2018 (1) TMI 1572 - AT - Income Tax

Disallowance of deduction u/s.54(2) - not depositing the residue sale proceeds in capital gain scheme account within the stipulated period u/s.139(1) - whether the unutilised amount of capital gains which was not appropriated towards construction of new house property before the due date for filing of the return of income as envisaged u/s 139(1) or which was not deposited in the notified Capital Gains Account Scheme before the due date for filing of the return of income as envisaged u/s 139 (1) ? - HELD THAT - We find this issue squarely covered by the decision of the Chennai Bench of the Tribunal in 2016 (9) TMI 1563 - ITAT CHENNAI wherein on the identical situation it was held that such small technical breach will not disentitle the assessee the benefit of Section 54. Further the Ld.CIT(A) has also followed the decisions of various higher Judiciary wherein the issued is held in favour of the assessee in similar circumstances. Therefore we do not find it necessary to interfere with the order of the Ld.CIT(A) on this issue. - Decided against revenue

Summary

Issues:
Disallowance of deduction U/s.54(2) of the Act for not depositing residue sale proceeds in capital gain scheme account within stipulated period.

Analysis:
The appeal by the Revenue challenged the order by the Commissioner of Income Tax (Appeals) concerning the disallowance of deduction U/s.54(2) of the Act. The Revenue contended that the assessee failed to deposit the residue sale proceeds in the capital gains scheme account within the stipulated period, resulting in the disallowance. The assessee had sold a house property, claimed deduction U/s.54, and utilized a portion of the sale proceeds for land purchase, leaving a balance to be invested in constructing a residential property within three years. However, the assessee did not deposit the remaining amount in the capital gains scheme account as required by law.

During the appellate proceedings, the Commissioner of Income Tax (Appeals) allowed the appeal in favor of the assessee. The Commissioner analyzed whether the unutilized capital gains amount not appropriated before the due date for filing income tax return could be claimed as a deduction U/s.54 of the Act. The Commissioner considered that the entire remaining capital gains amount was invested in constructing a residential house within the stipulated time, making the assessee eligible for the deduction U/s.54 despite the technical breach of not depositing the amount in the scheme account.

The Tribunal reviewed the case and referred to a previous decision where a similar technical breach did not disentitle the assessee from the benefit of Section 54 of the Act. The Tribunal emphasized the beneficial nature of Section 54 and the need for a favorable interpretation to benefit the assessee. The Tribunal upheld the Commissioner's decision, citing various higher judiciary decisions supporting the assessee in similar circumstances. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the allowance of the deduction U/s.54 for the assessee.

In conclusion, the Tribunal upheld the Commissioner's decision, emphasizing the beneficial interpretation of tax provisions to favor the assessee and dismissing the Revenue's appeal regarding the disallowance of deduction U/s.54(2) of the Act for not depositing residue sale proceeds in the capital gain scheme account within the stipulated period.