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May 27, 2021

Deduction u/s 54EC eligible if Investment in Bonds made within 6 months from Transfer

Deduction u/s 54EC eligible if Investment in Bonds made within 6 months from Transfer

What is section 54EC of the Income Tax Act?

Exemption under section 54EC of the Income Tax Act is available on Capital Gains on sale of any long-term capital asset being land or building or both and invested in NHAI or REC Bonds.

A taxpayer can claim exemption u/s 54EC if all the below conditions are satisfied:

  • Any assessee can claim exemption u/s 54EC. Therefore, an Individual, HUF, Company, LLP, Firm, etc can claim this exemption.
  • The asset sold is a Long-Term Capital Asset (LTCA) being Land or Building or Both. The asset is long Term if it has been held for more than 24 months.
  • Capital Gains are invested within 6 months from the date of transfer.
  • Investment can be made in the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), or Any Other Bonds notified by the Central Government.
  • The investment amount cannot be more than Rs. 50 lakhs during the current and succeeding financial year.

The Amount of Exemption under Section 54EC will be least of the following:

  • The Cost of NHAI/REC Bonds
  • The Capital Gains on the sale of land or building.

Withdrawal of exemption claimed under section 54EC

When bonds are sold within 5 years from the date of purchase, then the exemption u/s 54EC is withdrawn. The amount of exemption availed will be reduced from the cost of the asset. Capital Gains will be the total sales value minus the cost of the asset.

Fact and Issue of the case

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-7, Kolkata dated 17.01.2018 and the solitary issue involved therein relates to the addition of Rs.6,14,674/- made by the Assessing Off icer and confirmed by the ld. CIT(Appeals) on account of long- term capital gain.

The assessee in the present case is an individual, who filed his return of income for the year under consideration on 04.12.2014 declaring total income of Rs.5,96,040/-. In the said return, long-term capital gain arising for sale of residential property amounting to Rs.6,14,674/- was declared by the assessee and the same was adjusted against the loss of Rs.8,64,542/- arising from the commodity share transaction. Since the loss from commodity share transaction was not eligible for adjustment against the long-term capital gain arising from the sale of residential property, the Assessing Off icer disallowed the claim of the assessee for such adjustment and made an addition of Rs.6,14,674/- to the total income of the assessee on account of long-term capital gain in the assessment completed under section 143(3) vide an order dated 07.11.2016.

Against the order passed by the Assessing Off icer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), a new claim was made by the assessee seeking exemption of long-term capital gain on account of investment made in long-term capital gain bond by virtue of section 54EC of the Act. The ld. CIT(Appeals), however, found that the said investment was made by the assessee after a period of six months stipulated in the relevant provision and the assessee, therefore, was not entitled for exemption under section 54EC of the Act on account of long- term capital gain. He, therefore, disallowed the claim of the assessee and confirmed the addition made by the Assessing Off icer on account of long- term capital gain. Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.

Observation of the tribunal

The tribunal has heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the long- term capital gain of Rs.6,14,674/- had arisen to the assessee as a result of residential property sold on 12.06.2013 and in order to claim exemption on account of long- term capital gain under section 54EC of the Act, the assessee was required to make investment in the eligible bonds within six months from the date of transfer of the long-term capital asset i.e. 12.12.2013. Since the investment in the eligible bonds was admittedly made by the assessee on 21.01.2014 i.e. after the period stipulated in section 54EC, I find myself in agreement with the ld. CIT(Appeals) that the assessee is not entitled for the exemption under sect ion 54EC.

Even the ld. Counsel for the assessee has not been able to raise any material contention to dispute this position. He has only submitted that the assessee wanted to invest the long- term capital gain in purchase of another residential property and unable to find the suitable property, he finally invested the amount in long- term capital gain bonds on 21.01.2020. In my opinion, this aspect is irrelevant to decide the eligibility of assessee for exemption under sect ion 54EC, which specifically provides that the investment ineligible bonds is required to be made by the assessee within a period of six months from the date of transfer of the long-term capital asset in order to claim the exempt ion on account of long- term capital gain. The Tribunal, therefore, find no merit in this appeal of the assessee and dismiss the same.

Conclusion

The Tribunal dismissed the appeal

Read the full order from below

Deduction-us-54EC-eligible-if-Investment-in-Bonds-made-within-6-months-from-Transfer

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