Another Landmark Judgment : Deposit of amount in capital gain a/c scheme isn’t a mandatory condition to claim Sec. 54 relief

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Another Landmark Judgment : Deposit of amount in capital gain a/c scheme isn’t a mandatory condition to claim Sec. 54 relief

Venkata Dilip Kumar v. CIT – [2019] 111 taxmann.com 180 (Madras)
The assessee was holding a property along with its karta in the proportion of 25:75. They had entered into a JDA agreement. As per the agreement they would release ¾ the share of the property in the favour of the developer and will receive 3850 sq. ft. of the constructed area.
Assessee received Rs. 400 lakhs as cash consideration and constructed area worth Rs. 31.25 lakhs towards his share in the property. He deposited Rs. 37.50 lakhs in the Capital Gain account Scheme (CGAS) within the time prescribed in this behalf. It further incurred Rs. 1,02,13,527 as additional cost towards construction within a period of 3 years.
Assessing Officer (AO) disallowed the assessee’s claim for deduction under section 54 in respect of such additional cost on the ground that the assessee failed to deposit the same in CGAS within the prescribed time.
On writ, the Madras High Court held that section 54(2) can’t be read in the isolation. Application of section 54(2) should take place only when an assessee failed to satisfy the requirements of section 54(1). The requirements prescribed under section 54(1) are mandatory and if these requirements are complied with, it has to be construed as substantial compliance for granting the deduction under section 54. The compliance requirements prescribed under section 54(2) could only be treated as directory in nature.
If the assessee satisfies that the amount for which deduction is sought is utilised within the time prescribed under section 54(1), the deduction is bound to be granted without reference to subsection (2). Mere non-compliance of the procedural requirements prescribed under section 54(2) can’t restrict the assessee from claiming deduction under section 54, if the conditions prescribed under section 54(1) are fully complied with. Thus, the matter was remanded back to CIT for considering the issue and to pass the fresh order accordingly.

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