NILANJAN CHAUDHARI,GURGAON vs. ITO, CIRCLE- 3, GURGAON

PER M.BALAGANESH, AM: This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals)-1, Gurgaon, [hereinafter referred to as ‘Ld. CIT(A)’, in short] in Appeal No.105/16-

17, Assessment Year 2013-14 dated 20.02.2018 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 22.03.2016 by the Deputy

Commissioner of Income Tax, Circle-3, Gurgaon (hereinafter referred to as ‘Ld. AO’).

effective issue to be decided in this appeal is as to whether the

assessee would be eligible for exemption u/s 54E of the Act in respect

of Long Term Capital Gain derived by him when the entire sale

consideration has been reinvested by him in the new house property.

available on record. The assessee is a geophysicist and was

employed with Cairn Energy Ltd. deriving income from salary, house

property, investment in mutual funds, etc. The return of income for the

Assessment Year 2013-14 was filed by the assessee on 26.07.2013

declaring total income of Rs.61,17,830/- after claiming deduction u/s

54 of the Act in the sum of Rs.60,38,585/- on account of capital gains

on sale of residential house. It is not in dispute that the assessee has

purchased one residential property in Gurgaon out of the sale

proceeds arising from sale of old property, being reinvested in the new

property. It is also not in dispute that the assessee did not deposit the

sale consideration in the designated bank account under “Capital

Gains Accounts Scheme”. But it is a fact that the assessee had started

making payments towards the purchase of property amounting to Rs.

26,80,938/- up to the date of filing of return of income u/s 139(1) of the

Act itself. There is absolutely no dispute with regard to the computation

of Long Term Capital Gains on sale of old property at Rs.60,38,585/-.

The assessee had made payments towards reinvestment in the new

property to the tune of Rs.56,81,626/- up to 31.03.2015 which is the

time limit prescribed u/s 139(4) of the Act for filing return of income for

Assessment Year 2013-14.

the extent of payments made to the tune of Rs.26,80,938/- (i.e. the

payments made up to the due date of filing of return u/s 139(1) of the

Act) and denied the exemption for the remaining amounts reinvested

after 31.07.2013. This action was upheld by the Ld. CIT(A).

case of Shri Jagtar Singh Chawla vs ACIT in ITA No.71 of 2012 dated

20.03.2013 had categorically held that when the assessee has

reinvested in another residential house property within the time limit

prescribed u/s 139(4) of the Act and even when he had not deposited

the money in the “Capital Gains Scheme” but had duly reinvested the

sale consideration/Long Term Capital Gains of old property by

purchasing the new property within the prescribed time, then all the

payments made by the assessee up to the due date of filing of return

u/s 139(4) of the Act would be eligible for exemption u/s 54 of the Act.

As per this proposition of Hon’ble Punjab & Haryana High Court, the

assessee would in any case be eligible for exemption u/s 54 of the Act

to the tune of Rs.56,81,626/- i.e. the investment made by the

assessee upto the due date of filing return of income u/s 139(4) of the

Act i.e. 31.03.2015. Further the total amount reinvested by the

assessee was Rs.63,75,938/- in the new house property. Hence, it

could be seen that even though the assessee derived Long Term

Capital Gains on sale of old house property, but had not deposited the

sale consideration/Long Term Capital Gain in “Capital Gains Accounts

Scheme” but had duly reinvested in the new house property within two

years from the date of transfer of the old property to the tune of

Rs.63,75,939/- which is much more than the Long Term Capital Gains

of Rs.60,38,585/- arising on sale of old house property, hence, the

assessee would be eligible for exemption u/s 54 of the Act in the facts

and circumstances of the instant case. The purpose of law mandating

the deposit of sale consideration/Long Term Capital Gain in “Capital

Gains Accounts Scheme” and thereafter withdrawing from that

designated bank account for the purpose of reinvestment in new

property is only to ensure that the assessee if he intends to avail the

exemption u/s 54 of the Act, then he has to invest in new property and

he should not run short of funds for making such reinvestment. Yet another purpose of availing of granting exemption u/s 54 is that every assessee should have his / her own house for his/her livelihood and habitation. Considering this purpose also and applying the same to the facts and circumstances of the instant case and respectfully following the judicial precedent applying hereinabove, we hold that the assessee had substantially complied with the provisions of section 54 of the Act by actually reinvesting in the new house property within the prescribed time thereon. While this is so, the assessee should not be denied exemption u/s 54 of the Act for a mere procedural irregularity of not routing the funds for making reinvestment through the “Capital Gains Accounts Scheme”. Accordingly, the grounds raised by the assessee are allowed.

Order pronounced in the open court on 21st December, 2023.

Sd/- Sd/- (ANUBHAV SHARMA) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 21.12.2023

6 f{x~{tÜ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI