Taxpayer Omitted Section 54F Claim in ITR; ITAT Grants Rs. 59.34 Lakh Exemption on Residential Flat Investment

The Nagpur Bench of the Income Tax Appellate Tribunal (ITAT) held that a legitimate claim for exemption under Section 54F cannot be denied merely because it was not claimed in the original return of income or in the return filed in response to a notice under Section 148. The Tribunal directed the Assessing Officer to allow deduction of Rs.59.33 lakh to the assessee after finding that all statutory conditions for the exemption were satisfied and the Revenue had not disputed the assessee’s eligibility.

The assessee, Shri Bhojraj Wasudeorao Koramkar, had originally filed his return for AY 2018-19 declaring income of Rs 29.84 lakh. Following a search action under Sections 132 and 133A conducted in January 2023, reassessment proceedings were initiated under Section 147. During the reassessment, the department noticed that the assessee had sold agricultural land and earned long-term capital gains which had not been disclosed in the return.

The assessee explained that he had omitted the capital gains under a bona fide belief that the surplus arising from the sale of agricultural land was not taxable. During the assessment proceedings, he further pointed out that he had purchased a residential flat for Rs.83.79 lakh through banking channels and was therefore eligible for exemption under Section 54F. Based on this investment, he computed the taxable long-term capital gain at Rs 11.47 lakh instead of Rs 70.81 lakh.

The Assessing Officer rejected the exemption claim solely on the ground that it had not been claimed either in the original return filed under Section 139(1) or in the return filed in response to the notice under Section 148. The Commissioner (Appeals) also upheld the disallowance.

Before the Tribunal, the assessee argued that all material facts and supporting documents relating to the residential property investment were already available on record and that the Revenue had never disputed fulfilment of the conditions prescribed under Section 54F. Reliance was placed on several judicial precedents, including Pruthvi Brokers & Shareholders Pvt. Ltd., Jai Parabolic Springs Ltd., and Jute Corporation of India Ltd., to contend that a lawful claim can be entertained even if it was not made in the return of income.

The Tribunal observed that the Revenue authorities had not questioned the assessee’s eligibility for deduction under Section 54F. It noted that once the substantive conditions of the provision were fulfilled, the benefit could not be denied on a mere technicality. Referring to earlier decisions, the Tribunal emphasized that the purpose of assessment proceedings is to determine the correct taxable income and tax liability. If the Assessing Officer relies upon facts and evidence furnished during assessment for computing income, he cannot refuse to consider consequential exemptions and deductions arising from those very facts.

Holding that denial of the claim was unjustified, the Tribunal directed the Assessing Officer to grant the Section 54F deduction of Rs.59,33,756 and recompute the taxable capital gains accordingly. The appeal of the assessee was allowed.

To Read Full Order, Download PDF Given Below