Vikesh Garg Vs DC-ACIT(2) (ITAT Varanasi)
ITAT Varanasi allowed the assessee’s appeal and directed the Assessing Officer to grant deduction under section 54F of the Income Tax Act, 1961 for AY 2017-18. The assessee had sold unlisted securities of three companies on 30.03.2017 and earned long-term capital gain of Rs.3,84,93,237/-. Since he proposed to claim exemption under section 54F, the entire sale proceeds of Rs.4,00,43,410/- were deposited in a Capital Gains Deposit Account with UCO Bank, Gorakhpur before the extended due date of 31.10.2017 for filing the return. The assessee accordingly treated the amount deposited as the “cost of new asset” under section 54F(4).
During assessment, the AO noticed that the assessee purchased land measuring 1,000 sq. mtrs. on 16.08.2019 and that the land contained a small house measuring about 500 sq. ft. Treating this as purchase of a new house, the AO observed that the property had been purchased beyond two years from the transfer of the original asset on 30.03.2017. The AO therefore rejected the section 54F deduction, and the CIT(A) confirmed the assessment.
Before the Tribunal, the assessee submitted that the entire sale consideration had been deposited under the Capital Gains Deposit Scheme within the prescribed time. Under section 54F(4), the amount so deposited is deemed to be the cost of the new asset for purposes of section 54F(1). It was argued that if the deposited amount remained wholly or partly unutilized within the prescribed three-year period, the proviso to section 54F(4) provided the mechanism for taxing the relevant capital gain in the previous year in which the three-year period expired. Consequently, subsequent utilization could not justify rejection of the deduction in AY 2017-18.
