In an assessee-friendly ruling, the Income Tax Appellate Tribunal (ITAT), Chennai bench has held that the capital gain deduction under section 54 of the Income Tax Act, 1961 cannot be disallowed to the assessee due to non-compliance of mere procedural requirement like non-investment in Capital Gains Deposit Scheme.
The assessing officer rejected the deduction claim by the assessee, a salaried individual under Section 54F of the Act by finding that he failed to invest an unutilized portion in Capital Gains Deposit Scheme.
On appeal, the first appellate authority confirmed the order. Therefore, the assessee approached the Tribunal contending that he invested the capital gains within the time stipulated under Section 54F of the Act. It was further claimed that the assessee out of abundant caution also filed his return of income within the due date specified under Section 139(1) of the Act claiming exemption under Section 54F of the Act including the amount which had not been utilized before the due date.
Allowing the contentions of the assessee, the Tribunal observed that “we have heard the rival submissions and perused the material available on record. After examining the facts and case laws relied on by the assessee, we find that mere noncompliance of a procedural requirement under Section 54(2) itself cannot stand in way of assessee in getting benefit under Section 54 if he is, otherwise, in a position to satisfy that mandatory requirement under Section 54(1) is fully complied with within time limit prescribed therein. Therefore, we direct the A.O. to allow the total investments made by the assessee under Section 54F of the Act after satisfying whether the impugned investment was utilized for the construction of the house within the time limit specified under Section 54F of the Act.”