No disallowance u/s 54EC for delay in cheque clearance for purchase of REC Bonds

No disallowance u/s 54EC for delay in cheque clearance for investment in REC Bonds which was attributable to the banking channel – ITAT

ABCAUS Case Law Citation:
ABCAUS 2722 (2019) (01) ITAT

This appeal by the assessee was directed against the order of the Commissioner of Income Tax (Appeals) in disallowing exemption u/s 54EC of the Income Tax Act, 1961 (the Act) on the ground that the investment in REC Bonds was made beyond the stipulated time.

Against the long term capital gain (LTCG) earned on transfer of immovable property, the assessee had claimed deduction u/s 54EC by showing an investment in the Rural Electrification Corporation (REC) bonds.

As per section 54EC, the assessee is required to make investment in the specified bonds within six months from the date of the transfer of immovable property.

The case of the assessee was that he issued the cheques for investment in REC within the stipulated time though they were presented to the bank and were debited in assessee’s bank accounts after the stipulated time limit.

However, the AO held that the assessee had invested in REC bonds beyond the permissible time limit for claiming exemption u/s 54EC of the Act and accordingly, the AO disallowed the said exemption claimed by the assessee and added to the total income of the assessee.

The CIT(A) did not agreed with the assessee’s contention and upheld the AO’s action.

The Tribunal noted that note that the assessee had duly issued the cheque for the investment in accordance with the act. The delay of the bank in clearing the amount was a meager delay of only four days which was attributable to the banking channel.

The Tribunal opined that opinion, adverse inference could not be drawn against the assessee on the technical ground of delay of merely four days in clearance of the cheque.

Accordingly, the Tribunal set aside the orders of the authorities below and decided the issue in favour of the assessee.

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