Case Law Details
DCIT Vs Rajesh Jain (ITAT Dehradun)
Deduction under section 54B cannot be denied merely because the unutilised amount was not deposited in the Capital Gains Account Scheme, where the assessee has actually invested the sale consideration in purchase of agricultural land within the prescribed two-year period.
Issue: Whether exemption under section 54B could be denied solely because the assessee did not deposit the unutilised amount in the Capital Gains Account Scheme (CGAS), despite having invested the sale proceeds in new agricultural land within two years from the date of transfer.
Facts: The assessee earned long-term capital gains on sale of agricultural land and claimed deduction under section 54B of ₹2,78,84,118. The Assessing Officer disallowed the claim on the ground that the amount was not deposited in the CGAS before the due date of filing the return under section 139(1). The CIT(A) deleted the disallowance after noting that the assessee had invested ₹2,89,94,871 out of the total sale consideration of ₹2,92,01,133 in purchase of agricultural land within two years from the date of transfer.
Tribunal’s Findings: The Tribunal observed that the fact of purchase of new agricultural land out of the sale proceeds was undisputed. It held that section 54B(2), which requires deposit in the CGAS, applies only when the capital gains are not utilised for purchase of new agricultural land before the due date of filing the return. Once the amount is actually invested within the statutory period of two years, non-deposit in the CGAS is only a procedural lapse and does not disentitle the assessee to exemption.
The Tribunal relied on the decision of the Karnataka High Court in K. Ramachandra Rao v. CIT, where it was held in the context of section 54F that exemption cannot be denied if the sale consideration is fully utilised within the prescribed period, even if the amount was not deposited in the CGAS. The same principle was held applicable to section 54B. The Tribunal also noted the later Karnataka High Court decision in Narayan Ravi Prakash v. ITO affirming this view.
As the Revenue could not produce any contrary authority or evidence to dispute the actual reinvestment, the Tribunal upheld the order of the CIT(A) and dismissed the Revenue’s appeal.
Held: Actual investment of capital gains in agricultural land within two years satisfies the substantive requirement of section 54B. Exemption cannot be denied merely because the amount was not deposited in the Capital Gains Account Scheme before the due date of filing the return.
Cases Relied Upon:
1. K. Ramachandra Rao v. CIT Held that where the assessee invests the entire capital gains in the eligible asset within the statutory period, exemption under section 54F cannot be denied merely because the amount was not deposited in the Capital Gains Account Scheme before the due date under section 139(1).
2. Narayan Ravi Prakash v. ITO Reaffirmed that deposit in the Capital Gains Account Scheme is not mandatory when the capital gains are actually utilised for the specified investment within the time permitted under the Act.
3. ITO v. Vinod Gugnani Held that exemption under sections 54/54F cannot be denied solely for non-deposit in the Capital Gains Account Scheme where the assessee had invested the sale consideration within the prescribed statutory period.
4. Deputy Commissioner of Income Tax v. Rajesh Jain Applied the above principles to section 54B and held that actual reinvestment in agricultural land within two years is sufficient, notwithstanding non-deposit in the Capital Gains Account Scheme.
FULL TEXT OF THE ORDER OF ITAT DEHRADUN
The present appeal is filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals/ National Faceless Appeal Centre (‘Ld. CIT(A)/NFAC’ for short), New Delhi dated 04/11/2025 for the Assessment Year 2016-17.
2. Brief facts of the case are that, the Assessee filed return of income for Assessment Year 2016-17 declaring taxable income of Rs. 40,70,830/- as assessing from salary, house property business income and interest income during the year under consideration the Assessee had also earned Long Term Capital Gain on sale of certain property and claimed exemptions under Section 54F, 54EC and 54B of the Income Tax Act, 1961 (‘Act’ for short). The case of the Assessee was selected for scrutiny under CASS. An assessment order came to be passed on 30/12/2018 under Section 143(3) of the Act wherein the A.O. made disallowance of exemption claimed under Section 54B of the Act to the tune of Rs. 2,78,84,118/- and also made addition under Section 44AD of the Act of Rs. 52,536/-. Aggrieved by the assessment order dated 30/12/2018, Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 04/11/2025, deleted the disallowance and held that Assessee is entitled for deduction under Section 54B of the Act and directed the A.O. to allow deduction of Rs. 2,78,84,118/- under section 54B of the Act. Aggrieved by the order of the Ld. CIT(A) dated 04/11/2025, the Revenue preferred the captioned Appeal.
3. The Ld. Departmental Representative submitted that the Ld. CIT(A) has erred in deleting the disallowance of Rs. 2,78,84,118/- claimed under Section 54B of the Act despite the Assessee not applying with the statutory requirement as laid down under Section 54B (2) of the Act. The Ld. Departmental Representative further submitted that the Ld. CIT(A) ignored the fact that the Assessee statutory lapse of non depositing the unutilized fund before the due date of filing of return of income while allowing the relief to the Assessee. Thus, submitted that the Ld. CIT(A) committed grave error in allowing the Appeal, therefore, sought for allowing the present Appeal.
4. Per contra, the Ld. Assessee’s Representative submitted that the Assessee has invested the capital gain in purchase of agricultural lands within the period of two years from the date of transfer of original agricultural lands which shows the real intention of the Assessee is to make investment in purchase of new agricultural land from the sale proceedings of another agricultural land. The Ld. Counsel has relied on following judicial precedents in support of his contention
i. Income – tax Officer vs. Vinod Gugnani [2022] 145 com 314(Delhi – Tri.)
ii. CIT v K. Ramachandra Rao [2015] 56 com 163/230 taxman 334 (Kar.)
iii. Narayan Ravi Prakash vs. Income Tax Officer, National Faceless Assessment Centre, New Delhi [2024] 167 com 192 (Karnataka) [06.08.2024]
5. Further submitted that the Ld. CIT(A) has rightly relied on the ratio laid down by the Hon’ble High Court of Karnataka in the case of CIT Vs. Ram Chandra Rao (2015) 56 Taxmann.cm 163(Karnataka) thus, sought for dismissal of the Appeal.
6. We have heard both the parties and perused the material available on record. The solitary issue to be considered in the present Appeal is the deletion of the disallowance of deduction of Rs. 2,78,84,118/-claimed under Section 54B of the Act. The Ld. A.O. while made the disallowance on the ground that the Assessee has not depositedtheamounts in CapitalGain Account Scheme and held that the same is violation of Section 54B (1) of the Act. Admittedly the Assessee has purchased new agriculture land from the sale proceeds of another agriculture land. The said fact has not been disputed by the A.O. however, the Assessee has not deposited the amount in the capital gain account. but spent the substantial amount to purchases the new agriculture lands within the period of two years from the date of original transfer of land. The Ld. CIT(A) deleted the addition by relying on the Judgment of Hon’ble High Court in the case of CIT(A) vs. Ramchandra Rao (2015) 56 Taxmann.com163(Karnataka).
7. 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 total accumulative sale consideration received by the Assessee in the sale of agriculture land was Rs. 2,92,01,133/- and spent total sum of Rs. 2,89,94,871/- which is within the span of two years. However, the amount has not been deposited in capital gain account. The Hon’ble High Court of Karnataka in the case of K. Ramchandra Rao (supra), held that Assessee having invested entire sale consideration in construction of a residential house within three years from date of transfer, he could not be denied exemption under Section 54F on ground that he did not deposit said amount in capital gains account scheme before due date prescribed under Section 139(1) of the Act and decided the issue in favour of the Assessee in following manners:-
“3. The two substantial questions of law which arise for consideration in these batch of appeals are as under :-
1) Whether the assessee is entitled to the benefit conferred under Section 54F when the sale consideration is utilized for construction of a residential house on a site which is owned by him within one year from the date of transfer?
2) When the assessee invests the entire sale consideration in construction of a residential house within three years from the date of transfer can he be denied exemption under Section 54F on the ground that he did not deposit the said amount in capital gains account scheme before the due date prescribed under Section 139(1) of the IT Act?
3. Re.Point No.1 Section 54(F) deals with capital gains on transfer of certain capital assets not to be charged in case of investment on house. It reads as under.
54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,–
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
Provided that nothing contained in this sub- section shall apply where—
(a) the assessee,–
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii)constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.] Explanation.–For the purposes of this section,–
[***] [***] “
net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruingas a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of subsection (1), shall be deemed to be income chargeable under the head “Capital gains” relating to longterm capital assets of the previous year in which such residential house is purchased or constructed.
(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.]
[(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub- section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of subsection (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub- section (1), then,– 7 ITA No. 607/Del/2020 ITO Vs. Vinod Gugnani
(i) the amount by which– (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds (b)the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and
(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.
Section 54F(1) provides, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long term capital asset, not being a residential house and the assessee within a period of one year before or two years after the date on which the transfer took place, purchased or has within a period of three years after that date constructed a residential house, the capital gain shall be dealt with in accordance with the said provision. This is subject to the provisions of Sub Section (4).
Sub Section (4) stipulates if the amount of net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which transfer of the original asset took place or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under Section 139 of the Act shall be deposited by him before furnishing such return in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under Section 139(1) of the Act in an account in any such bank or institution as specified and utilized in accordance with any scheme which the Central Government may, by notification in the official gazette framed in this behalf. Sub Section (4) is attracted only to a case where the sale consideration is not utilized either for purchase or for construction of a residential house. It has no application to a case where the assessee invests the sale consideration derived from the transfer either in purchasing the property or constructing theresidential house within the period stipulated in Section 54F(1). The proviso to Section 54F puts an embargo on the application of Section 54F to cases which are mentioned in the said proviso. That is to be eligible for the benefit under Section 54F(1) the assessee should not be owning more than one residential house other than the new asset acquired or he should not purchase any residential house other than the new asset within a period of one year after the date of transfer of residential asset or constructs any residential house other than the new asset within a period of three years after the date of transfer of the residential asset. In the entire scheme there is no prohibition for the assessee putting up construction out of sale construction received by such transfer of a site which is owned by him as is clear from the language used. It is open for the assessee to put up a residential construction or to purchase a residential house. It is not the requirement of law that he should purchase a residential site and then put-up construction. Therefore, in the instant case admittedly the assessee has purchased a vacant site on 31.3.2001. He sold the original asset on 27.8.2003 on which date he was already owning a site. In fact even before sale of the original asset he had started construction on such site by availing loan from the Bank. In terms of Section 54F(1) all investments made in the construction of the residential house of the said site within a period of one year prior to 27.8.2003 would be eligible for exemption under Section 54F(1). Similarly all investments in the said construction after 27.8.2003 within a period of three years there from is also eligible for exemption. Therefore, the argument that such investment in putting up a residential construction cannot be made on a site owned by him to be eligible for exemption is without any substance. Both the Appellate Authorities have rightly extended the benefit to the assessee and there is no error committed by them which calls for interference.”
8. Considering the fact that the Ld. CIT(A) after apprehension of the above facts and circumstances and by relying on the Judgment of the Karnataka High Court in the case of Ramchandra Rao (supra),deleted the addition. In the absence of any contrary judicial precedent and also in the absence of any contrary material brought on record by the Revenue to controvert the finding and the conclusion of the Ld. CIT(A), we find no error or infirmity in the order of the Ld. CIT(A) in deleting the disallowance made by the A.O. Thus, we dismiss the Grounds of Appeal of the Revenue which is devoid of merit. Accordingly, Appeal of the Revenue is dismissed.
Order pronounced in the Open Court on this 15th Day of May, 2026
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