Section 54F Not Claimed in the Return? ITAT Hyderabad Admits the Claim at the Appellate Stage

If a taxpayer did not claim the Section 54F exemption in the return, is the claim lost for good? Not necessarily. On 23 September 2026 the Hyderabad Bench of the Income Tax Appellate Tribunal admitted a Section 54F claim that was first raised before the Dispute Resolution Panel (DRP). The taxpayer had not made it in the return or before the Assessing Officer. The reason was that he had been disputing whether the gain was taxable at all.

The facts

The taxpayer, a non-resident, had not filed a return under Section 139 for AY 2020-21. Here is how the case unfolded:

• Reopening. On information that he had transferred an immovable property, the case was reopened under Section 147. A notice under Section 148 was issued on 31 March 2024.
• Return. He filed a return on 28 June 2024 declaring income of ₹3,130.
• Draft order. The Assessing Officer issued a notice under Section 143(2). A draft order under Section 144C(1), dated 15 March 2025, proposed an addition of ₹1 crore as short-term capital gain.
• DRP. On objections, the DRP directed on 27 December 2025 that the gain be taken as long-term capital gain of ₹49,25,389.
• Final order. The final assessment order, dated 28 January 2026, added ₹49,25,389 as long-term capital gain, with no Section 54F exemption.

The taxpayer had first claimed Section 54F before the DRP. The DRP rejected the claim at the threshold, without examining it on merits. It gave two reasons: he had not filed an original return under Section 139, and he had not claimed the exemption in his return. Before the Tribunal he accepted the amount and the year of the gain, and pursued only the Section 54F claim.

The Revenue’s objection: Goetze

The Department argued that a claim not made in the return cannot be raised later. The usual authority is the Supreme Court’s decision in Goetze (India) Ltd. v. CIT, (2006) 284 ITR 323. It held that an assessee cannot make a new claim for deduction before the Assessing Officer except by filing a revised return.

But Goetze was expressly limited. The Supreme Court made it clear that “the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254”.

What the Tribunal held

1. Goetze restricts the Assessing Officer, not the Tribunal

The restriction in Goetze concerns the Assessing Officer’s power. It does not curtail the Tribunal’s power to entertain an additional claim in an appropriate case. The Tribunal also relied on Jute Corporation of India Ltd. v. CIT, (1991) 187 ITR 688 (SC). That case recognised that an appellate authority can entertain a ground or claim not raised before the Assessing Officer, provided the discretion is exercised in accordance with law.

2. Disputing taxability is a reasonable explanation

At the start of the proceedings the taxpayer was disputing whether the gain was taxable in that year at all. In those circumstances, not making an alternative claim under Section 54F was a reasonable explanation for raising it later. As the Tribunal put it, merely because the assessee initially disputed taxability cannot preclude an alternative claim for a statutory deduction once the gain is brought to tax. On these facts, the claim was admitted.

3. Admission is not allowance

“The admission of the claim and allowance thereof are two different aspects.” Nobody had yet checked whether the taxpayer actually met the conditions of Section 54F. So the Tribunal sent the issue back to the Assessing Officer to:

• examine eligibility;
• verify the statutory conditions on the evidence produced;
• allow the exemption only to the extent admissible in law;
• give the taxpayer an adequate hearing first.

The appeal was allowed for statistical purposes.

Practical takeaways

• An omitted exemption may not be the end of the road. If the claim was left out of the return, consider whether it can be raised before the appellate authority, and why it was not made earlier.
• Plead the alternative claim.If you dispute that a gain is taxable in a year, consider making the Section 54F claim in the alternative from the start. That is better than relying on the Tribunal’s discretion later.
• Keep the evidence ready. Admission only earns a hearing on the merits. You will still need to prove the conditions, with:
  • the transfer deed and capital-gains working;
  • the purchase or construction documents for the new house;
  • payment and investment dates;
  • details of other residential houses owned.
• Do not treat appeals as a substitute for a correct return. Where an exemption is available and the facts are known, claim it in the return.

How RDA can help

RDA Tax Advisory Services advises on capital-gains exemptions, reassessment proceedings and DRP and Tribunal appeals. It also prepares the evidence a Section 54F claim needs. See our guide to the Section 54 exemption, capital gains on sale of property and capital gains advisory.

General information only. Whether an omitted claim will be admitted, and whether Section 54F is available, depends on the facts, the procedural stage and the law applicable to the assessment year. This is not a case-specific opinion.