Satishchandra Jagdishchandra Gugale vs Revenue [TU-DT-02-ITAT-2026]
Background of the Case
The Appellant sold a plot of land for Rs.3.21 crores on 18.03.2014 and earned long-term capital gains. Subsequently appellant purchased a residential flat for Rs.4 crores on 25.02.2015 and claimed deduction under Section 54F of the Income Tax Act, 1961. During assessment proceedings, the Assessing Officer observed that although the Appellant had invested in a new residential property within the prescribed period, he had deposited only Rs.2.25 crores in the Capital Gains Account Scheme before filing his return of income. Since the entire capital gain was not deposited in the specified account before the due date under Section 139(1), the Assessing Officer disallowed Rs.91,45,450 and completed the assessment under Section 143(3) at a higher income. The Ld. CIT(A)/NFAC confirmed the disallowance, and the matter was carried in appeal before the ITAT Pune.
Arguments by the Appellant (Assessee)
The Appellant contended that the entire sale consideration of Rs.3.21 crores had been invested in purchase of the residential flat within one year from the date of transfer, thereby satisfying the substantive condition prescribed under Section 54F(1). It was argued that Section 54F(4) requiring deposit in the Capital Gains Account Scheme applies only when the net consideration remains unutilized before the due date of filing the return. Since the whole amount was ultimately invested within the statutory time limit, denial of deduction merely for non-deposit of a portion in the specified scheme was unjustified. The Appellant relied upon judicial precedents to submit that procedural non-compliance cannot defeat a substantive exemption when the legislative intent stands fulfilled.
Respondent’s Response (Revenue)
The Respondent supported the orders of the lower authorities and submitted that Section 54F(4) clearly mandates deposit of the unutilized net consideration in the Capital Gains Account Scheme before the due date under Section 139(1). As the Appellant failed to deposit the entire capital gain amount prior to filing the return, the condition prescribed under the statute was not complied with. Therefore, according to the Department, the deduction to the extent of Rs.91,45,450 was rightly disallowed and the order of the CIT(A)/NFAC required no interference.
Court Findings and Decision
The ITAT Pune examined the provisions of Section 54F and observed that the purpose of sub-section (4) is to ensure that the sale consideration is ultimately invested in a residential house within the stipulated period. The Tribunal noted that in the present case it was undisputed that the appellant had invested the entire sale consideration in purchase of a residential flat within the permissible time. Relying on judicial precedents, the Tribunal held that where the full amount is invested within the prescribed period, exemption under Section 54F cannot be denied merely because the amount was not fully deposited in the Capital Gains Account Scheme before filing the return. The Tribunal accordingly directed the Assessing Officer to allow the deduction and decided the issue in favour of the appellant.
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