Deposit in CGAS u/s 54F(4) has no application if assessee invests the sale consideration within the period stipulated in Section 54F(1) – ITAT
In a recent judgment, ITAT Bangalore has held that requirement to deposit in CGAS under section 54F(4) has no application to a case where the assessee invests the sale consideration derived from the transfer either in purchasing the property or constructing the residential house within the period stipulated in Section 54F(1)
ABCAUS Case Law Citation:
4728 (2025) (09) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in inter alia confirming the disallowance of deduction claimed u/s 54F of the Income Tax Act, 1961 (the Act) holding that the assessee did not satisfy the condition of section 54F(2) and 54F(4) of the Act.
During the relevant Assessment Year the assessee had sold immovable property. However. The assesse did not file return of income. Accordingly, notices under section 142(1) of the Act were issued to the assessee and notice under section 148 of the Act was also issued to the assessee to file income tax return.
The assessee filed return. The assessee was asked to produce the documents in support of the claim and assesssee submitted reply. From the submission it was noticed that property was gifted by assessee’s husband. The AO noted that the assessee had claimed deduction under section 54F of the Act. To be able to claim deduction under section 54F, the amount of sale proceed not utilised in purchase/construction should have been kept in the capital gain account by the due date of filing of ITR.
However, the assessee had not deposited the proceeds from transfer of capital assest in capital gain account scheme account (CGSA). Hence, the amount spent on construction of house in subsequent Financial Year was not allowed under section 54F of the Act.
The AO did not accept the written submissions and made addition by disallowing deduction under section 54F of the Act.
The Tribunal observed that the main contention of the AO was that the assessee had not deposited the amount in CGAS, and the amount was not utilized within the due date of filing of return of income under section 139 of the Act.
The Tribunal noted that the amount under question was kept in the nationalized bank and the assessee withdrew amount from the bank and incurred expenditure towards construction of the house property.
The Tribunal further noted that this issue had been put to rest by the jurisdictional High Court which dealt with the question as to whether asn assessee who invests the entire sale consideration construction of a residential house within three years from the date of transfer can be denied exemption under Section 54F on the ground that he did not deposit the said amount in capital gains account scheme before the due date prescribed under Section 139(1) of the IT Act?
The Tribunal noted that the Hon’ble High Court had held that it is clear from Sub-section (4) of section 54, in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54F(1), if the assessee wants the benefit of Section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government.
The Hon’ble High Court clarified the provisions further that if an assessee want of claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54F(4) is not at all attracted.
The Hon’ble High Court had answered the substantial questions of law in favour of the, assessee and against the Revenue holding that held that the contention of the Revenue that since the assessee had not deposited the amount in the Bank account as stipulated and therefore, he was not entitled to the benefit even though he has invested the money in construction was not correct.
Following the above judgment, the Tribunal allowed deduction claimed under section 54F of the Act.
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