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The Income Tax Appellate tribunal (ITAT) Appellate Pune ruled that even if an individual has failed to deposit the full amount of capital gains in CGAS (full form) before filing the income tax return (ITR), he/she is still eligible to claim Section 54F capital gains tax exemption if he/she had invested the full capital gains into buying a new property.
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ITAT, in the process, also struck down Commissioner of Income Tax (Appeals) order that had dismissed the taxpayer’s appeal and had confirmed the Income Tax Department’s order.
This judgement came against the background of a case filed by Mr Gugale from Pune who had sold a plot of land for Rs 3.21 crore on March 18, 2014 and bought a new property on February 25, 2015 for Rs 4 crore and claimed full tax exemption of the capital gains from sale of land.
The income tax department had denied this Section 54F capital gains tax exemption on the technical ground that Gugale had failed to deposit the whole of the sale consideration from land into specified capital gain account scheme (CGAS) before furnishing his ITR. Gugale had deposited Rs 2.25 crore. The Income Tax Department calculated capital gains of Rs 3.16 crore. Thus he was sent a tax notice for Rs 91.45 lakh capital gains.
ITAT Pune said that the real intention of the legislature is to get the amount of sale consideration invested in the purchase of residential house within the prescribed period and not to get the amount deposited in capital gain accounts scheme. So when Gugale invested the full capital gains from the sale of land into buying a new property within a period of one year from the date of sale of the land, he is eligible for Section 54F capital gains tax exemption.
ITAT Pune cited a relevant case which decided on similar terms : Karnataka High Court in the case of K. Ramchandra Rao. Read more to know the full details of how and why Gugale won the case in ITAT Pune.
Let’s find out how events panned out-
In Appeal No 1821/PUN/2025, Gugale vs ITO, Ward-14(5), Pune, case, Gugale filed an Income Tax Return (ITR) for Assessment Year 2014-15 on January 23, 2015, declaring an income of Rs 17.18 lakh.
The Income Tax Department picked Gugale’s case for scrutiny. The income tax assessing officer found that the taxpayer sold a plot of land for Rs 3.21 crore on March 18, 2014, and purchased a flat worth Rs 4 crore on February 25, 2015.
The taxpayer claimed capital gains deduction u/s 54F of the IT Act. Out of Rs 3.21 crore amount, the taxpayer could deposit only Rs 2.25 crore in capital gain account scheme (CAGS) in a specified bank account.
The Income Tax Department calculated capital gain of Rs 3.16 crore and taxed Rs 91.45 lakh.
The I-T Department determined a total income of Rs 1.08 crore as against Rs 17.18 lakh reported by Gugale. On the basis of it, the taxman disallowed Gugale’s Rs 91.45 lakh capital gains deductions.
The Income Tax Department also issued notices under Section 143(2) and 142(1) to the taxpayer.
Case summary at a glance
| Particulars | Details |
| Assessee status | Individual |
| Assessment Year | 2014–15 |
| Date of return filed | 23.01.2015 |
| Income declared in return | ₹ 17,18,490 |
| Scrutiny selection | Selected under CASS |
| Notices issued | Sections 143(2) and 142(1) |
| Property sold | Plot of land |
| Date of sale | 18.03.2014 |
| Sale consideration received | ₹ 3,21,00,000 |
| New property purchased | Residential flat |
| Date of purchase | 25.02.2015 |
| Cost of new flat | ₹4 crore |
| Deduction claimed | Section 54F |
| Amount deposited in Capital Gains Account Scheme (CGAS) | ₹ 2,25,00,000 |
| Total capital gain calculated by AO | ₹ 3,16,45,450 |
| Amount disallowed (not deposited in CGAS) | ₹ 91,45,450 |
| Assessed income u/s 143(3) | ₹ 1,08,63,940 |
| Addition made | ₹91,45,450 (Disallowance of Section 54F deduction) |
What Gugale did after being disallowed Rs 91.45 lakh worth of capital gains?
Gugale filed an appeal at Commissioner of Income Tax (Appeals) under the National Faceless Appeal Centre (Ld. CIT(A)/NFAC). The body dismissed Gugale’s appeal and confirmed the Income Tax Department’s order.
Gugale challenged the order of Ld. CIT(A)/NFAC at ITAT, Pune, which pronounced an order in his favour, allowing him capital gains deductions of Rs 91.45 lakh.
What was ITAT, Pune’s findings in the case?
ITAT, Pune, found that the claim of the assessee (Gugale) is that since the whole of the consideration of Rs 3.21 crore has already been invested within one year from the sale of the original asset, in purchase of residential flat valuing for Rs 4 crore, the real intention of the legislature is fulfilled and the deduction under Section 54F needs to be allowed.
Taking the reference of a judgement passed by Hon’ble Karnataka High Court in the case of K Ramchandra Rao (supra), ITAT, Pune, says it is of the opinion that the real intention of the legislature is to get the amount of sale consideration invested in the purchase of residential house within the prescribed period and not to get the amount deposited in CAGS.
ITAT, Pune, applied the precedent set by Karnataka High Court and gave the capital gains tax exemption
ITAT, Pune, cited a case of the High Court of Karnataka in the case of CIT vs. Ramchandra Rao [2015] 56 taxman.com 163 (Karnataka) wherein it was held that under Sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54F(1), if the assessee wants the benefit of Section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government.
The High Court had said in the above mentioned case, if an individual wants to claim exemption from the payment of income tax by retaining cash, then the said amount is to be invested in the said account (CGAS).
The High Court had said in the above mentioned case (an extract): “If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct.”
What did ITAT, Pune, say in its order?
ITAT, Pune, said it its order, “We set aside the order passed by Ld. CIT(A)/NFAC and direct the assessing officer to allow the deduction of Rs 91.45 lakh claimed by the assessee under Section 54F of the IT Act. Thus, the ground No. 2 raised by the assessee is allowed.
“Since alternate ground No.2 has been allowed, ground no.1 becomes infructuous and is therefore not adjudicated.
“In the result, the appeal filed by the assessee is allowed.”
What are two grounds of appeal?
The appellant (Gugale) had raised the following grounds of appeal-
- On facts and circumstance prevailing in the case and as per provisions and scheme of the Act, it be held that the Ld. AO framed the assessment order without issuing show cause notice to the Appellant is violation of principles of natural justice and not in accordance with the provisions of law. The assessment so framed shall be treated as null and void. Appellant be granted just and proper relief in this respect.
Without prejudice to the above, on facts and circumstances prevailing in the case and as per provisions and the scheme of the Act it be held that the disallowance of deduction claimed under Section 54F of the Act amounting to Rs 91,45,450/- is not in accordance with the provisions of the Act. The disallowance so made be deleted. Just and proper relief be granted.
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