ITAT allows Section 54 exemption before due date of filing belated ITR

ITAT allowed Section 54F exemption and holding that investment made before filing return u/s 139(4) is valid and additions deleted and assessee’s appeal allowed

Fact of the case

The assessee reported income of Rs. 2.34 lakh in his return, but his case caught the department’s eye for a quick check on capital gains deductions. He’d sold unlisted shares, earned long-term capital gains, and invested Rs. 5.65 crore in a residential property. That investment happened before he filed the return under Section 139(4). But the Assessing Officer didn’t buy it—he denied the exemption, slapped on Rs. 5.60 crore as an addition, and said the Section 54F conditions weren’t met. The AO claimed the return needed to be filed under Section 139(1), pointed to alleged ownership of more than one house, and questioned how the gains were computed. The CIT(A) agreed with the AO.

Issues

1. Was the exemption under Section 54F allowed when the assessee invested before filing a return under Section 139(4)?

2. Did holding only a fractional share in a property count as owning multiple houses?

3. Could the exemption be claimed per asset, without first setting off losses?

Tribunal Observation

Section 54F lets you use the sale money for buying a house up until the deadline for filing a belated return under Section 139(4). If you’ve already invested in the new house before filing, you don’t have to put the money in a capital gains account first. The Tribunal also said that owning a 1/3 undivided share in a single unit is not the same as owning more than one residential house. Plus, each share in the sold assets counts as a separate capital asset, so you figure out an exemption for each one—no need to net off losses first. The lower authorities just misunderstood the law.

JUDGEMENT

The assessee got the exemption under Section 54F. All those additions by the AO were tossed out, and the CIT(A)’s order was overturned.