Depositing unutilized capital gain amount in a special account is only a procedural matter

Depositing unutilized capital gain amount in a special account is only a procedural matter, and non-compliance thereof cannot result in disallowance of deduction u/s 54 – ITAT

ABCAUS Case Law Citation:
ABCAUS 3806 (2023) (09) ITAT

Important Case Laws relied upon by parties:
CIT vs Venkata Dilip Kumar (277 taxman 463) (Madras)
ITO vs Rekha Shetty (118 taxmann.com 10)(Chennai ITAT)
Amit Parekh vs ITO (170 ITD 213) (Kolkata ITAT)
Mrs. Seema Sabharwal vs ITO (169 ITD 319) (Chandigargh ITAT)
Smt. Harminder Kaur vs ITO (188 ITD 922) (Delhi ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the disallowance of capital gain deduction u/s 54 of the Income Tax Act, 1961 (the Act).

The assessee was an individual. The assessee sold a house property and claimed gain deduction u/s 54 of the Income Tax Act, 1961 (the Act) for the Long Term Capital Gain on the ground that the amount was utilized in purchase / construction of new assets as specified in the Act.

However, the Assessing Officer (AO) allowed only the amount spent upto the date of the filing of return of income and the balance deduction was denied on the ground that the same has not been deposited in the specified bank account as required u/s 54 of the Act.

Before the ITAT, the assessee relied on various case laws and contended that in these case laws, it has been held that depositing the unutilized amount in a special account is only a procedural matter, and non-compliance thereof cannot result in negating the deduction claimed u/s 54 of the Act if the other requirements are complied with.

The ITAT observed that Hon’ble High Court held that where assessee is in a position to satisfy the requirements as envisaged in u/s 54(2) or 54(1) of the Act and the assessee could not be denied exemption u/s 54 for mere non-compliance of requirement under section 54(2) of the Act.

The Tribunal observed that claim of the assessee was that he had made the required

payment in the next week itself from the date of filing of return. Hence, he had claimed that he was eligible for deduction.

The Tribunal following the decision of the Hon’ble High Court, remitted the issue to the file of the Assessing Officer to verify the factual veracity as to whether the balance payment has been done within the specified period and thereafter pass order as per law.

Accordingly, the appeal of the assessee was allowed.

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