Capital gains reinvestment delay of 14 days in depositing to capital gain account scheme allowed; exemption under section 54 restored.

Whether a 14 day delay in depositing part of sale proceeds into the capital gain account scheme defeats exemption under section 54 was examined. The Tribunal treated the short delay as a technical lapse where the assessee had preserved funds in bank and completed construction within the statutory period; applying prior precedents, it concluded the breach was non substantive. Consequence: the capital gains exemption under section 54 was upheld and the addition of Rs.1,58,37,000 was deleted, allowing the appeal in favour of the assessee.

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Issues: Whether the disallowance of deduction under section 54 of the Income-tax Act, 1961 for AY 2014-15 - on the ground that the assessee deposited the residue of sale proceeds in the capital gain account scheme after the due date under section 139(1) of the Income-tax Act, 1961 - was correctly sustained by the Ld. CIT(A).

Analysis: The assessee sold a residential property and claimed exemption under section 54 of the Income-tax Act, 1961 on long term capital gains, having invested the sale proceeds in construction of a new residential house within the three-year period prescribed by law. The only non-compliance was a delay of 14 days in depositing part of the sale proceeds into the capital gain account scheme as required by section 54(2) of the Income-tax Act, 1961 and section 139(1) of the Income-tax Act, 1961 sets the due date for filing the return. The Tribunal examined whether this short delay constituted a substantive breach disentitling the assessee to section 54 benefit or amounted to a technical lapse. The assessee had deposited the sale proceeds in a bank and subsequently used those funds to construct the new residential house within the statutory period; prior Tribunal authorities were applied which treated brief delays in depositing to the capital gain account scheme as technical lapses that should not defeat the beneficial exemption under section 54 of the Income-tax Act, 1961.

Conclusion: The delay of 14 days in depositing the sale proceeds in the capital gain account scheme is a technical lapse and does not defeat the assessee's entitlement to deduction under section 54 of the Income-tax Act, 1961; the addition of Rs. 1,58,37,000/- is to be deleted and the appeal is allowed in favour of the assessee.

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