• Kandivali West Mumbai 400067, India
  • 022 39167251
  • support@email.com
December 21, 2022

Section 54 exemption can’t be denied merely because of delayed in deposit in Capital Gain Scheme

Section 54 exemption can’t be denied merely because of delayed in deposit in Capital Gain Scheme

Facts and issue of the case

The facts of the case the assessee filed return for assessment year 2016-17 declaring business loss of Rs. 4,90,125/- and claimed a refund of Rs. 8,94,050/-. The case of the assessee was selected for complete scrutiny and statutory notices were issued. On December 22, 2018, a disallowance of Rs. 5,70,95,075 was made in the assessment order. According to the Ld. AO, the assessee failed to deposit the selling consideration in CGAS before the deadline for filing income under Section 139(1) of the Act, and as a result, the assessee’s total income was increased by the amount as Long Term Capital Gain. Aggrieved by the assessment order dated 22.12.2018, the assessee has preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 19.01.2019 allowed the appeal of the assesse Aggrieved by the order dated 19.01.2019, passed by the CIT (A) the filed appeal to the ITAT

Observation of court

The Ld. DR vehemently argued that although there was a 31-day delay in depositing the money into the capital gain account and the assessee had not complied with section 54(2)’s requirements, the Ld. CIT(A) had made an error by deleting the addition of Rs. 5,07,95,075 made pursuant to section 54(1) of the Income Tax Act.

The assessee’s legal counsel argued that section 54(1) is an obligatory provision and section 54(2) is just a procedural clause. By investing in the residential property within the allotted three-year period, the assessee has satisfied with the requirements of Section 54(1).. Therefore, by relying on the various judicial pronouncement, submitted that the order of the Ld. CIT(A) is well reasoned and which requires no interference.

The following facts must be brought to the attention of the court in order to decide the lawsuit between the revenue and the assessee. On March 31, 2016, the assessee sold a 1/4 interest in a residential property in New Delhi for Rs. 8,750,000. The assessment order’s calculations show that the assessee has a long-term capital gain of Rs. 6,20,94,441.. The assessee claimed deduction under section 54 of the Act for Rs. 5,70,94,441/- for construction of new house. Ld. AO denied the claim under section 54(1) of the Act made by the assessee on the ground that the amount remained uninvested till 05.08.2016 which was due date of filing the ITR under section 139(1) of the Act. The capital gain account deposit was delayed by 31 days. Therefore not eligible for deduction under Section 54(1) of the Act.

There is no disputing the fact that the money was deposited into the capital gain account 31 days after the necessary date for making a return under section 139(1) of the Act for the assessment year 2016–17, which was 05.08.2016. However, the assessee made a deposit of Rs. 1 crore into the capital gain account on September 26 and September 27, 2016. Further it is also not in dispute that the assessee had paid the entire capital gain deposits along with interest accrued thereon directly from the capital gain deposit to the parties for expenses relating to construction for new house between 02.11.2017 to 03.02.2018 within three years, in compliance with Section 54(1) of the Act.

In other words the assessee has spent Rs. 5,70,95,075/- towards construction of new house on or before 03.02.2018 i.e. well within the due date of filing return under section 139(4) of the Act, that was 31.03.2018The question that remains is whether or not the department can deny the assessee the benefit under section 54 of the Act if there is a delay of 31 days in depositing Rs. 2 crore out of Rs. 5,70,95,075 (a Long Term Capital Gain) and if the assessee has invested the entire amount towards the purchase of plots for house construction .The intention of the legislature in section 54 of the Act is very much clear that an assessee who receives the sale consideration has to invest in the new house within specified time framed. Merely because the assesssee has not able to deposit or deposited with a delay of 31 days in the capital gain account he cannot be denied with the benefit of section 54(1) of the Act. The above view has been fortified by the judgment of Hon’ble High Court of Karnataka in the case of CIT Vs. Ramachandra Rao wherein the very same substantial question of law has been decided in favour of the assessee

Hon’ble Judicature at Madras in writ Petition No. 16249 of 2018 in the case of Venkata Dilip Kumar Vs. CIT relying on the judgment of Hon’ble High Court of Karnataka in ITA No. 47/2014 (CIT Vs. Ramachandra Rao 163 (Karnataka), held as under:- .

 “The contention of the Revenue to deny the benefit of deduction to the petitioner/assessee cannot be justified for the following reasons: Section 54(2) cannot be read in isolation and on the other hand, application of Section 54(2) should take place only when the assessee failed to satisfy the requirement under Section 54(1). While the compliance of requirement under Section 54(1) is mandatory and if complied, has to be construed as substantial compliance to grant the benefit of deduction, the compliance of requirement under Section http://www.judis.nic.in 54(2) could be treated only as directory in nature. If the assessee with the material details and particulars satisfies that the amount for which deduction is sought for under Section 54 is utilised either for purchasing or constructing the residential house in India within the time prescribed under Section 54(1), the deduction is bound to be granted without reference to Section 54(2), which compliance in my considered view, would come into operation only in the event of failure on the part of the assessee to comply with the requirement under Section 54(1). Mere non compliance of a procedural requirement under Section 54(2) itself cannot stand in the way of the assessee in getting the benefit under Section 54, if he is, otherwise, in a position to satisfy that the mandatory requirement under Section 54 (1) is fully complied with within the time limit prescribed therein.”


The Tribunal held that relying on the above judicial pronouncements section 54 exemption can’t be denied merely because of delayed in deposit in Capital Gain Scheme . CIT(A) has rightly deleted the addition of Rs. 5,70,95,074/- made u/s 54 of Income Tax Act . Accordingly, we do not find merit in the Grounds of Appeal of the Revenue. In the result, grounds of Appeal of the Revenue fails, consequently the Appeal filed by the Revenue is dismissed.


Enter your email address:

Subscribe to faceless complainces

Please follow and like us:
Pin Share
Follow by Email