Section 54EC and Circular No. 142/9/2006 TPL, dated 30.6.2006 — Non-availability of bonds qualifying for deduction u/s 54EC is a reasonable cause for not purchasing the bonds within the time specified in s. 54EC—Since the assessee purchased the bonds as s

During the year, the assessee sold its factory building which
formed a part of its block of assets. The capital gain of Rs. 49,36,293 arising
from the sale of the factory building was claimed to be deductible u/s 54EC. The
bonds qualifying for deduction u/s 54EC were not available and as a result of
various representations, the CBDT had extended the time period for subscribing
the bonds upto 31.12.2006, vide its Circular No. 142/9/2006 TPL, dated
30.6.2006. Before filing the return of income, the assessee had deposited Rs. 50
lakh through a fixed deposit with the State Bank of India and had in a letter
intimated to the banker that the fixed deposit would be encashed as soon as the
bonds were available. Along with the return of income, the assessee had appended
a note explaining the factual position and stating that it will subscribe to the
bonds as soon as the same were available. The bonds were available on 22.1.2007
and the assessee applied for them on 27.1.2007, whereupon the bonds were
allotted to him on 31.1.2007.

The Assessing Officer held that since the capital asset
transferred formed a part of the block of assets,
s. 50 deems the gain arising on transfer thereof to be a short-term capital gain
arising from the transfer of a short term capital asset. He also held that
though the circular extended the time period up to 31.12.2006, the bonds had
been purchased on 31.1.2007 which was beyond the due date specified. He,
therefore, disallowed the claim of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A),
who held that following the ratio of the decision of the Bombay High Court in
the case of Ace Builders P. Ltd. 281 ITR 210 (Bom), the assessee was entitled to
deduction u/s 54EC, subject to satisfaction of conditions stated therein. Since
the bonds were not subscribed to by the due date extended by the CBDT circular,
the assessee was held not to be entitled to deduction u/s 54EC.

On the basis of facts, the Tribunal held that it was an
impossible task for the assessee to comply with the time period laid down u/s
54EC. The delay in purchase due to non-availability of the bonds was held to be
a reasonable cause, and the assessee was held to be entitled to exemption u/s
54EC. The Tribunal also noted that in the case of Ram Agarwal 81 ITD 163, on
similar facts, it had been held by the Tribunal that the assessee was entitled
to claim deduction u/s 54EC. The Tribunal allowed the appeal of the assessee.