Exemption u/s 54B allowed despite no Capital Gain Account deposit, since timely agricultural land reinvestment proved

ITAT Ahmedabad allowed the assessee's appeal, holding that exemption u/s 54B could not be denied merely on account of non-deposit of unutilized capital gains in the Capital Gain Account Scheme, where reinvestment conditions were otherwise met. The Tribunal found that the assessee had purchased eligible agricultural land within the prescribed period, with the sale deed executed, cheques issued for full consideration, and sufficient bank balance maintained on 14.08.2019. As the substantive requirement of reinvestment in specified assets within time was fulfilled and undisputed, exemption u/s 54B was granted.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether deduction under section 54B can be denied for non-deposit of unutilized capital gains in the Capital Gains Account Scheme when the assessee has purchased new agricultural land within the prescribed period and issued cheques for the entire consideration before the due date of filing the return, though such cheques were realized subsequently.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Deduction under section 54B vis-à-vis non-deposit in Capital Gains Account Scheme and timing of payment by cheque

(a) Legal framework (as discussed)

2.1 The Tribunal proceeded on section 54B(1) and 54B(2) of the Act, concerning: (i) reinvestment of capital gains in purchase of agricultural land within the statutory period, and (ii) requirement of depositing unutilized capital gains in the Capital Gains Account Scheme before the due date for filing the return under section 139(1), where such gains are not so utilized by that date.

(b) Interpretation and reasoning

2.2 The Tribunal recorded the following facts as undisputed: (i) the purchase deed for new agricultural land was executed on 14.08.2019; (ii) cheques for the entire purchase consideration were issued on the same date; and (iii) the assessee maintained adequate bank balance to honour the cheques. There was no dispute as to the assessee having reinvested the capital gains in eligible assets within the prescribed period.

2.3 The assessee's contention was that once cheques for the entire consideration were issued on the date of execution of the registered purchase deed and sufficient bank balance was maintained, the payment should be regarded as made on the date of issuance of the cheques, and deduction under section 54B could not be denied merely because the cheques were presented and realized after the due date of filing the return and the amount was not deposited into the Capital Gains Account Scheme.

2.4 The Department contended that non-deposit of the unutilized capital gains into the Capital Gains Account Scheme before the due date under section 139(1) is fatal to the claim in view of section 54B(2).

2.5 The Tribunal noted that the reinvestment of the capital gains into the specified asset within the prescribed time was not in dispute. Reference was made to several decisions of High Courts and Coordinate Benches interpreting similar exemption provisions in favour of allowing deduction where the substantive condition of reinvestment within the stipulated time was satisfied, notwithstanding procedural lapses in routing through the Capital Gains Account Scheme.

2.6 On this basis, the Tribunal treated the requirement of deposit into the Capital Gains Account Scheme as not overriding the fact that the capital gains had in substance been reinvested in eligible agricultural land within the statutory period and that the liability for payment had been effectively incurred and discharged through cheques issued contemporaneously with execution of the purchase deed and backed by adequate funds.

(c) Conclusions

2.7 The Tribunal held that, since the reinvestment of capital gains into the specified agricultural land within the prescribed time was not in dispute, deduction under section 54B could not be restricted merely on the ground that the unutilized amount was not deposited in the Capital Gains Account Scheme and that the cheques were realized after the due date of filing the return.

2.8 The disallowance of deduction under section 54B was set aside and the appeal of the assessee was allowed.

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