Krishnamoorthy Vijayaraghavan Vs ITO (ITAT Chennai)
The case of Krishnamoorthy Vijayaraghavan Vs ITO (ITAT Chennai) addresses the crucial question of whether a taxpayer can be denied the benefit of a capital gains exemption under Section 54 of the Income Tax Act, 1961, solely for failing to deposit the unutilized sale proceeds into the Capital Gains Account Scheme (CGAS) before the due date for filing the income tax return. The assessee had sold an original asset in the financial year 2009-10 (Assessment Year 2010-11) but did not file an original return. Upon receiving a reassessment notice () in 2017, the assessee filed a belated return, claiming a deduction of under Section 54 for investing the sale proceeds in a new residential property. The Assessing Officer (AO) disallowed this deduction because the assessee had neither utilized the capital gain for purchasing the new property nor deposited the unutilized amount into the CGAS by the return filing due date (). The AO and the First Appellate Authority (FAA) maintained that failure to meet this specific procedural requirement of Section 54(2) was fatal to the claim.
The assessee appealed to the Income Tax Appellate Tribunal (ITAT), arguing that the investment was made in the new asset within the prescribed three-year period (), thereby complying with the substantive requirement of Section 54. The assessee highlighted that the purchase of an undivided share of land () and the execution of a construction agreement () with a builder, along with payment acknowledged by the AO, confirmed the utilization of the capital gains within the statutory timeframe. The Tribunal, relying on a judgment by the jurisdictional Madras High Court, asserted that Section 54 is a beneficial provision requiring a liberal interpretation. It held that once the taxpayer has actually utilized the capital gains for the purchase or construction of a residential house within the specified period, the deduction cannot be denied merely on account of a technical lapse, such as the non-deposit of the amount in the CGAS.
