In a significant ruling that brings clarity to capital gains reinvestment timelines, the Income Tax Appellate Tribunal (ITAT), Mumbai has held that making the investment payment within two years from the date of sale is sufficient to claim Section 54F deduction, even if the registered agreement is executed later.
The case involved an assessee who had sold a land property in Nashik for ₹70 lakh and claimed a deduction under Section 54F of the Income Tax Act by reinvesting the sale proceeds into a residential flat worth ₹76.65 lakh. However, the Assessing Officer (AO) denied the deduction since the sale agreement for the flat was signed beyond the two-year limit prescribed under the section.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance, following which the assessee approached the ITAT, Mumbai.
During the hearing, the assessee produced documentary evidence, including the builder’s allotment letter showing the allotment of the flat for ₹76.65 lakh. She had made substantial payments — ₹15 lakh in June 2012 and ₹55 lakh in July 2013 — both within two years from the date of sale. The assessee argued that Section 54F requires only the investment of sale proceeds in a residential property within two years, and not necessarily the signing of a registered agreement within that timeframe.
The Tribunal agreed with the assessee, observing that:
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The payment for reinvestment was made within the prescribed two-year limit, and
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The flat was duly allotted to the assessee by the builder.
Accordingly, the ITAT held that the assessee had fulfilled all essential conditions under Section 54F and directed the deletion of the disallowance made by the AO.
This ruling reinforces that timely reinvestment of sale proceeds — not merely the date of the agreement — is the decisive factor for Section 54F eligibility, offering relief to taxpayers involved in similar capital gains reinvestment cases.