of exemption and submission of as seized amount is being in the Government account and it should be treated invested in bonds, which is not tenable at all in the facts and circumstances of the present case. He relied on the orders of the AO & CIT-A. He urged to dismiss grounds 2 and 3 raised by the assessee.
17. Heard rival submissions and perused the material on record. It is an admitted fact that the amount in question to the extent of Rs. 49,00,000/- was seized by the IT Authority. The facts in respect of sale of land, search & seizure operation, issuance of notice u/s. 153A of the Act and filing of return for the A.Y under consideration are undisputed. It is also not disputed that the amount of sale of said land was lying in the custody and in the account of Government. We find that in response to notice issued u/s. 153A of the Act, the assessee filed his return of income on for the A.Y under consideration and claimed exemption of Rs.40,00,000/- u/s. 54EC of the Act. Both AO & CIT-A have denied the claim of exemption of Rs.40,00,000/- for want of proper evidence showing the capital gains were invested in specified bonds i.e provided by the Government of India, National Highway Authority Bonds (NHAI). The deduction u/s. 54EC of the Act is permissible if the amount representing the long term capital gain is invested in specified bonds within prescribed time. In the present case, the assessee had admitted that he had not made any investments in specified bonds notified u/s. 54EC of the Act. The assessee only claims that since the major portion of the sale proceeds of the property amounting to Rs. 49,00,000/- was seized by the Income-tax Department pursuant to search on 26-01-2011. No money was left with the assessee to make investments in specified bonds. Since the monies were lying to the account of the Central Government, the ld.AR pleaded that the same should be construed as amount being invested by the assessee as per section 54EC Bonds. This argument of the ld.AR cannot be accepted and is untenable in law. We find that the assessee had not taken any steps to recover the said seized cash for onward investment in 54EC Bonds or had not communicated to the AO regarding his intention of doing so. The assessee made a claim of deduction u/s. 54EC in the return of income without making any investment in the notified bonds as per section 54EC of the Act. The ld. AR also argued that a situation of impossibility of performance that the law cannot compel a man to perform, which he could not possibly perform. In our opinion, this argument would not come to the rescue of the assessee in as much as claim of deduction u/s. 54EC of the Act, which is governed by certain conditions to be complied with. Section 54EC mandates that investment in specified bonds to be made within prescribed time by the assessee either out of sale proceeds of capital asset or out of any other means. In the present case, admittedly the assessee had not made any investments in the specified bonds as per provisions of section 54EC of the Act, which has rightly been denied by the AO and confirmed by the CIT-A. In view of aforesaid discussion, we hold that since no amount was invested in the specified bonds mandated u/s. 54EC of the Act, the lower authorities have rightly rejected the claim of assessee in this regard. We uphold the order of the CIT-A. Accordingly, the ground nos. 2 & 3 raised by the assessee in this appeal are dismissed.
18. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 09-02-2018
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