Deduction u/s. 54EC must be Allowed on the basis of Actual Consideration, S. 50C has No Application: ITAT Kolkata

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In a recent ruling, the ITAT, Kolkata held that deduction under section 54EC of the Income Tax Act must be allowed on the basis of actual sale consideration received by the assessee.

The bench further clarified that deeming provision of Section 50C of the Income Tax Act cannot be applied in such cases.

The assessee, in the instant case, sold his capital asset and made investment for ₹18 lakh in the asset as specified under Section 54EC of the Income Tax Act for the purpose of deduction from the capital gains. The Assessing Officer in his assessment order has invoked the provision of Sec. 50C of the Act for the computation of Long Term Capital Gains on account of sale of impugned property. Since the assessee did not declare sale consideration as per the provision of Sec. 50C of the Act, the AO disallowed the claim of assessee and determined the capital gain as per the provisions of section 50C of the Act.

Before the appellate authorities, assessee contended that the AO has accepted the actual consideration received by the assessee on account of sale of the impugned property for the purpose of deduction u/s. 54EC of the Act. the first appellate authority, however, confirmed the assessment order.

As per Sec. 54EC of the Act, assessee is entitled to exemption from the Long Term Capital Gains in situations where the capital gains arose from the transfer of Long Term Gain asset and the whole or any part of the said capital gains is invested in certain specified securities within six months from the date of transfer.

On second appeal, the Tribunal noted that the provisions for Section 54EC of the Act require to make investment in the specified securities on the basis of actual sale consideration and not on the basis of deeming amount of consideration as envisaged in section 50C of the Act. Whereas the provision of Sec. 50C of the Act provides for deemed value of consideration adopted as per the Stamp Valuation Authority for the purpose of capital gain.

It was stated that “in the instant case the impugned property was sold at a value lesser than the value adopted for the purpose of stamp duty. Therefore the valuation determined for the purpose of stamp valuation is taken as sale consideration. However, such deeming provision cannot be applied to the provision of law as specified Section 54EC of the Act. Accordingly, the deduction u/s 54EC of the Act in the instant case shall be limited to the amount of ₹18 lakh i.e. actual investment. However, for the computation of capital gain the provision of deeming sale consideration shall be applied as specified under section 50C of the Act i.e. ₹35,76,180/-. In view of the above, the AO is directed to compute the capital gains after taking the sale consideration at Rs. 35,76,180.00 as per the provisions of section 50C of the Act. But for the purpose of deduction u/s. 54EC, the sale value would be taken at ₹18.99 lacs which is the actual sale consideration.”

Read the full text of the Order below.

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