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2022 (11) TMI 196 - AT - Income TaxAddition u/s 54 - Claim denied as the amount remained uninvested till 05.08.2016 which was due date of filing the ITR under section 139(1) - capital gain account deposit was delayed by 31 days - CIT-A deleted the addition - HELD THAT - It is not in dispute that there was 31 days delay in depositing the amount in the capital gain account i.e. the due date for filing return under section 139(1) of the Act for assessment year 2016-17 i.e. 05.08.2016. But the deposit of Rs. One crore each were made by the assessee on 26.09.2016 and 27.09.2016 in the capital gain account. Further it is also not in dispute that the assessee had paid the entire capital gain deposits along with interest accrued thereon directly from the capital gain deposit to the parties for expenses relating to construction for new house between 02.11.2017 to 03.02.2018 within three years, in compliance with Section 54(1) of the Act. The intention of the legislature in section 54 of the Act is very much clear that an assessee who receives the sale consideration has to invest in the new house within specified time framed. Merely because the assesssee has not able to deposit or deposited with a delay of 31 days in the capital gain account he cannot be denied with the benefit of section 54(1) of the Act. The above view has been fortified by the judgment of Hon ble High Court of Karnataka in the case of CIT Vs. Ramachandra Rao 2015 (4) TMI 620 - KARNATAKA HIGH COURT wherein the very same substantial question of law has been decided in favour of the assessee. Thus CIT(A) has rightly deleted the addition made u/s 54 and the order of the Ld. CIT(A) requires no interference. Accordingly, we do not find merit in the Grounds of Appeal of the Revenue.
Issues Involved:
1. Deletion of addition of Rs. 5,70,95,075/- under Section 54 of the Income-tax Act, 1961. 2. Compliance with the conditions laid down in Section 54(2) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 54 of the Income-tax Act, 1961: The core issue revolves around the deletion of an addition amounting to Rs. 5,70,95,075/- under Section 54 of the Income-tax Act, 1961. The Revenue contended that the assessee failed to deposit the sale consideration in the Capital Gains Account Scheme (CGAS) within the due date prescribed under Section 139(1) of the Act, resulting in a delay of 31 days. Consequently, the Assessing Officer (AO) added back the amount to the assessee's total income as Long Term Capital Gain. The CIT(A), however, allowed the assessee's appeal, leading to the Revenue's present appeal. 2. Compliance with Conditions under Section 54(2) of the Income-tax Act, 1961: The Revenue argued that the assessee did not meet the procedural requirements of Section 54(2), which mandates depositing the unutilized sale consideration in the CGAS before the due date of filing the return under Section 139(1). The delay in depositing Rs. 2 crore was cited as a significant procedural lapse. However, the assessee countered that the conditions of Section 54(1) were fulfilled by investing in a new residential house within the prescribed three-year period, and thus, compliance with Section 54(2) should be considered directory rather than mandatory. Judgment Analysis: Compliance with Section 54(1) and Section 54(2): The Tribunal observed that the assessee sold a 1/4th share in a residential house and earned Long Term Capital Gain of Rs. 6,20,94,441/-. The assessee claimed a deduction of Rs. 5,70,94,441/- for the construction of a new house. The AO denied this claim due to the 31-day delay in depositing the amount in the CGAS. However, it was undisputed that the assessee invested the entire capital gain towards the construction of the new house within the three-year period stipulated by Section 54(1). Judicial Precedents: The Tribunal relied on the judgment of the Hon'ble High Court of Karnataka in CIT Vs. Ramachandra Rao, which held that if the sale consideration is utilized for constructing a residential house within the specified period, the benefit under Section 54 cannot be denied merely due to a delay in depositing the amount in the CGAS. Similarly, the Hon'ble Judicature at Madras in Venkata Dilip Kumar Vs. CIT reiterated that Section 54(2) is procedural, and substantial compliance with Section 54(1) suffices for claiming the deduction. Tribunal's Conclusion: The Tribunal concluded that the legislative intent behind Section 54 is to ensure investment in a new residential house within the specified timeframe. The procedural lapse of a 31-day delay in depositing the amount in the CGAS should not override the substantive compliance with Section 54(1). Therefore, the CIT(A) was correct in deleting the addition made by the AO. Final Decision: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that deleted the addition of Rs. 5,70,95,075/- under Section 54 of the Income-tax Act, 1961. The judgment emphasized that procedural delays should not negate the substantive compliance with the primary conditions of Section 54(1). Pronouncement: The order was pronounced in the Open Court on 02nd November, 2022.
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