2023 (1) TMI 357 - AT - Income Tax

Deduction claimed u/s. 54 - delay in depositing unutilized amount in capital gains account deposit scheme - Scope of technical breach - HELD THAT - In this case, the assessee has satisfied all conditions, except there is a technical breach in one of the conditions of depositing unutilized capital gain amount in capital gains deposit account scheme on or before due date for filing return of income u/s. 139(1) however, such deposits has been made on or before extended due date for filing return of income u/s. 139(4) - Admittedly, in the present case, the due date for filing return of income was on 05.08.2016, whereas, the appellant had deposited unutilized amount of capital gains in capital gain deposit account scheme on 19.09.2016, with a delay of 45 days. Assessee has explained reasons for depositing unutilized amount of capital gains in capital gain deposit account scheme, and further claimed that ultimately he has invested entire amount of capital gain for acquiring new asset within three years from the date of transfer of original asset. In our considered view, when the assessee has satisfied all conditions including depositing unutilized portion of capital gain in capital gain deposit account scheme, then for minor technical breach, benefit of deduction u/s. 54 of the Act cannot be denied. This view is fortified by the decision of various High Courts including the decision of Hon ble Karnataka High Court in the case of CIT vs K Ramachandra Roa 2015 (4) TMI 620 - KARNATAKA HIGH COURT held that when assessee utilizes entire sale consideration within three years from the date of transfer of land, he could not be denied exemption u/s. 54. In this case, there is no dispute with regard to the claim of the assessee, and is entitled for deduction, because the assessee has satisfied conditions prescribed therein u/s. 54 of the Act, and also deposited unutilized amount of capital gain in capital gain deposit account scheme in a nationalized bank. Though, there is a delay of 45 days, but the assessee has utilized full amount of capital gains for acquiring new residential house within three years from the date of transfer of original asset. Therefore, we are of the considered view, that the assessee is entitled for deduction u/s. 54 of the Act. The AO without appreciating facts disallowed deduction claimed u/s. 54 of the Act. Appeal of revenue dismissed.

Summary

Issues Involved:
1. Whether the CIT(A) erred in allowing the appeal of the assessee by relying on an ITAT decision from 2005 against later decisions of the High Court.
2. Whether the assessee's failure to deposit unutilized capital gains in the capital gain deposit account scheme on or before the due date for filing the return u/s. 139(1) of the Income-tax Act, 1961, disqualifies him from claiming deduction u/s. 54 of the Act.

Issue-wise Detailed Analysis:

1. Reliance on ITAT Decision from 2005:
The Revenue contended that the CIT(A) erred in allowing the appeal by relying on an ITAT decision from 2005, despite later decisions from the High Court. The CIT(A) referenced the ITAT decision in the case of Shri Madhuvan Prasad vs ITO, where it was held that the failure to invest in the capital gains account scheme is only a technical breach and should not result in the denial of exemption u/s. 54 if the ultimate purpose of the provision is achieved. The CIT(A) emphasized that the assessee had invested the entire capital gain amount in acquiring a new residential house within the prescribed three-year period, thus satisfying the ultimate objective of section 54.

2. Technical Breach in Depositing Unutilized Capital Gains:
The core issue was whether the assessee's delay in depositing the unutilized capital gains into the capital gain deposit account scheme disqualified him from claiming the deduction u/s. 54. The AO had disallowed the deduction on the grounds that the assessee did not deposit the unutilized capital gains by the due date for filing the return u/s. 139(1). However, the CIT(A) and later the ITAT found that this was a technical breach. The assessee had deposited the amount within the extended due date u/s. 139(4) and had invested the entire capital gain in a new residential property within the stipulated three-year period.

The ITAT upheld the CIT(A)'s decision, referencing the Karnataka High Court's decision in CIT vs K Ramachandra Rao, which held that if the assessee invests the full amount of capital gain in acquiring a new residential house within three years, the deduction u/s. 54 cannot be denied for a technical breach. The ITAT also cited its own decision in ACIT vs Justice T.S. Arunachalam, reinforcing that a technical breach should not lead to the denial of the deduction if the ultimate legislative intent is met.

Conclusion:
The ITAT concluded that the assessee had satisfied all conditions prescribed under section 54, except for a minor delay in depositing the unutilized capital gains. Given that the assessee ultimately invested the entire amount in a new residential house within the required period, the technical breach did not warrant the denial of the deduction. The appeal filed by the Revenue was dismissed, and the CIT(A)'s order allowing the deduction u/s. 54 was upheld.