Landmark Judgment : Deposit of sale consideration in Capital Gain Deosit Scheme is not a Mandatory condition for claiming Capital Gain Exemption

Short Overview: Where assessee did not deposit sale consideration in the bank account maintained under the capital gains scheme before the due date of filing of return but otherwise purchased new house within two years, as stipulated in section 54F(1), then deduction under section 54F could not be denied to assessee.

The case of assessee was that she has made investment in purchase of a new flat and utilised the total capital gain by investing the amount more than the sale consideration, therefore, no capital gain was taxable in her hands in terms of section 54F(1). AO alleged that since assessee had not deposited the sale consideration in a bank account maintained under the capital gains scheme before the due date of filing of return under section 139(1), therefore, she could not claim exemption as contemplated under section 54F(4).

it is held that  Assessee did not deposit the sale consideration in the bank account before the due date of filing of return. But otherwise purchase of house was within two years, as stipulated in section 54F(1). It was not the case of assessee that she has purchased beyond the period as contemplated in section 54F(1). The only failure was that she had not deposited the sale consideration in capital account, which is not a mandatory condition to claim deduction under section 54F.

Decision: In assessee’s favour.

Followed: CIT v. K. Ramachandra Rao [IT Appeal Nos. 494 & 495 of 2013 & 46 & 47 of 2014, dt. 14-7-2014] : 2015 TaxPub(DT) 1933 (Karn-HC), Ashok Kapasiawala v. ITO (2015) 63 taxamnn.com 284 (Ahd).

N THE ITAT, AHMEDABAD BENCH

RAJPAL YADAV, J.M.

Nandkishore Ramanlal Parikh v. ITO

ITA No. 490/Ahd/2017

30 April, 2019

Assessee by: Arti N. Shah, AR

Revenue by: Lalit P. Jain, Sr. DR

ORDER

Assessee is in appeal before the Tribunal against order of the learned Commissioner (Appeals)-5, Ahmedabad dated 5-1-2017 passed for the assessment year 2013- 14.

2. Assessee has taken four grounds of appeal, which are argumentative and descriptive in nature. At the time of hearing, the learned counsel for the assessee has confined grievance of the assessee qua one issue viz. whether exemption under section 54F is available to the assessee or not on the investment of capital gain in purchase of a flat.
3. With the assistance of the learned Representatives, I have gone through the record carefully. It emerges out from the record that the assessee has filed her return of income electronically on 6-7-2013 declaring total income at Rs. 278. Her case was selected for scrutiny assessment and notice under section 143(2) of the Act was issued and served upon the assessee. Scrutiny of the accounts, it revealed to the assessing officer that the assessee was having 1/8th share in a property at Patidar Society, C.G. Road, Ahmedabad. She has sold her 1/8th share on 25-2-2013 for a sum of Rs. 90.00 lakhs. She invested Rs. 80 lakhs on 3-7-2013 in Bank of Baroda under capital gain account scheme as per section 54F of the Act.

Thereafter, she had purchased residential flat on 18-10-2014 for a sum of Rs. 1,25,00,000. This purchase has been made within the prescribed time limit of two years as provided under section 54F(1) of the Act. She claimed that no capital gain tax is leviable upon the assessee. The learned assessing officer did not accept this contention of the assessee, and he allowed the deposits made in the capital account at Rs. 80 lakhs. He made addition of Rs. 8,01,740. Appeal to the Commissioner (Appeals) did not bring any relief to the assessee.

4. The learned counsel for the assessee compiled certain details in tabular form and it is imperative upon us to take note of these details for adjudication of this issue. It reads as under :–

Sr.No.	Particulars
1.	Sale Price (Own share)	90,00,000
2.	Date of sale	25-2-2013
3.	Cost of property as on 1-4-81 (as per assessee)	2,16,837
4.	Indexed cost	18,47,451
5.	Cost of property as on 1-4-81 (as per assessing officer)	2,07,050
7	Indexed cost	17,64,066
7	Amount deposited in capital gain a/c. scheme on 3-7-2013	80,00,000
8.	New property purchased as on 18-10-2014	1,25,00,000

5. The stand of the assessee is that since she has made investment in purchase of a new flat and utilised the total capital gain. In other words, she has invested the amount more than the sale consideration, therefore, no capital gain is taxable in her hands under section 54F(1), and she is entitled for exemption in toto. The case of the assessing officer is that since she has not deposited the sale consideration in a capital account before the due date of filing of return under section 139(1) of the Act, therefore, she cannot claim exemption as contemplated under section 54F(4). In other words, according to the assessing officer, benefit of section 54F should be available to the assessee, if she had purchased new residential flat within one year before the sale of house or two years after the sale, but in such condition she has to make deposit of consideration/capital gain in a bank account maintained under the capital gains scheme. She failed to make such deposits before the date of filing of return, therefore, she is not entitled for exemption under section 54F. Before me, the learned counsel for the assessee made reference to the decision of ITAT, Ahmedabad Benches in the case ofAshok Kapasiawala v. ITO, (2015) 63 taxamnn.com 284 (Ahd). She has placed on record copy of this order. Division Bench of the ITAT has considered this aspect and after putting reliance upon the decision of Karnataka High Court, allowed the claim of the assessee in an identical situation. The reason recorded by the Hon’ble Court is worth to note in this connection. It read as under :–

“6.2 The Hon’ble Karnataka High Court in the case of K. Ramachandra Rao (supra) answered the question in favour of assessee i.e. when the assessee had invested the entire sale consideration in construction of a residential house within the three years from the date of transfer could be denied exemption under section 54F on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed under section 139(1) of the Act. The Hon’ble High Court of Karnataka High Court held as under :–

“As it clear from sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in section 54F(1), if the assessee wants the benefit of section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he want of claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct.”

6.3 In the present case, the assessee purchased new asset on 5-10-2009 and had transferred the original asset on 8-1-2008. As per section 54F(1) of the Act, the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place.

As per the judgment of Hon’ble Karnataka High Court, the provisions of section 54F(4) would not be attracted in the event if the assessee has purchased or constructed the residential house within the period prescribed under section 54(1) of the Act. In the case in hand, there is no dispute with regard to the fact that the assessee had purchased within two years (the period prescribed under section 54(F)(1)) a new asset on 5-10-2009 from the date of transfer of the original asset. The Revenue has not cited or placed on record any contrary judgment by the Hon’ble Jurisdictional High Court or Hon’ble Supreme Court. Therefore, respectfully following the ratio laid down by the Hon’ble Karnataka High Court in the case of K. Ramachandra Rao (supra), we hereby set aside the impugned order and direct the assessing officer to re-compute the assessed income after granting the benefit of section 54F of the Act to the assessee”

6. I find no disparity on the facts. In the case ofAshok Kapasiawala (supra) also the assessee did not deposit the sale consideration in the bank account before the due date of filing of return. But otherwise purchase of house is within two years stipulated in section 54F(1) of the Act. It is not the case of the assessee that she has purchased beyond the period as contemplated in section 54F(1). The only failure is, she has not deposited the sale consideration in capital account. This condition has not been considered as mandatory by the Hon’ble Karnataka High Court. In the decision of Tribunal in the case of Ashok Kapasiawala (supra) Division Bench has followed this decision. No contrary decision was brought to my notice by the department. Therefore, respectfully following the decision of Hon’ble Karnataka High Court and decision of ITAT (supra), I allow the appeal of the assessee and direct the assessing officer to grant exemption under section 54F to the assessee.
7. In the result, appeal of the assessee is allowed.