Section 54EC Relief available Even If Cheque Cleared after 6 Month Limit

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Mumbai ITAT has held in an important case namely Kumarpal Amrutlal Doshi vs. DCIT (ITAT Mumbai) that relief u/s 54EC shall be available even if the bonds are issued after the requisite period of 6 months for investment, if the cheque is issued within the period of 6 months but cheque is encashed after the requisite period and bonds are also issued after the requisite period of 6 months.

Brief Facts: On 9.8.2005 (AY 2006-07) the assessee earned LTCG on sale of land. U/s 54EC, NABARD bonds were a “specified asset” till 31.3.2006 and the assessee had time till 9.2.06 (6 months) to make the investment. The assessee issued a cheque on 7.2.06 and sent it by courier to NABARD. The cheque was encashed on 13.2.2006 and the bonds were allotted on 15.2.06. The AO & CIT(A) rejected the claim on the ground that (i) NABARD bonds were not a “specified asset” as of 1.4.06 & (ii) the investment was not within 6 months of the transfer.

Verdict: On appeal to the Tribunal, the appeal was allowed and the following decision was made:

(i) The department’s argument that for AY 2006-07 only the “specified assets” as of 1.4.06 should be considered is not acceptable. Instead, the law as it stood on the date of transfer of the capital asset has to be applied;

(ii) When a payment is made by cheque, then the ‘date of payment‘ is the ‘date of the cheque‘ even though the cheque may be encashed subsequently. As the cheque was issued within 6 months of the transfer, s. 54EC relief was available even though the cheque was encashed, and bonds were allotted, later.