Section 54 Deduction Can't Be Disallowed Merely For Not Depositing LTCG In Capital Gain Account Scheme: ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that deduction under Section 54 of the Income Tax Act cannot be disallowed merely for not depositing long-term capital gain (LTCG) that was not deposited in the capital gain account scheme.

The bench of Saktijit Dey (Vice President) and M. Balaganesh (Accountant Member) has adopted a hyper-technical approach while dealing with the issue. When the basic conditions of Section 54(1) have been satisfied, the assessee remains entitled to claim the deduction under Section 54 of the Income Tax Act.

The appellant or assessee is a resident individual. Information was received by the Assessing Officer indicating that the assessee had sold an immovable property for a consideration of Rs. 62,06,000. The assessing officer reopened the assessment under Section 147. In response to the notice issued under Section 148, the assessee filed her return of income, declaring income of Rs. 6,42,470, which was the income declared in the original return of income.

In the course of assessment proceedings, the assessing officer called upon the assessee to furnish the details of the properties sold and the resultant capital gain. In response, the assessee furnished all the details relating to the property sold and the capital gain arising out of the property.

It was found by the Assessing Officer that the property was under the joint ownership of the assessee and another co-owner and was purchased for an amount of Rs. 20 lakhs, out of which the assessee's share was Rs. 10 lakhs. Whereas, the property was sold for a consideration of Rs. 62,06,000, out of which the assessee share was Rs. 31,03,000. After reducing the cost of acquisition and indexation benefit, the long-term capital gain arising out of the sale of property worked out to Rs. 14,59,324. The assessee has made an investment in the purchase of new residential property for the entire capital gain amount, hence the claim for exemption under Section 54. After verifying all the details, the assessing officer accepted the return of income filed by the assessee and completed the assessment.

After the completion of the assessment, PCIT called for and examined the assessment record, and while doing so, she found that the capital gain amount was not deposited in the capital gain account scheme during the interim period until its utilization in the purchase or construction of new property. Thus, she was of the view that, due to the non-consideration of these facts, the assessment order is erroneous and prejudicial to the interest of revenue.

Therefore, PCIT issued a show-cause notice calling upon the assessee to show cause as to why the assessment order should not be declared as erroneous and prejudicial to the interest of Revenue and set aside. The assessee furnished a detailed reply objecting to the proposed action under Section 263.

However, rejecting the assessee's submission, PCIT set aside the assessment order with a direction to disallow the deduction claimed under Section 54, as the assessee has failed to deposit the capital gain amount in the capital gain account scheme.

The tribunal held that only because the capital gain was not deposited in the capital gain account scheme has the revisionary authority treated the assessment order as erroneous and prejudicial to the interest of Revenue.

The tribunal held that the exercise of power under Section 263 to revise the assessment order is invalid.

The ITAT quashed the order passed under Section 263 and restored the assessment order.

Counsel For Appellant: Sankalp Malik

Counsel For Respondent: Subhra Jyoti Chakraborty

Case Title: Ms. Sarita Gupta Versus PCIT

Case No.: ITA No.1174/Del/2022

Click Here To Read The Order