No tax for lady who sold lands for 4.5 crore; Know why

When Seema S. sold her property in Patna, Bihar for Rs 4.5 crore back in 2016, she didn’t have to pay any long term capital gains (LTCG) tax. The reason for this is she claimed LTCG tax exemption under Section 54. Seema reported an income of Rs 21 lakh in her income tax return (ITR) and calculated her LTCG from the Rs 4.5 crore sale of the Patna land to be Rs 2.58 crore. She then claimed the Section 54 LTCG tax exemption in her ITR as she used the full LTCG amount to buy a house in New Delhi for Rs 2.6 crore. This was where the income tax department had an issue.

The income tax assessing officer (AO) sent her several notices and even issued an order. During the tax scrutiny process, the AO rejected her claim under Section 54, stating that the property sold was not a residential house. While Section 54F could have been applicable, the AO pointed out that the assessee (Seema) neither claimed deduction under Section 54F nor submitted the required details.

So, the whole situation boiled down to a single typographical error. Seema’s transactions for selling and buying property were legal, but she made a mistake in her ITR. She should have used Section 54F to claim the LTCG tax exemption, but she used Section 54 instead. She attempted to get the commissioner of appeals (CIT (A) understand this mistake and pleaded her case, but CIT (A) rejected her appeal. She then filed an appeal in ITAT Patna.

For the uninitiated, Section 54F of the Income-tax Act, 1961 grants an tax exemption from long-term capital gains (LTCG) where the gains arose from the transfer of any long-term capital asset other than a residential house property, provided the taxpayer invested the net sale consideration in the purchase or construction of a residential house in India. within a specified time-period.

Seema’s lawyers argued at ITAT Patna, that the income tax assessing officer had taken unnecessary advantage of the ignorance of Seema contrary to the spirit of the Circular of the Central Board of Direct Taxes (CBDT) bearing No. 14 (XL-35) dated November 11, 1955.

Her lawyers said: “(In the circular)…it has been clearly directed that Officers of the Department must not take advantage of ignorance of an assessee as to his rights and it is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department…"

ITAT Patna listened to both the tax department and Seema, ultimately ruling in Seema’s favour. They ordered the case to be sent back to the AO to allow the claim for Section 54F and if more evidence is needed, Seema can be called for again. The ITAT also said that Seema must be given a reasonable opportunity present her case before any decisions are made according to the law.

Also read: No income tax for son who sold late mother’s flat for Rs 1.45 crore to buy seven houses; how a minor language error helped him

Check out the details below to find out how Seema won this case and what it means for property sellers.

How did this case start?
According to the ITAT Patna order (ITA No. 715/PAT/2024) dated June 6, 2025, here are the details:

• September 9 and October 26 of 2016: The taxpayer sold her property and registered this transaction at the Sub-registrar’s office in Danapur, Patna. She got Rs 4.5 crore (4,50,14,000) from this property sale deal.
• November 5, 2016: The taxpayer purchased a new property in New Delhi for Rs 2.62 crore (2,62,08,000).
• AY 2017-18: She filed her ITR reporting sale of immovable property in Patna and claiming deduction under section 54 for the LTCG.
• December 7, 2019: The tax department issued her a show-cause notice as to why her Section 54 LTCG tax exemption claim should not be denied. She failed to respond to this notice.
• December 28, 2019: The Income Tax Department issued an order against her, denying the claim for Section 54 LTCG tax exemption. She files an appeal against this order with the Commissioner of Appeals – CIT (A)
• November 14, 2024: CIT (A) rejects her appeal. She filed an appeal in ITAT Patna after this.
• June 6, 2025: She wins the case in ITAT Patna.

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What did ITAT Patna say about the taxpayer’s mistake ?
George Mathan, Judicial member and Rakesh Mishra, accountant member of ITAT Patna said in the order dated June 6, 2025:

• We have gone through the orders of the Ld. CIT(A) as well as the Ld. AO. In the course of the appeal before us, it was submitted that inadvertently the assessee had claimed deduction under Section 54 but had invested in a residential house and Section 54F was erroneously not mentioned although the same was applicable to the facts of the case of the assessee.
• In the paper book filed, at page 5 para 9 in the assessment order, the Ld. AO has mentioned that the assessee had neither claimed any exemption under Section 54 nor had provided any details regarding whether she fulfils all the applicable conditions as mentioned in Section 54, therefore, the exemption under Section 54 is not allowable.

Case law used: ITAT Pune said: “We have considered the rival submission and have also gone through the order of the Hon'ble Supreme Court in the case of Goetze India Ltd. (supra) which has also been discussed in the case of CIT vs. Jai Parabolic Springs Ltd. (supra) by the Hon'ble Delhi High Court.”

Patna ITAT final judgement
George Mathan, Judicial member and Rakesh Mishra, accountant member of ITAT Patna said in the order dated June 6, 2025

• As mentioned by the assessee, the limitation for allowing the deduction by filing a revised return is applicable only to the Assessing Officer and not to the Appellate Authority, therefore, the Ld. CIT(A) ought to have allowed the deduction which was inadvertently claimed under Section 54 but the assessee was otherwise eligible for deduction under Section 54F.
• Since this is a purely legal issue and the mistake occurred at the level of the Ld. AO, the Ld. AR submitted that the matter may be sent back to the Ld. AO as he has disallowed the claim without specifying the fact that Section 54F of the Act was not applicable.
• Hence, in view of the settled judicial principle that the claim under a wrong Section does not bar the assessee from making the claim under the correct Section if the assessee is otherwise eligible and further even though the deduction has to be claimed in the return of income for being allowed by the Ld. AO, however, this limitation is only for the Assessing Authority and the Appellate Authority can grant the exemption/deduction claimed if the facts on record convey so.
• Hence, since the assessee had purchased a residential house and she was eligible for deduction under Section 54F and had made calculations of capital gains and had submitted to same, accordingly it is deemed to be in the fitness of things that the order of the Ld. CIT(A) is hereby set aside and the matter is remitted to the Ld. AO to allow the claim u/s 54F of the Act and allow the requisite relief on the basis of evidence filed by the assessee as the assessee is eligible for the exemption under section 54F of the Act and in case any further evidence is required, the same may also be furnished by the assessee before him.
• The assessee shall be allowed a reasonable opportunity of being heard before deciding the issue in accordance with law.

Judgement: “In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 6th June, 2025.”

What did Section 54 say at the time of this transaction?
Chartered Accountant, Dr Suresh Surana, says: "Section 54 of the Income-tax Act, 1961 provided exemption from long-term capital gains where the gains arose from the transfer of a residential house property (being buildings or lands appurtenant thereto) and the assessee, being an individual or Hindu Undivided Family (HUF), invested such gains in the purchase or construction of another residential house in India. The essential conditions were:

The asset transferred must be a long-term capital asset, being a residential house property.

The assessee (individual or HUF) must, within:

• One year before or two years after the date of transfer, purchase a residential house in India, or
• Three years after the date of transfer, construct a residential house in India.

The amount of exemption was:

• Equal to the amount of capital gain, if the entire capital gain was invested in the new residential house; or
• Proportionate, if only part of the capital gain was invested.

Surana says: "If the new residential house was transferred within three years of purchase or construction, the exemption was withdrawn. Thus, Section 54 was confined to cases where the original asset sold was itself a residential house property. In the given case, since the asset sold was land (not a residential house), the correct provision applicable was Section 54F, which deals with exemption of capital gains arising from sale of any long-term asset (other than a residential house) when the proceeds are invested in a residential house."

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What did Section 54F say at the time of this transaction?
Surana explains: "Section 54F of the Income-tax Act, 1961 granted exemption from long-term capital gains where the gains arose from the transfer of any long-term capital asset other than a residential house property, provided the assessee, being an individual or Hindu Undivided Family (HUF), invested the net consideration in the purchase or construction of a residential house in India. The main conditions were as follows:

• The asset transferred must be a long-term capital asset, but not a residential house.
• The assessee should, within:

One year before or two years after the date of transfer, purchase a residential house in India, or

Three years after the date of transfer, construct a residential house in India

• The extent of Exemption would be as follows:

If the entire net consideration was invested in the new residential house, the whole of the capital gain was exempt.

If only a part of the net consideration was invested, the exemption was proportionate, i.e. capital gain × (amount invested ÷ net consideration).

Surana says: "If the new residential house was transferred within three years from the date of purchase/ construction, the exemption would be withdrawn. Accordingly, Section 54F was specifically designed to provide exemption where an assessee sold land or any other long-term asset (other than residential property) and invested the net sale proceeds into a residential house. This provision was directly applicable in the assessee’s case, since the property sold was land and the proceeds were invested in a residential house."

Also read: Wife to get back her seized 998 purity gold jewellery, rules Delhi High Court.

What do experts say?
ET Wealth Online reached out to various experts about the significance of this judgement. Here’s what they said:

Yash B. Joglekar, Counsel, Bombay High Court, says: This taxpayer is entitled to an exemption under Section 54F. Although the claim was erroneously made under Section 54, the Tribunal held that such a clerical mistake should not preclude relief, provided the sale proceeds were invested in a residential property. While the Assessing Officer (AO) is bound by the return filed and cannot entertain fresh claims without a revised return, appellate authorities are empowered to grant appropriate relief if the factual matrix supports it.

Significance of this judgement:

• This judgment reinforces key principles of tax jurisprudence:
• Substance over form, genuine entitlement should not be denied due to technical errors.
• Appellate discretion, higher authorities possess broader powers than the AO to ensure justice.
• Liberal interpretation of beneficial provisions, Sections 54 and 54F, must be construed to protect taxpayers from undue hardship arising from procedural lapses.

Chartered Accountant Dr Suresh Surana, says: "In the given case, the assessee had sold land during the relevant year and invested the proceeds in the purchase of a residential house. While filing her return of income, she inadvertently claimed exemption under Section 54 of the Income-tax Act, 1961 (hereinafter referred to as ‘the IT Act’), instead of the applicable Section 54F. The Assessing Officer disallowed the claim on the ground that Section 54 applies only where the asset sold is a residential house, which was not the case here. Although Section 54F was relevant, the Assessing Officer held that since the assessee had not claimed it in the return, the exemption could not be granted. The Commissioner (Appeals) also upheld this view and rejected the assessee’s contention that the error was only clerical."

"The Tribunal, however, took a different view. It held that quoting the wrong section does not disentitle a taxpayer from claiming relief under the correct provision, provided the substantive conditions are satisfied. In this case, the purchase of a residential house out of the sale proceeds clearly made the assessee eligible under Section 54F. The Tribunal further clarified that while the Assessing Officer is restricted by the requirement that a fresh claim must be made through a revised return, this limitation does not apply to appellate authorities, who can grant relief on the basis of facts already on record. Reliance was placed on judicial precedents such as CIT v. Jai Parabolic Springs Ltd. (Delhi High Court), which recognise the powers of appellate forums to allow such claims."

"The assessee also relied on CBDT Circular No. 14 of 1955, which advises tax officers not to take advantage of a taxpayer’s ignorance and to assist them in securing due reliefs. While the Tribunal acknowledged this principle, its decision was primarily based on established case law holding that appellate authorities are empowered to admit a correct claim if the facts support eligibility. Accordingly, the Tribunal set aside the order of the Commissioner (Appeals) and remanded the matter to the Assessing Officer with directions to allow the exemption under Section 54F after verifying the necessary details."

Alay Razvi, Managing Partner, Accord Juris, says: This taxpayer can claim capital gains tax exemption under Section 54F based on the facts and the ITAT Patna ruling (ITA No. 715/PAT/2024). Here’s why:

• The taxpayer sold land (not a residential house), so the correct exemption is under Section 54F (for sale of non-residential property and investment in a residential house), not Section 54 (which is for sale of residential house.
• Although the assessee claimed Section 54 in the tax return, the facts and details submitted demonstrated eligibility for Section 54F. This was characterized as a typographical (clerical) mistake.
• The taxpayer had bought a new residential house and submitted all the relevant capital gains calculations and property deeds. The Tribunal recognized that the facts supported the Section 54F claim.
• The ITAT followed the settled legal principle that a claim made under the wrong Section does not deprive the taxpayer of the substantive exemption if the taxpayer is otherwise eligible under the correct section. Crucially, while the Assessing Officer can only allow claims made in the tax return, the Appellate Authority (CIT(A) or ITAT) can grant proper relief if the facts on record justify it, even if the right section was not claimed originally.
• The ITAT set aside the lower appellate order and remanded the matter to the Assessing Officer, directing that Section 54F exemption be allowed upon verification of facts and evidence already filed by the assessee.

Rashi Khanna, Associate Partner, DMD Advocates, say: "The provisions of sections 54 and 54F are beneficial in nature and have been introduced in the statute with the objective of providing relief to bona-fide taxpayers from the levy of capital gains tax. The principal issue in this case was whether mere wrong mention of the section, in the return of income, would disentitle the assessee from claiming a deduction."

"The lower authorities, in the case under consideration, had taken a pedantic view of the issue and had denied the claim of exemption on superficial basis, viz., assessee had quoted the wrong section in the ITR. The Tribunal has correctly set-aside the orders passed by the lower authorities and has held that mere typographical error in claiming the deduction will not disentitle the assessee from claiming the benefit of the section."

"A similar judgment was passed by the Mumbai Bench of the Tribunal in the case of ITO vs. Armine Hamied Khan : [2022] 142 taxmann.com 14 (Mumbai - Trib.), wherein the Tribunal had held that where an assessee has a rightful claim for deduction, mere wrong quoting of the section cannot lead to disallowance in his hands. These judgment/s reinforce the legal position that beneficial provisions have to be liberally interpreted."

Aditya Chopra, Managing Partner The Victoriam Legalis (TVL), says: This taxpayer is entitled to claim exemption under Section 54F. The case would fall under the ambit of Section 54F, considering she sold land which was not a residential property, and subsequently invested the proceeds in the purchase of a residential house. The issue arose only because she inadvertently claimed the exemption under an incorrect provision.

However, the ITAT held that merely a clerical / typographical mistake cannot deprive her of a rightful claim. Hence, she is eligible for such tax exemption. The judgment is significant because it protects taxpayers from being deprived of genuine reliefs and safeguards the rightful interest of taxpayers.

The judgment refers to CBDT Circular No. 14 (XL-35)
Joglekar explains:

• CBDT Circular No. 14 (XL-35), dated 11 April 1955, remains in force. It directs tax authorities to act in a fair and facilitative manner, ensuring that taxpayers are not deprived of legitimate reliefs due to ignorance or technical errors. Officers are expected to assist assesses in securing lawful exemptions, refunds, and deductions, even if not expressly claimed.
• In this case, the circular underscores that the AO ought to have guided the taxpayer and applied Section 54F, notwithstanding the mistaken reference to Section 54. Its continued relevance lies in promoting a taxpayer-friendly and equitable approach to tax administration.