Non-deposit in Capital Gains Account Scheme Not Fatal to Section 54 Exemption: ITAT Chennai
Krishnamoorthy Vijayaraghavan v. Income Tax Officer — [2025] 178 taxmann 621 (ITAT Chennai, Bench ‘B’)
Facts:
1. The assessee sold a residential house on 1 April 2009. He subsequently purchased a new residential property (undivided share of land) on 19 January 2012 and entered into a construction agreement for an apartment on 11 January 2012. The assessee claimed deduction under Section 54 of the Income-tax Act for Rs. 10,27,558.
2. The Assessing Officer (AO) denied the deduction, stating that, the assessee did not deposit the unutilized sale consideration in the Capital Gains Account Scheme (CGAS) before the due date for filing the return under section 139(1). Hence, the assessee had not satisfied section 54(2).
3. The Commissioner (Appeals) upheld the AO’s decision, noting that the assessee had not provided sufficient details about investment in the new asset. The assessee appealed to the ITAT Chennai.
ITAT Chennai held as below:
1. The AO’s denial was solely technical, based on non-deposit in CGAS before the due date under section 139(1).
2. The assessee had invested Rs. 34.15 lakhs in the new asset within three years of sale of the original property.
3. This investment was substantiated through payment receipts and was acknowledged by the AO in the assessment order.
4. Since the assessee complied with the substantive requirement of section 54 — i.e., purchase/construction of a new residential house within the prescribed time — the deduction could not be denied merely for a procedural lapse.
The Tribunal relied on the following judgments:
1. Venkata Dilip Kumar v. CIT [2019] 111 taxmann 180 / 419 ITR 298 (Madras HC)-: It was held that non-deposit in CGAS before the due date is not fatal if the assessee has utilized the capital gains for the purchase/construction within the prescribed time.
2. Avanasiyappan Eswaran v. ITO ITA No. 1666/CHNY/2025, order dated 8.9.2025: It was reaffirmed that deduction under sections 54/54F cannot be denied solely because the amount was not deposited in CGAS before the due date, as long as investment was made within three years.
The copy of order is as follows:
