ITAT quashes Disallowance of Deduction u/s 54 merely based on Non-Deposit of Capital Gains in Capital Gain Account Scheme [Read Order]

Top Stories ITAT quashes Disallowance of Deduction u/s 54 merely based on Non-Deposit of Capital Gains in Capital Gain Account Scheme [Read Order] By Aiswarya Krishnadas – On December 16, 2023 7:38 pm – 2 mins read The Delhi bench of the Income Tax Appellate Tribunal (ITAT) quashed disallowance of deduction under Section 54 of the Income Tax Act, 1961 merely based on non-deposit of capital gains in capital gain account scheme The appeal of the assesse arose out of order dated 22.03.2022 passed by the Principal Commissioner of Income Tax (PCIT), Ghaziabad, under section 263 of the Act for the assessment year 2012-13.

A resident individual faced scrutiny by the Assessing Officer after information surfaces about the sale of a Rs. 62,06,000 property, prompting a Section 147 reassessment. The assesse swiftly responds, filing a return with Rs. 6,42,470 income, consistent with the original declaration. The Assessing Officer’s decision raises questions about the information source, emphasizing the significant income-property sale gap.

The evolving tax assessment outcome depends on the assesses responses and the Assessing Officer’s findings. In assessment proceedings, the Assessing counsel Sankalp Malik, Advocate contends sought details on property sale and capital gain, to which the assesse promptly responded. It was revealed the property, jointly owned, was bought for Rs.20 lakhs, with the assesses share at Rs.10 lakhs. The property sold for Rs.62, 06,000, yielding a long-term capital gain of Rs.14, 59,324. The assesse claimed exemption under section 54, having reinvested the entire gain in a new property. Following thorough verification, the Assessing Officer accepted the filed return, concluding the assessment. Following assessment, the counsel for the respondent Subhra Jyoti Chakraborty found the capital gain wasn’t deposited in the specified scheme during the interim period, deeming it erroneous and prejudicial to revenue. Despite the assessee’s objections, the PCIT, issuing a show-cause notice under section 268, set aside the assessment order, directing disallowance of the claimed deduction under section 54. After reviewing arguments and records, the Assessing counsel thoroughly examined the property sale and capital gain during assessment.

The order sheet documents the counsel’s response and relevant details. Unlike the section 263 notice, the assessment order doesn’t doubt the capital gain or its timely investment, only flagging the non-deposit into the specified account as the reason for being labeled as erroneous and prejudicial to revenue. In this perspective, counsel for the respondent has taken an excessively technical stance in addressing the matter. If the fundamental conditions of section 54(1) are met, we believe the assessee retains the right to claim the deduction under section 54 of the Act. Moreover, there is no harm to the Revenue as the assessee is rightfully entitled to the deduction as per section 54(1) of the Act.

The two member bench of the tribunal comprising M. Bala Ganesh (Accountant) member and Sakthi Jith Ray (Vice president) concluded that the utilization of authority under Section 263 of the Income Tax Act to review the assessment order in this case is deemed invalid. Consequently, the bench nullified the order issued under Section 263 of the Income Tax Act and reinstated the original assessment order. In conclusion, the appeal was granted.

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