Section 54F Not Claimed in the Return? ITAT Says a Fresh Claim Can Still Be Considered
Kiran Kumar Grandhe v. Income Tax Officer (International Taxation)-1, Hyderabad – A useful ruling on additional claims at the appellate stage
Taxpayers sometimes face an unusual situation: they dispute the very taxability of a capital gain, and therefore do not claim any exemption against it. Later, when the Department ultimately brings the capital gain to tax, can the taxpayer still claim a statutory exemption such as Section 54F, even though it was not claimed in the return of income? The Hyderabad Bench of the Income Tax Appellate Tribunal has answered this question in favour of the taxpayer, subject to verification of the statutory conditions. In Shri Kiran Kumar Grandhe v. Income Tax Officer (International Taxation)-1, Hyderabad, ITA No. 1068/Hyd/2026, order dated 23 September 2026, the Tribunal held that an additional claim under Section 54F could be admitted at the appellate stage even though the assessee had not claimed it in the return filed in response to notice under Section 148 or before the Assessing Officer.
The Background
The assessee was a non-resident individual who had not originally filed a return of income for AY 2020-21 under Section 139. The Department subsequently received information regarding the transfer of an immovable property and reopened the assessment under Section 147. Notice under Section 148 was issued and, in response, the assessee filed a return declaring total income of only ₹3,130. The Assessing Officer initially proposed an addition of ₹1 crore as short-term capital gain arising from the transfer of the immovable property. The matter subsequently travelled to the Dispute Resolution Panel. The DRP determined the gain as long-term capital gain of ₹49,25,389, instead of the proposed short-term capital gain of ₹1 crore.
The Section 54F Claim
An interesting twist arose during the proceedings. The assessee had not claimed deduction under Section 54F either:
in the return filed in response to the Section 148 notice; or
before the Assessing Officer. The claim was subsequently raised before the DRP. The DRP, however, rejected the claim at the threshold primarily because the exemption had not been claimed in the return. The assessee therefore approached the ITAT. Importantly, before the Tribunal, the assessee did not dispute the quantum of the long-term capital gain or the year in which it was taxable. The limited issue was whether the Section 54F claim could be admitted and considered.
Revenue’s Objection
The Revenue argued that since the assessee had not claimed Section 54F exemption in the return of income, the claim could not subsequently be introduced during the proceedings. The argument was based substantially on the principle laid down by the Supreme Court in Goetze (India) Ltd. v. CIT. However, there was an important distinction.
Goetze Does Not Close the Door Before Appellate Authorities
The Tribunal examined the Supreme Court’s decision in Goetze (India) Ltd. In that case, the Supreme Court held that the Assessing Officer cannot entertain a fresh claim for deduction otherwise than through a revised return. However, the Supreme Court had specifically clarified that this restriction did not impinge upon the powers of the Income Tax Appellate Tribunal under Section 254. The Hyderabad Tribunal therefore distinguished between the power of the Assessing Officer and the power of the appellate authority. The Tribunal also relied upon the Supreme Court’s decision in Jute Corporation of India Ltd. v. CIT, recognising the power of an appellate authority to entertain an additional ground or claim, subject to the exercise of appropriate judicial discretion.
Why Was the Delayed Claim Considered Reasonable?
The Tribunal found an important factual circumstance in favour of the assessee. At the beginning of the reassessment proceedings, the assessee was disputing the very taxability of the capital gain in that year. Therefore, the assessee had not claimed Section 54F as an alternative relief in the return or before the Assessing Officer. The Tribunal considered this explanation reasonable. The logic is practical: if a taxpayer initially takes the position that a particular capital gain is not taxable in that year, failure to claim an exemption against that very gain cannot automatically prevent the taxpayer from claiming the exemption later when the Department ultimately determines that the gain is taxable. The Tribunal observed that merely because the assessee initially disputed taxability, the assessee could not be prevented from making an alternative claim for a statutory deduction when the gain was ultimately brought to tax.
Admission of Claim Is Not the Same as Allowance of Claim
This is perhaps the most important qualification in the decision. The ITAT did not directly grant the Section 54F exemption. Instead, it held that the claim was admissible and restored the matter to the Assessing Officer. The AO was directed to:
examine whether the assessee was actually eligible for Section 54F;
verify fulfilment of all statutory conditions;
examine the supporting documents and evidence;
determine the amount of deduction legally allowable; and
provide adequate opportunity of hearing to the assessee. Thus, there is a clear distinction between: “Can the claim be raised?” and “Is the taxpayer actually entitled to the exemption?” The ITAT answered the first question in the affirmative. The second question was left for factual verification by the Assessing Officer.
The Practical Lesson
This ruling is particularly relevant in reassessment proceedings. Suppose an assessee takes the position:
> “The capital gain itself is not taxable in this year.” There may be little practical reason for the assessee to simultaneously make an alternative Section 54F claim. But if the Department ultimately succeeds in taxing the gain, the taxpayer should not necessarily be deprived of a legitimate statutory exemption merely because the alternative claim was not made at the initial stage. The ruling therefore supports the principle that substantive statutory relief should not ordinarily be denied merely because the claim was not made at an earlier procedural stage, particularly where a reasonable explanation exists and the appellate authority has jurisdiction to entertain the claim.
But Taxpayers Should Not Treat This as a Licence to Ignore the Return
There is an important caution. The decision does not mean that taxpayers can routinely omit deductions or exemptions from their returns and later assume that appellate authorities will automatically admit them. The Tribunal specifically relied upon the peculiar facts of the case and the reasonable explanation furnished by the assessee. Further, even after admitting the claim, the Tribunal required complete verification of the eligibility conditions. Therefore, the better tax-compliance approach remains to claim all legitimate exemptions and deductions in the return itself wherever possible.
A Useful Distinction for Tax Professionals
The decision reinforces three separate propositions: First — Omission from the return: An omission does not necessarily make a statutory claim permanently unavailable. Second — AO’s jurisdiction: Goetze (India) restricts the Assessing Officer from entertaining a fresh claim otherwise than through a revised return. Third — Appellate jurisdiction: The restriction in Goetze (India) does not curtail the powers of appellate authorities, including the ITAT, to entertain an appropriate additional claim.
Conclusion
The decision in Kiran Kumar Grandhe is a useful reminder that tax litigation is not merely about the form in which a claim was initially made; it is also about ensuring that the correct tax liability is ultimately determined in accordance with law. Where an assessee genuinely disputes the taxability of a capital gain and therefore does not initially claim Section 54F, the subsequent admission of the gain to tax may provide a reasonable basis for raising the exemption claim at the appellate stage. However, admission of the claim is only the first step. The taxpayer must still establish actual compliance with every condition prescribed under Section 54F. For taxpayers and tax professionals, the practical message is simple: “Do not confuse failure to claim an exemption at the initial stage with permanent loss of the statutory benefit—particularly when the claim is raised before an appellate authority with a reasonable explanation and supporting evidence.”
The copy of the order is as under:
