MURUGAN DORAISAMY,CHENNAI vs. ITO, INTERNATIONAL TAXATION WARD-1(2), CHENNAI

This appeal filed by the assessee is directed against the final assessment order dated 28.01.2025 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 [“Act” in short] for the assessment year 2022-23. 2. The assessee raised 10 grounds of appeal, amongst which, the only short point raised for consideration whether the Assessing Officer is 2 justified in denying the deduction claimed under section 54F of the Act in the facts and circumstances of the case.

At the outset, we note that the assessee is a non-resident and filed his return of income declaring total income at ₹.9.72,170/-. According to the assessing Officer, the assessee sold 2 properties and his share is 50%. On an examination of return of income, the Assessing Officer denied deduction claimed under section 54F of the Act for the reason that the assessee did not deposit the net consideration in specific bank account within the specified time under section 139(1) of the Act. The Assessing Officer discussed the said issue in para 6 & 7 of the impugned order. We note that the assessee explained that he made an application for opening capital gain account to his banker on 28.07.2022, the Assessing Officer held that the net consideration credited to the said capital gain account only on 03.10.2022, since is beyond the due date for filing return of income under section 139(1) of the Act, the Assessing Officer denied deduction claimed under section 54F of the Act. Having aggrieved by the order of the Assessing Officer, the assessee is in appeal before us.

The ld. AR Shri P. Ranga Ramanujam, CA submits that the opening of capital gain account within the time stipulated under the Act was 3 beyond the control of the assessee and it was due to internal process of the bank. The assessee made an application in time, but, however, the bank opened said account on 03.10.2022, in this regard, there is no fault of the assessee. He drew our attention to page 98 & 99 of the paper book and submits that the assessee immediately after opening the capital gain account, transferred the said net consideration from his savings bank account to capital gains account. He argued vehemently that the delay of bank procedure in opening the account cannot be fixed to the assessee as he made the application much before the time specified under section 139(1) of the Act. Further, he argued that merely because the assessee has not been able to deposit in the capital gain account, the deduction under section 54(1) of the Act cannot be denied. He submits that it is a mere non-compliance of procedural requirement under section 54(2) of the Act itself cannot stand in the way of getting the benefit to the assessee under section 54F of the Act. He drew our attention to the order of the Delhi Benches of the Tribunal in the case of ITO v. Vinod Gugnani [2022] 145 taxmann.com 314 (Delhi – Trib.) and argued that the Tribunal held the assessee is entitled to get deduction under section 54F of the Act even though net consideration was deposited in capital gain account with a delay of 31 days. Further, he argued that the impugned order is not justified in denying the deduction under section 54F of the Act for non- compliance of deposit of capital gain without examining the requirement of law under sub-section 1 of section 54F of the Act. He argued that the compliance of requirement under section 54(1) of the Act is mandatory and as to be construed as substantial compliance to grant the benefit of deduction. He submits that the Assessing Officer denied exemption for mere non-compliance of requirement of law under sub-section (1) of section 54F of the Act is not justified and he prayed to remand the matter to the file of the Assessing officer for verification whether the assessee complied with the condition stipulated under sub-section (1) of section 54 of the Act.