HC directs closure of Capital Gain Deposit Account opened under wrong advice

High Court directed closure of Capital Gain Deposit Scheme (CGDS) Account opened mistakenly by the assessee on wrong advice by tax consultant.

In a recent judgment, Hon’ble High Court of Meghalaya has directed Income Tax Authorities to expeditiously close the Capital Gain Deposit Scheme (CGDS) Account of the assessee which was created without computation of Capital Gains or Loss and the sale of property resulted in a capital loss.

ABCAUS Case Law Citation:
4685 (2025) (08) abcaus.in HC

In the instant case the Petitioner/assessee had approached Hon’ble High Court for the third time praying direction to Income Tax Authorities to pass a final speaking order for the closure of the Capital Gain Deposit Scheme (CGDS) Account of the petitioner.

The said CGDS account was opened by the Petitioner due to the sale of ancestral property with an intention to buy a new property and take benefit of exemption under Section 54 of the Income Tax Act, 1961 (the Act) without any exercise of computation of Capital Gains or Loss.

However, the Petitioner did not disclose any income from Capital Gains in her returns and the computation of long term Capital Loss was filed much after the due date of filing returns.

In the first round of litigation, the Hon’ble High Court directed the Petitioner to appear before the Authorities and to shall produce all the evidence available together with written submission. The authorities were directed to take a decision within a period of four weeks from the date of appearance of the petitioner.

However, In the second round of litigation, the Petitioner once again approached the Hon’ble High Court alleging that despite the Petitioner complying with orders, the Assessing Officer (AO) mechanically affirmed the previous order without addressing the objection and concern for closure of the CGDS account.

It was submitted that the closure request of the CGDS account had been kept pending since five years. It was further submitted that due to non-receipt of approval, money deposited under the Capital Gains Account Scheme had remained unutilised and the concerned bank was not allowing closure of the same thereof without an approval from the concerned Assessing Officer.

The Revenue submitted that the delay in closure of the CGDS account was attributable to the petitioner only, as the petitioner did not give a correct picture of her income in the returns filed by her. It was further submitted that the petitioner had sold the ancestral property and deposited the amount in the CGDS in terms of Section 54 of the Income-Tax Act, but did not disclose any income from Capital Gains in her returns and the computation of long term Capital Loss was filed much after the due date of filing returns.

The second round of litigation ended with the Hon’ble High Court directing that the Petitioner shall produce before the AO, all materials necessary to be taken into consideration on the application for closure of CGDS account and the Revenue shall thereafter within a period of four weeks thereof, decide on the matter and pass final orders.

However, for the third time, the Petitioner approached the Hon’ble High Court  alleging that previous order of the Hon’ble High Court had only been partially complied with, inasmuch as, only partial release from the CGDS Account was accorded, but not the full amount.

The Hon’ble High Court observed that the non-closure of the CGDS Account finally, was due to the stand taken by the Authorities that the revised income tax return as requested by the notice under Section 148 had not been complied with. Though, it had been submitted by the petitioner that a revised return had been submitted but the same was admittedly prior to the order of this Court in second round of litigation.

The Hon’ble High Court further noted the assessee had acted on the advice of a Tax Consultant, and the sale proceeds of the transaction was parked mistakenly in the CGDS Account, though as claimed by the assessee, there was a capital loss.

The Hon’ble High Court further observed that as Capital Gain is a subject matter of the assessment proceedings for the relevant Assessment Year, the Petitioner was directed to file her revised income tax returns for the relevant assessment year before the AO, and if necessary, also be permitted to effect the same by filing the returns physically. 

The AO was also directed to take up the matter for issuance of final orders for closure of the CGDS Accounts expeditiously as the matter was pending since last six years.

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