ITAT Allows Section 54B Deduction Despite Non-Deposit in Capital Gains Account Scheme

The Dehradun Bench of the Income Tax Appellate Tribunal (ITAT) on 15 May held that exemption under Section 54B of the Income-tax Act, 1961 cannot be denied merely because the assessee failed to deposit the unutilised capital gains in the Capital Gains Account Scheme, where the sale consideration was substantially invested in purchase of new agricultural land within the prescribed period. A Bench comprising Judicial Member Yogesh Kumar U.S. and Accountant Member Sanjay Awasthi dismissed the Revenue’s appeal against Rajesh Jain and upheld the relief granted by the Commissioner of Income Tax (Appeals). The tribunal noted that:

“Sub Section (4) is attracted only to a case where the sale consideration is not utilized either for purchase or for construction… It has no application to a case where the assessee invests the sale consideration… within the period stipulated.”

The assessee had filed return of income for AY 2016-17 declaring income from salary, house property, business and interest. During scrutiny proceedings under Section 143(3), the Assessing Officer disallowed deduction of Rs. 2.78 crore claimed under Section 54B on the ground that the assessee had failed to deposit the unutilised amount in the Capital Gains Account Scheme as required under Section 54B(2). An additional addition of Rs. 52,536 under Section 44AD was also made.

Before the CIT(A), the assessee contended that the capital gains arising from sale of agricultural land were substantially reinvested in purchase of new agricultural land within the statutory period of two years. The CIT(A) accepted the contention and deleted the disallowance. Aggrieved by the appellate relief, the Revenue approached the ITAT.

“The Revenue has not disputed the fact that the Assessee has spent the amount within the period of two years on purchase of agriculture lands.”

The Tribunal observed that the assessee had received total sale consideration of Rs. 2.92 crore and had invested Rs. 2.89 crore towards purchase of new agricultural lands within the permissible time period. It noted that the only objection raised by the Revenue was non-deposit of the amount in the Capital Gains Account Scheme.

Relying on the Karnataka High Court judgment in CIT vs. K. Ramachandra Rao, the Tribunal held that the requirement of deposit under the Capital Gains Account Scheme applies only where the sale consideration is not utilised before filing of return. Since the assessee had already invested the amount in purchase of agricultural land within the prescribed period, denial of exemption was unjustified.

Therefore, the ITAT upheld the order of the CIT(A) allowing deduction under Section 54B and dismissed the Revenue’s appeal.

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