CGAS deposit is not a mandatory requirement for claiming capital gain deductions, if it has been invested within the prescribed time limit under section 54(1) of the Income Tax Act for the purchase or construction of a new property
Relevance of Deposit under CGAS for Claiming capital Gain Deductions: In a recent landmark ruling, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) has made it clear that individuals are entitled to claim deductions for capital gains, even if they have not deposited the proceeds into a Capital Gains Account Scheme (CGAS).
The case centered around Sarita Gupta, a resident individual, whose father had sold an immovable property for Rs. 62,06,000 during the relevant year. This prompted the Assessing Officer to reopen the assessment under section 147 of the Income Tax Act.
During the assessment proceedings, Sarita Gupta provided detailed information about the property sale and the resulting capital gain. The Assessing Officer, after thorough examination, completed the assessment based on this information.
However, upon review, the Principal Commissioner of Income Tax (PCIT) noted that the capital gain amount had not been deposited into a CGAS during the provisional term, as required until it was utilized for the purchase or construction of a new property.
Consequently, the PCIT directed the disallowance of the deduction under section 54 of the Act, citing the failure to deposit into the CGAS.
Unsatisfied with this decision, Sarita Gupta filed an appeal before the tribunal. The ITAT bench, comprising Saktijit Dey (Vice-President) and M. Balaganesh (Accountant Member), meticulously examined the details of the property sale and the resulting capital gain.
The Assessing Officer had already verified all necessary facts related to the exemption for capital gains. It was confirmed that the capital gain had indeed been invested within the prescribed time limit under section 54(1) of the Income Tax Act for the purchase or construction of a residential house.
The ITAT bench disagreed with the PCIT’s assessment, stating that the refusal of the deduction solely on the basis of non-deposit into the CGAS was unfounded.
In their ruling, the ITAT bench concluded that individuals have the right to claim deductions for capital gains even if they have not deposited the proceeds into a CGAS. Therefore, the exercise of power under section 263 of the Income Tax Act to revise the assessment order in this case was deemed invalid.
Represented by Sankalp Malik as her counsel, Sarita Gupta’s appeal prevailed. Subhra Jyoti Chakraborty appeared on behalf of the revenue during the proceedings.
This ruling by the Delhi ITAT provides clarity and relief to taxpayers, emphasizing that the CGAS deposit is not a mandatory requirement for claiming capital gains deductions, if it has been invested within the prescribed time limit under section 54(1) of the Income Tax Act for the purchase or construction of a new property.
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