In a recent ruling, the Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) allowed the declaimed by the assessee under Section 54EC of the Income Tax Act,1961 as the assessee was able to establish a nexus between property sale advance and the National Highway Authority of India ( NHAI ) bond investment.
The case is related to the sale of a property in Andheri, Mumbai, a property initially bought in 1959 by the appellant’s relatives. Upon the passing of co-owners, ownership interests were distributed among the surviving family members, including the appellant. In 2008, a part of this property was sold for a stated amount of Rs. 8.25 crore.
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However, the Assessing Officer (AO) recalculated this value based on the prevailing market rate at that time, concluding a much higher figure. The Commissioner of Income Tax directed AO to adopt a third of the original sale consideration to be used as the property’s sale price. Disagreements over this valuation led both the assessee and the Revenue to appeal, resulting in ITAT’s remand for recalculation based on the fair market value.
Later on, the Commissioner of Income Tax ( Appeals ) [ CIT(A) ] upheld the addition of Rs. 50,00,000 made by the AO.
The primary issue under the present appeal is the admissibility of a deduction claimed under Section 54EC of the Income Tax Act,1860 for an investment of Rs. 50,00,000 in bonds of the National Highway Authority of India (NHAI).
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The counsel on behalf of the assessee submitted her bank statement, showing a direct link between the advance received from the property sale and the investment in NHAI bonds.
The counsel referred to a 1983 CBDT circular and a judgment by the Bombay High Court, which permitted Section 54EC of the Income Tax Act deductions when investments were made from earnest or advance payments before formal transfer.
The ITAT observed that the purpose of Section 54EC of the Income Tax Act,1961, was to encourage investments in specified bonds, not to penalize timing discrepancies in receipt of sale proceeds.
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The ITAT comprising Annapurna Gupta ( Accountant Member ) and Siddhartha Nautiyal ( Judicial Member ) held that the assessee is eligible to claim deduction under Section 54EC of the Income Tax Act,1961 since the assessee has been above to establish the direct nexus between the advance so received by the assessee towards the sale of property and the investment made by the assessee in NHAI Bonds.
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