No denial of exemption u/s 54F merely for non deposit of consideration in capital gain account

Exemption u/s 54F can not be denied merely because assessee did not deposit net sale consideration in capital gain account 

In a recent judgment, ITAT Chennai has held that exemption u/s 54F can not be denied merely because assessee did not deposit net sale consideration in capital gain account without examination of compliance of investment in new asset.

ABCAUS Case Law Citation:
4590 (2025) (06) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre (NFAC) in confirming the denial of exemption/deduction claimed under section 54F of the Income Tax Act, 1961 (the Act).

The assessee was a non-resident and filed his return of income declaring capital gain exemption under section 54F of the Act. The assessee sold 2 properties and his share was 50%. On an examination of return of income, the Assessing Officer noted that the assessee did not deposit the net consideration in specific bank account within the specified time under section 139(1) of the Act.

The assessee explained that he made an application for opening capital gain account to his banker within due time, however the AO noted that the net consideration credited to the said capital gain account beyond the due date for filing return of income under section 139(1) of the Act. As a result, the Assessing Officer denied deduction claimed under section 54F of the Act.

Before the Tribunal the assessee submitted that the opening of capital gain account within the time stipulated under the Act was beyond the control of the assessee and it was due to internal process of the bank. The assessee made an application in time, but, however, the bank opened said account after the due date and there was no fault of the assessee.

It was submitted that the assessee immediately after opening the capital gain account, transferred the said net consideration from his savings bank account to capital gains account. It was argued that the delay of bank procedure in opening the account cannot be fixed to the assessee as he made the application much before the time specified under section 139(1) of the Act.

It was further submitted that merely because the assessee had not been able to deposit in the capital gain account, the deduction under section 54(1) of the Act cannot be denied. He submitted that it is a mere non-compliance of procedural requirement under section 54(2) of the Act itself cannot stand in the way of getting the benefit to the assessee under section 54F of the Act.

The assessee relied on the judgment of the Delhi ITAT where the Tribunal held the assessee is entitled to get deduction under section 54F of the Act even though net consideration was deposited in capital gain account with a delay of 31 days.

The assessee further argued that the impugned order was not justified in denying the deduction under section 54F of the Act for non compliance of deposit of capital gain without examining the requirement of law under sub-section 1 of section 54F of the Act. He argued that the compliance of requirement under section 54(1) of the Act is mandatory and as to be construed as substantial compliance to grant the benefit of deduction.

It was submitted that the Assessing Officer denied exemption for mere non-compliance of requirement of law under sub-section (1) of section 54F of the Act was not justified and prayed to remand the matter to the file of the Assessing officer for verification whether the assessee complied with the condition stipulated under sub-section (1) of section 54 of the Act. 

The Tribunal observed that there was no examination with regard to compliance under sub-section (1) of section 54 of the Act. The Assessing Officer denied deduction under section 54F of the Act only on the sole reason that the assessee did not comply with the condition provided under sub-section (4) of section 54F of the Act.

The Tribunal further noted that the Co-ordinate Bench of ITAT Delhi had held that non-compliance of condition provided under sub-section (4) of section 54F, the assessee cannot be denied the benefit under section 54(1) of the Act.

In view of the fact that there was no verification by the Assessing officer whether the assessee substantiated complying with the net consideration in investing of new asset, the Tribunal remanded the matter to the file of the Assessing Officer for his verification as to whether the assessee complied with the conditions provided under sub-section (1) of section 54 of the Act in appropriating the net consideration in new asset or not.

Accordingly, the final assessment order was set aside. 

Download Full Judgment Click Here >>

• ITAT allows exemption of Rs. 25 lakhs u/s 10(10A) to non-government employees
• PCIT has revisionary jurisdiction u/s 263 over the cases passed by the NFAC or the JAO
• Appellate court interfering with MACT finding must undertake reappreciation of evidence
• When delay is not huge & involves huge monetary liability, lenient approach to be taken
• EoGM of company can not ratify diversion of fund raised by preferential issue – SC