My client never opened a capital gains account and the officer has cut his s.54F exemption down to what he actually paid the builder - is the belated return argument any use to me, and what is left after it?
The client is an individual assessed at a ward in Nashik. He sold a commercial shop on 22 June 2023 for Rs 2,40,00,000, the stamp duty value being Rs 2,58,00,000. The shop had been held since 2009 and the long-term gain works out at Rs 1,86,00,000 for AY 2024-25. He booked an under-construction flat on 11 January 2024 and paid Rs 95,00,000 in three instalments up to 28 March 2024, the flat being registered in the joint names of himself and his wife, who contributed nothing. The balance stayed in his savings account and no capital gains account was opened at any time. A further Rs 30,00,000 was paid to the builder on 6 September 2024. The due date under s.139(1) was 31 July 2024; the return was filed on 12 November 2024 claiming the whole gain exempt under s.54F, with Rs 1,15,00,000 of the consideration unspent at that date. On the date of transfer he owned a flat at Nashik in which he lives, a half share in a flat at Pune inherited from his father, and a third flat let to a courier company as its office. The order under s.143(3) dated 6 March 2026 substitutes the stamp duty value of Rs 2,58,00,000, computes the gain at Rs 2,04,00,000, allows exemption of Rs 75,11,628 as the proportion that Rs 95,00,000 bears to the substituted net consideration, and brings Rs 1,28,88,372 to tax. The appeal was filed on 2 April 2026.
Fix the date of transfer and the date of the first payment to the builder before anything else, because every clock on this file runs from them - the capital gains account deadline, the one year before and two years after for a purchase, the three years for a construction, and the six months for bonds. Then list every rupee that reached the builder with its date, because the argument that saves this file is about what was invested before the belated return went in, not about what the memorandum of understanding says the client intended to do.
The Supreme Court has held that executing an agreement to sell can itself extinguish rights in the property and create rights in the purchaser, which answers the definition of transfer, so that the agreement date governs and relief cannot be denied where a court restraint the assessee could not violate delayed the registration. A Tribunal Bench has directed that the gain be computed on the stamp value as at the date of the agreement rather than the date of registration where part of the consideration had been received by account payee cheque on the agreement date. If there is an earlier agreement on this file, every deadline moves with it - including the one that has already been missed.
This is s.54F and not s.54, because the asset sold was a shop and not a residential house, and the two sections work differently: s.54 exempts the gain to the extent another house is bought or built, while s.54F exempts the gain in the proportion that the amount reinvested bears to the net consideration. The year is AY 2024-25, which matters, because from that year the cost of the new asset in excess of Rs 10 crore is left out of the computation under s.54(1) and s.54F(1), with a matching restriction on the deposit limb. On these figures the cap does not bite, but saying which text governs stops the argument being fought on the pre-amendment provisions.
Section 54F(4) requires the amount of the net consideration not utilised towards the new house to be deposited in the notified account before the due date for furnishing the return under s.139(1), and a High Court has held squarely that failure to do so confines the exemption to what was actually spent. That is the officer's case, it is the straightforward reading of the sub-section, and it is the outcome on the Rs 1,45,00,000 that sat in a savings account unless something else is established. The client should hear that before the grounds are drafted, because the realistic aim on this file is to enlarge what counts as spent, not to escape the sub-section.
Two High Courts have held that the due date in the deposit limb is not confined to s.139(1): one held that s.139 there cannot mean only sub-section (1) and upheld the exemption for the whole gain, and the other held that the due date under s.54(2) is subject to the extended period allowed by s.139(4), which is not an independent provision but operates on the time allowed by sub-section (1). A Tribunal Bench has read sub-section (4) as in substance a proviso to sub-section (1) and held that the reinvestment period accordingly runs to the extended filing date. On this file it reaches the Rs 30,00,000 paid on 6 September 2024; the Rs 95,00,000 was already within the s.139(1) date.
What the section requires is that the consideration be invested within the prescribed period. A High Court has held that completion of construction, execution of the sale deed or occupation of the new house within that period is not a requirement of the section, and another has upheld the exemption where the whole net consideration went into land and construction that was unfinished when the officer inspected. A third has held that a member who acquires the right to a specific flat in a building under construction and pays substantially the whole cost within the statutory period has constructed a house. The Board has also decided that an allotment under a self-financing scheme is construction rather than purchase, with the longer three-year window, and has extended that to similar schemes of societies and other institutions.
The proviso to s.54F(1) denies the deduction where the assessee owns more than one residential house other than the new asset on the date of transfer. On 22 June 2023 the client owned three - the flat he lives in, a half share in the Pune flat, and the flat let to the courier company - and taking one of them out is not enough. A High Court has held that in applying this condition the use to which a property is actually put decides whether it is residential or commercial, not the sanction plan, which is the route to taking the courier-let flat out of the count. That still leaves the flat he lives in and the half share, which is more than one, and a Tribunal Bench has held that a fractional or joint share counts as ownership for this proviso. The fractional-share point therefore has to be won as well.
Two High Courts have held for the assessee on this. One held that the section requires the assessee to purchase a house and does not require it to be purchased in his name only, and allowed the whole exemption where the assessee provided the entire consideration, paid the stamp duty and the other charges and the wife contributed nothing. The other held that where the whole consideration came from the assessee and the spouse contributed nothing, the section does not require the new house to be bought in the assessee's own name or exclusively in his name. Put the payment trail on the record - bank statements showing every instalment leaving the client's account - rather than relying on the deed.
The stamp duty value of Rs 2,58,00,000 is 107.5 per cent of the stated Rs 2,40,00,000. The variance is 7.5 per cent, inside the tolerance band in the third proviso to s.50C, under which the stated consideration is taken as the full value of the consideration where the stamp value does not exceed it by more than ten per cent. That disposes of this limb of the order without any valuation dispute: the gain returns to Rs 1,86,00,000 and the net consideration to Rs 2,40,00,000, which brings the addition down from Rs 1,28,88,372 to Rs 1,12,37,500 before any other ground is argued. The library's entry on the valuation-reference point flags the band itself, raised to ten per cent by the Finance Act 2020, as capable of disposing of a small difference in exactly this way.
The part actually paid to the builder before the belated return is usually allowed, and the extended due date line is well enough supported that it is worth running. The unspent balance that never went into a notified account is usually lost, and that is the bulk of this demand. The net consideration point on the substituted value succeeds more often than not but rests on Tribunal orders, so expect it to be contested to the second appeal. The usage point on the let flat turns entirely on the evidence and goes either way. The joint registration point is rarely lost where the payment trail is clean. The realistic outcome is a partial allowance one stage up, two to three years from the assessment order, with the shortfall on the unspent money standing.
