Section 54B Exemption: Why Registration Date Alone Cannot Determine the Fate of Your Capital Gains Claim
Overview of the Ruling
The Income Tax Appellate Tribunal, Ahmedabad Bench, has delivered an important ruling in Rohitbhai Jivrambhai Patel Vs ITO (ITAT Ahmedabad) concerning the scope and application of Section 54B of the Income Tax Act, 1961. The core question before the Tribunal was whether delayed execution of a registered conveyance deed — when such delay was beyond the assessee's control — should automatically extinguish an otherwise valid claim for capital gains exemption under Section 54B.
The Tribunal's answer, in essence, was that registration date alone is not determinative. What matters substantively is whether the purchase consideration was paid and possession of the new agricultural land was obtained within the prescribed two-year window. While the Tribunal found that payment within time had been clearly established on record, the question of timely possession remained unverified by the lower authorities. The matter was accordingly remanded to the Assessing Officer for fresh factual inquiry.
Important Note: The Tribunal's order does not amount to an unconditional grant of the exemption. The deduction remains subject to verification of possession-related evidence. This is a conditional remand, not a final relief.
Background Facts
The Assessee's Return and Capital Gains Claim
The assessee, a resident individual, filed his return of income for Assessment Year 2018-19 on 30 October 2018. He held a 50% joint ownership interest in agricultural land located at Village Dumad, District Vadodara, which was sold on 11 August 2017. The aggregate sale consideration for the land stood at ₹6,67,23,250, of which the assessee's proportionate share amounted to ₹3,33,61,625.
While computing long-term capital gains arising from this transaction, the assessee claimed a deduction of ₹3,24,98,500 under Section 54B of the Income Tax Act, 1961, representing reinvestment in new agricultural lands.
The Assessing Officer's Objection
Upon selection for scrutiny, the Assessing Officer examined the claim and identified a timing issue. Certain agricultural lands had been acquired by the assessee through registered sale deeds dated 24 February 2020 and 16 July 2020. Both these dates fell outside the prescribed statutory window of two years from the date of transfer of the original asset — a period that, in the present case, ended on 10 August 2019.
On this ground, the Assessing Officer disallowed ₹1,79,94,050 out of the total deduction claimed under Section 54B. The assessment was completed on 31 March 2021 under Section 143(3) read with Section 144B of the Income Tax Act, 1961, determining the assessee's total income at ₹2,26,37,410.
The CIT(A)'s Position
The assessee challenged the disallowance before the National Faceless Appeal Centre (NFAC), Delhi. However, by an order dated 13 January 2026, the CIT(A) confirmed the Assessing Officer's disallowance.
The appellate authority drew upon Section 54 of the Transfer of Property Act, 1882, holding that legal title over immovable property passes exclusively through a registered sale deed. Since the registered deeds in question were executed on 24 February 2020 and 16 July 2020 — both falling beyond the two-year period ending 10 August 2019 — the CIT(A) concluded that the mere fact of payment of consideration within time was insufficient. In the absence of clear, conclusive proof demonstrating either transfer of possession or revenue mutation within the prescribed period, the disallowance was upheld.
The dispute thus crystallised around two distinct but interrelated questions:
- Whether delayed registration, in itself, extinguishes a
Section 54Bclaim; and - Whether the assessee had produced adequate evidence to demonstrate substantive completion of the purchase — through payment and possession — within the two-year window.
Arguments Before the Tribunal
Assessee's Submissions
Before the Tribunal, the Authorised Representative for the assessee advanced the following key arguments:
- The entire purchase consideration for the new agricultural lands had been remitted within two years from the date of transfer of the original asset.
- Possession of the new agricultural lands had also been obtained within the stipulated period.
- A delay in the formal execution or registration of the conveyance deed — particularly where such delay was not attributable to the assessee — ought not to deprive the assessee of the statutory benefit under
Section 54Bof the Income Tax Act, 1961.
In support of these contentions, the assessee's representative relied upon the following judicial precedents:
- Sanjeev Lal v. CIT, (2014) 365 ITR 389 (SC)
- CIT v. T.N. Aravinda Reddy, (1979) 120 ITR 46 (SC)
- CIT v. R.L. Sood, (2000) 245 ITR 727 (Delhi High Court)
- Balraj v. CIT, (2002) 254 ITR 22 (Delhi High Court)
The assessee also placed purchase agreements, a possession letter, and other corroborating documents on record before the Tribunal.
Revenue's Contentions
The Departmental Representative, on the other hand, supported the orders passed by the lower authorities. The Revenue's position was as follows: