ITAT Upholds Disallowance of Excess Section 54F Claim

Case Details: Sumit H. Bhagchandani vs. Deputy Commissioner of Income-tax [2026] 183 taxmann.com 686 (Ahmedabad-Trib.)

Judiciary and Counsel Details

• Siddhartha Nautiyal, Judicial Member & Narendra Prasad Sinha, Accountant Member
• Parin Shah, AR for the Appellant.
• Yogesh Mishra, Sr. DR for the Respondent.

Facts of the Case

The assessee had long-term capital gains arising from the sale of a plot of land. He claimed exemption under section 54F. The assessee computed long-term capital gains on his one-fourth share in the sale of land. The total sale consideration attributable to the assessee was Rs. 3.82 crores. Against the said capital gains, the assessee claimed a deduction under section 54F comprising actual expenditure of Rs. 33.36 lakhs incurred towards the construction of a residential house and a sum of Rs. 2.25 crores deposited in the Capital Gains Account Scheme.

Assessing Officer (AO) applied a statutory formula under section 54F and restricted the deduction to the proportionate amount. The AO contended that the entire amount claimed as a deduction under section 54F was not invested in the new residential house, and an excess deduction was claimed. On appeal, the CIT(A) upheld the order of the AO. The aggrieved assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that section 54F provides an exemption from long-term capital gains, subject to the fulfilment of specified conditions, and prescribes an unambiguous formula for determining the deduction quantum. The deduction allowable is equal to the capital gain multiplied by the ratio of the cost of the new asset to the net consideration received. Section 54F(4) permits the assessee to deposit the unutilized portion of the net consideration in the Capital Gains Account Scheme before the due date of filing of the return to preserve the eligibility for exemption. However, the said provision does not dispense with the computation mechanism prescribed under section 54F(1).

In the instant case, the figures were undisputed. The assessee considered the actual expenditure on the construction of a new residential house and the amount deposited in the CGAS as the cost of the new asset. Upon application of the statutory formula, the allowable deduction was computed, leaving an excess claim of Rs. 3.91 lakhs. The AO neither denied the benefit of section 54F nor disputed the assessee’s eligibility. The disallowance was purely arithmetical and arose from the application of the statutory formula.

The CIT(A) rightly held that mere deposit in the Capital Gains Account Scheme does not automatically entitle the assessee to the deduction of the entire amount claimed unless such deposit is translated into actual or irrevocably committed investment towards the new residential house. Accordingly, the appeal was to be dismissed.

List of Cases Referred to

• Humayun Suleman Merchant v. Chief CIT [2016] 73 taxmann.com 2/242 Taxman 189/387 ITR 421 (Bombay) (para 14)
• CIT v. K Ramachandra Rao [2015] 56 taxmann.com 163/230 Taxman 334 (Karnataka) (para 14).