ITAT held that capital gain exemption under Section 54 is allowable even if the return is filed belatedly under Section 139(4) under certain condition.
CA Pratibha Goyal | Jun 7, 2025 |
ITAT Allows Capital Gain Exemption u/s 54 Despite Belated ITR
The brief facts of the case are that the assessee is an individual and deriving income from Salary, House Property, Capital Gain and Other sources. For the Asst. Year 2013-14, assessee filed its belated Return of Income u/s. 139(1) on 26.03.2014 declaring total income of Rs.31,71,420/-. The return was taken up for scrutiny assessment and determining the total income as Rs. 54,88,603/-.
The Assessing Officer has made the addition of Rs. 23,17,183/- as Long Term Capital Gain. The assessee sold a residential house on 09.01.2013 for Rs. 45,00,000/- and then purchased an unfinished flat for Rs. 25,60,000/- on 17.02.2014, and the sale considerations were paid between 04.08.2011 to 08.12.2011 (much before the sale of the original property).
The assessee also entered into a Construction Agreement on 25.02.2014 to complete the construction of an unfinished flat for a total consideration of Rs. 51,65,000/-. This consideration was paid during 08.12.2011 to 16.02.2014.
It is thereafter that the assessee filed his belated Return of Income u/s. 139(4) of the Act and claiming exemption u/s. 54 (restricted to Rs. 23,17,183/-).
The Assessing Officer denied the benefit of Section 54 as the assessee failed to deposit the unutilized amount of capital gain in a separate account and also did not file the Return of Income as prescribed u/s. 139(1) of the Act.
Construction of the new flat has been completed within three years
Ld. Senior Counsel submitted that the Ld. CIT(A) was not justified in restricting the claim of exemption u/s. 54 of the Act to the extent of the investment made after the date of transfer of the original asset. Since the overall investment of Rs. 77,25,000/- namely cost of the Flat Rs. 25,60,000/- + construction value Rs.51,65,000/- which is much higher than the Long Term Capital Gain on transfer of original asset, the entire Long Term Capital Gain will be exempt as per Section 54 of the Act, even in a case where the return is filed belatedly but well within the due date prescribed u/s. 139(4) of the Act.
Same money received from the sale of a residential house should be used in the acquisition of a new residential house
ITAT relied on the decision of the Hon’ble High Court of Madras in the case of C. Aryama Sundaram Vs. CIT reported in (2018) 97 taxmann.com 74, which held as follows:
It is axiomatic that Section 54(1) of the said Act does not contemplate that the same money received from the sale of a residential house should be used in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration for transfer of а residential house should be used for acquisition of the new asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which resulted in the capital gain.
ITAT relied on the decision of the Co-ordinateBench of this Tribunal in the case of Manilal Dasbhai Makwana-Vs-ITO reported in (2018) 96 Taxmann.com 219 where the assessee who furnished return subsequent to due date of filing return under s.139(1) but within the extended time limit under s.139(4), was allowed the benefit of investment made up to the date of furnishing of return.
Respectfully following the above judicial precedents, ITAT allowed deduction u/s. 54 to the Assessee.
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