Section 54F Deduction Can Be Raised as Additional Claim Before ITAT Even When Absent from Return of Income: ITAT Hyderabad
Overview
A significant ruling from the Income Tax Appellate Tribunal, Hyderabad Bench, in the matter of Kiran Kumar Grandhe Vs ITO (International Taxation) (ITAT Hyderabad) has reaffirmed an important procedural principle: an assessee is not permanently barred from claiming a deduction under Section 54F of the Income Tax Act, 1961 merely because the claim was not included in the return of income or raised before the Assessing Officer. The Tribunal held that such an additional claim is maintainable at the appellate stage, provided a reasonable explanation exists for the earlier omission and the statutory eligibility conditions are subsequently verified.
This decision carries particular significance for non-resident assessees who find themselves in reassessment proceedings where the character and taxability of a capital gain may itself be in dispute at the time the return is filed.
Background and Factual Matrix
The Assessee's Position
The assessee, Kiran Kumar Grandhe, is a non-resident individual who had not filed a return of income for Assessment Year 2020-21 under Section 139 of the Income Tax Act, 1961. The Income Tax Department gathered information indicating that the assessee had transferred immovable property during the relevant financial year. Acting on this intelligence, the Assessing Officer initiated reassessment proceedings under Section 147 and issued a notice under Section 148 of the Act dated 31.03.2024.
In response to this notice, the assessee filed a return on 28.06.2024, declaring a total income of Rs. 3,130/-. A notice under Section 143(2) of the Act was thereafter issued on 15.07.2024.
Proceedings Before the AO
The Assessing Officer passed a draft assessment order under Section 144C(1) of the Act dated 15.03.2025, proposing an addition of Rs. 1,00,00,000/- as short-term capital gain arising from the transfer of the immovable property. The total income was thereby determined at Rs. 1,00,03,130/-.
Proceedings Before the DRP
The assessee challenged the draft assessment before the Learned CIT (DRP)-1, Bengaluru-2. The Dispute Resolution Panel, through its directions under Section 144C(5) dated 27.12.2025, revised the characterisation of the gain. Instead of the proposed short-term capital gain of Rs. 1,00,00,000/-, the DRP determined the capital gain as long-term capital gain of Rs. 49,25,389/-.
Before the DRP, the assessee also raised a claim for deduction under Section 54F of the Act. However, the DRP rejected this claim at the threshold itself, primarily on the basis that the assessee had not filed an original return under Section 139 and had not claimed the exemption in the return of income filed in response to the Section 148 notice. The factual eligibility of the assessee and compliance with the statutory conditions under Section 54F were never examined on merits.
Final Assessment Order
Following the DRP's directions, the Assessing Officer passed the final assessment order under Section 147 read with Section 144C(13) of the Act dated 28.01.2026, incorporating the long-term capital gain of Rs. 49,25,389/- as an addition.