Deduction u/s 54F Cannot be Denied for Non-Deposit of Sale Proceeds Before Filing Return: ITAT [Read Order]
The Tribunal observed that courts have consistently held such deposits to be procedural and that the main condition under Section 54 investment in a new property within the prescribed period was satisfied.
The Chennai Bench of Income Tax Appellate Tribunal ( ITAT) held that deduction under Section 54F of Income Tax Act,1961, cannot not be denied solely for non-deposit of unutilized sale proceeds before filing the return.
Krishnamoorthy Vijayaraghavan, appellant-assessee, had not filed his return of income for the assessment year 2010-11. Based on information that he had sold an immovable property during the year, the Department reopened the assessment by issuing a notice under section 148 on 31.03.2017. In response, he filed his return on 27.04.2017, declaring an income of ₹6,89,617.
During the assessment proceedings, the AO observed that the assessee had invested in a new residential property only on 19.01.2012. Since the investment was made after the due date for filing the return under section 139(1) and without depositing the unutilized sale proceeds in the Capital Gains Account Scheme, the AO denied the claim for exemption under section 54.
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The assessee contended that the investment was made within three years from the date of sale and thus eligible for exemption. However, the AO rejected this explanation and added the amount to the total income.
On appeal, the First Appellate Authority (FAA) upheld the AO’s decision, holding that the assessee had not furnished any evidence to prove that the sale proceeds were utilized for investment within the prescribed three-year period. Aggrieved by this order, the assessee filed the present appeal before the tribunal.
The assessee counsel submitted that the appeal was about the disallowance of ₹10,27,558 under Section 54, which was upheld by the First Appellate Authority. It was argued that the NFAC order was incorrect as the assessee had invested the capital gains in a new house within the prescribed time. Since the main condition was met, the deduction could not be denied only because the amount was not deposited in the Capital Gains Account Scheme before the due date.
The counsel stated that courts had held that such deposits were only procedural and that Section 54 should be interpreted liberally, as it aimed to promote investment in housing. The AO had also accepted that a new property was purchased. Therefore, disallowing the claim only on technical grounds was not justified. The counsel requested that the disallowance of ₹10,27,558 be deleted and the full deduction allowed.
The Departmental Representative argued that the assessee had not provided enough details about the cost and completion of the new property and suggested sending the matter back to the AO for verification.
The two member bench comprising George George K (Vice President) and S.R. Raghunatha (Accountant Member) heard both sides and examined the records. It found that the Assessing Officer had denied the deduction under Section 54 only because the assessee had not deposited the unutilized sale proceeds in the Capital Gains Account Scheme before the due date for filing the return. The FAA had upheld this view, stating that details of the new investment were not provided.
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The appellate tribunal referred to its earlier decision in Avanasiyappan Eswaran vs. ITO and the Madras High Court ruling in Venkata Dilip Kumar vs. CIT, which held that not depositing the unutilized amount in the Capital Gains Account Scheme before the due date under Section 139(1) was not a valid reason to deny exemption if the investment in a new property was made within the prescribed time.
In this case, the assessee had sold the original property on 01.04.2009 and invested ₹34,15,040 in a new residential property by purchasing land and entering a construction agreement in January 2012, well within the three-year limit. This investment was also acknowledged by the AO in the assessment order.
The tribunal, therefore, held that the assessee had met the required conditions and was entitled to deduction under Section 54 amounting to ₹10,27,558. It accordingly deleted the disallowance and allowed the appeal.
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