S. 54F Exemption cannot Be Denied for Non-Deposit in Capital Gain Account if Entire Sale Consideration already Invested in Plot: ITAT [Read Order]
The objective of Section 54F is to promote investment in residential house and it is quite obvious that the cost of the plot is circumscribed into the cost of the house. There is no requirement under the law that capital gain account is to be opened by the assessee particularly when he has invested the entire sale receipts, said the bench.
capital - gain - exemption - Taxscan
capital - gain - exemption - Taxscan
The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that exemption under Section 54F of the Income Tax Act, 1961, cannot be denied merely because the assessee did not deposit the sale proceeds in the Capital Gain Account Scheme (CGAS), if the entire sale consideration had already been invested in the purchase of a plot.
The assessee, Prem Raj Singh, had sold urban agricultural land and claimed exemption under Section 54F on the ground that he invested ₹1.15 crore in the purchase of a residential plot.
The Assessing Officer (AO) rejected the claim, holding that the assessee purchased only a plot and had not constructed a house, further noting that he had not deposited the capital gains in the CGAS as required under the law.
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Thus, the AO made an addition of ₹1.34 crore as long-term capital gains. Also, the CIT(A) dismissed the assessee’s appeal by passing a brief order without dealing with the substantive issues raised.
The assessee filed an appeal before the tribunal. The bench observed that the assessee had already invested the entire sale consideration in the purchase of the plot before filing his income tax return, and therefore there was no occasion to deposit the unutilized amount in the Capital Gain Account Scheme.
The Tribunal said that “We find that the assessee has made substantial compliance by making investment in the plot even before filing the income tax return. When he had already invested the amount there could not be any occasion to deposit the same under Capital Gain Account Scheme.”
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“The objective of Section 54F is to promote investment in residential house and it is quite obvious that the cost of the plot is circumscribed into the cost of the house. There is no requirement under the law that capital gain account is to be opened by the assessee particularly when he has invested the entire sale receipts,”said the bench.
Thus, denial of exemption on the ground of non-deposit in CGAS was not justified. At the same time, the bench of Khettra Mohan Roy and Madhumita Roy noted that the AO made modifications in the computation of capital gain and directed the AO to recompute the capital gains correctly after considering the assessee’s submissions and evidence, making it clear that the assessee must be given a proper opportunity of hearing.
Accordingly, the ITAT allowed the appeal for statistical purposes and remitted the matter back to the AO.
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