Exemption u/s 54EC allowed for delayed investment in REC Bonds

ITAT allowed exemption u/s 54EC for delayed investment in REC Bonds as the sale consideration was received late. 

In a recent judgment, ITAT Pune allowed exemption under section 54EC for delayed investment in REC Bonds as the receipt of sale consideration was not in the control of the assessee who invested in the Bonds, immediately after the receipt of sale consideration

ABCAUS Case Law Citation:
4602 (2025) (06) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) of NFAC in inter alia holding that the assessee was not entitled to exemption u/s 54EC of the Income Tax Act, 1961 (the Act) in respect of the investment in REC bonds as the assessee had not invested in bonds within a period of six months from the date of transfer of the asset.

The appellant assessee was an Individual who filed Return of Income for relevant Assessment Year.  The assessee’s Return of Income was selected for limited scrutiny on the ground to verify assessee’s sale consideration, claim of deductions, turnover etc.  The Assessing Officer passed the original assessment order under section 143(3) accepting the Returned Income. 

Subsequently, The Principal Commissioner of Income Tax-2, Nashik issued a notice under section 263 of the Act setting aside the order under section 143(3) for denovo adjudication.  Accordingly, the Assessing Officer passed an order u/s.143(3) r.w.s. 263 of the Act. 

The AO denied the assessee’s claim of deduction under section 54F and u/s 54EC of the Act and also made addition u/s 50C of the Act. 

The Tribunal observed that the assessee had made investment in REC Bonds in the month of September of the relevant Assessment Year.  The Assessing Officer had not allowed deduction u/s 54EC of the Act, as the Investment was beyond a period of six months from the date of the sale.  However, the Assessee had submitted before the CIT(A) that Assessee had not received the entire sale consideration on the date of agreement.  Assessee had also submitted before the CIT(A) that the last installment was received on July during the Assessment Year only. 

The Tribunal perused the Bank Statement and the Ledger Account and observed that major part of the Sale Consideration was received in July only.  The Assessee had invested the sale consideration in REC Bonds in September.  In this case, all the conditions had been satisfied by the assessee for availing deduction u/s 54EC of the Act. 

The Tribunal noted that the delayed receipt of sale consideration was not in the control of the assessee.  However, Assessee had invested in REC Bonds, immediately after the receipt of sale consideration.

The Tribunal further observed that the Co-ordinate Bench had decided a similar issue where the assessee has explained that he could not make the investments within six months from the date of transfer, because the consideration was received on subsequent dates. The Bench noted on the requirement of section 54EC that investment in specified assets is to be made within a period of six months from the date of transfer, was clarified by the CBDT in Circular no. 791 dated 02-06-2000. It was stated by the CBDT that the period of six months for making investment in specified assets has to be reckoned from the date of the sale of such stock-in-trade when the right to collect sale consideration in such cases arose, which was much after the date of transfer as contemplated for the purpose of taxation.

The Co-ordinate Bench held that the interpretation placed by the CBDT to the condition of making investment within six months from the date of transfer in section 54EC would support the claim of the assessee as the amount of sale proceeds had been received by the assessee much after the date of transfer.

Therefore, following the judgment of the Co-ordinate Bench and placing reliance on the judgments of the Hon’ble Bombay High Court and Hon’ble Karnataka High Court the Tribunal held that assessee was eligible for deduction u/s 54EC of the Act.   

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