ITAT Hyderabad allows fresh Section 54F exemption claim at appellate stage despite initial omission

The Hyderabad ITAT ruling clarifies that taxpayers can raise a Section 54F exemption claim for the first time during appeal, provided statutory conditions are still to be examined, potentially reshaping reassessment disputes.

The Hyderabad Bench of the Income Tax Appellate Tribunal has said a taxpayer is not necessarily barred from raising a Section 54F exemption for the first time at the appellate stage, even where the claim was not made in the return or before the assessing officer, so long as the statutory conditions still need to be checked. In Kiran Kumar Grandhe v. Income Tax Officer (International Taxation)-1, Hyderabad, the tribunal treated the omission as curable because the taxpayer had originally been disputing whether the capital gain was taxable in that year at all.

The case arose after the tax department reopened the assessment for assessment year 2020-21 on the basis of information about the transfer of immovable property. The taxpayer, a non-resident individual, had not filed an original return under section 139. After notice under section 148, a return was filed showing total income of just ₹3,130. The assessing officer initially proposed short-term capital gains of ₹1 crore, but the Dispute Resolution Panel later held that the transaction gave rise to long-term capital gains of ₹49,25,389. It was only at that stage that the taxpayer pressed a Section 54F claim.

The tribunal noted that the exemption had not been claimed in the return filed in response to the reopening notice and had not been raised before the assessing officer. The Dispute Resolution Panel rejected the claim on that ground, but the tribunal took a different view. Relying on the Supreme Court’s ruling in Goetze (India) Ltd., the Revenue argued that a fresh claim could not be introduced outside a revised return. The Hyderabad bench accepted that Goetze restricts the assessing officer, but said it does not curtail the wider appellate powers preserved under section 254.

The tribunal also drew support from Jute Corporation of India Ltd. v. CIT, which recognised that appellate authorities can entertain an additional ground or claim where judicial discretion is properly exercised. In this case, the bench found the taxpayer’s explanation credible: if the basic case was that the gain was not taxable in that year, there was no practical reason to make an alternative exemption claim at the outset. Once the gain was ultimately brought to tax, the tribunal said, the taxpayer should not be shut out from seeking a statutory relief merely because the point had not been pleaded earlier.

Importantly, the tribunal did not itself grant the exemption. Instead, it held that the claim was admissible and sent the matter back for verification. The assessing officer must now examine whether the taxpayer actually satisfies every condition for relief under Section 54F, review the supporting evidence, calculate the deduction that is legally available, and give the taxpayer a proper hearing. The ruling therefore distinguishes between the right to raise a claim and the separate question of whether the claim succeeds on the facts.

The decision is likely to matter in reassessment cases and other disputes where taxpayers first contest whether income is taxable at all and only later turn to alternative relief. Tax advisers are likely to read it as confirmation that procedural omission does not always mean permanent forfeiture of a substantive exemption. But the ruling is also a reminder that this is not a licence to leave deductions out of returns as a matter of course. The tribunal’s reasoning turned on the facts, the explanation given, and the need for full verification. The safer approach remains to claim available reliefs in the return wherever possible, rather than relying on appellate discretion later.