Bengaluru landowner sells 17 apartments, earns Rs 11.8 crore LTCG, pays no tax; I-T dept sends notices; he contests and wins in ITAT Bangalore

Mr Agarwal, a resident of Koramangala, Bengaluru, sold 17 apartments during April 1, 2019-March 31, 2020, and made Rs 11.8 crore gains. The income tax department sent him tax notices, as he did not pay tax on these gains. However, he challenged the tax demand before the Income Tax Appellate Tribunal (ITAT) Bangalore and won.

According to the submission, Mr Agarwal owned two large parcels of land in Kumbena Agrahara. He entered into an agreement with a builder for the development of these properties. Under the agreement, the builder constructed two apartment complexes on these land parcels and, in return, allotted 76 apartments in the first project and 46 apartments in the second to Mr Agarwal. This gave Mr Agarwal ownership of 122 apartments.

During AY 2020-21, Mr Agarwal sold 17 apartments and earned Rs 11.8 crore in long-term capital gains (LTCG). However, he did not pay any income tax on these gains, as he claimed Section 54 tax exemption on the grounds that he had re-invested all of the Rs 11.8 crore gains to acquire five new residential properties (four purchased ready-made and one constructed). The Income Tax Department, however, disagreed with Agarwal, leading to a prolonged tax dispute.


(The total value of these sales is unknown as it was not disclosed in the judgement).

In his income tax return (ITR) filed on February 15, 2021, Agarwal had declared a total income of Rs 1.76 crore. Subsequently, his ITR was selected for scrutiny proceedings under CASS (Computer-Assisted Scrutiny Selection) with the following reasons:

• Credit of brought forward TDS
• Capital gains deduction claimed

Subsequently, tax notices were issued and proceedings were also held. The Income Tax Assessing Officer (AO) concluded the proceedings on March 30, 2022, and restricted Agarwal's Section 54 tax exemption claim to investment in one property, which he had purchased for Rs 5.91 crore. The balance amount of capital gain of Rs 5.88 crore (Rs 11,80,61,786 - Rs 5,91,80,000) was added to his income under the head of income: long-term capital gains.

Aggrieved by the order of the AO, Agarwal appealed before the CIT(A)-15, Bengaluru. The CIT(A)-15, Bangalore, on June 24, 2025, confirmed the action of the AO in allowing exemption under section 54 of the Act to only one residential house property and, consequently, dismissed his appeal.

Still aggrieved, Agarwal filed an appeal before the ITAT Bangalore. On June 29, 2026, he won the case. Chartered Accountant H Padamchand Khincha represented him.

The ITAT Bangalore held that where capital gains arise from the sale of multiple residential houses, the Section 54 exemption can be claimed separately for each such transfer, subject to the number of new houses not exceeding the number of houses sold.

For those who may be unaware, under Section 54 of the Income Tax Act, 1961, long-term capital gains arising from the sale of a residential property are exempt from tax if they are reinvested in the purchase or construction of a residential house property in India. However, the government had amended Section 54 provisions to restrict the tax exemption claim to investment in only one residential house.

Agarwal, however, argued that each of his 17 apartment sales constituted a separate capital gains transaction, as each flat was a distinct capital asset under the Income-tax Act. Therefore, he contended, the limitation introduced by the government through the amendment to Section 54 does not apply to his case. The ITAT Bangalore accepted his argument.

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Why ITAT delivers judgement in Agarwal's favour

Chartered Accountant Suresh Surana told ET Wealth Online: Agarwal won the case because the tax tribunal found that the taxpayer (Agarwal) had sold 17 residential flats and reinvested the capital gains in only five residential properties, which was fewer than the number of residential houses sold.

Surana said that the tax tribunal held that the conditions of Section 54 were not violated. It also observed that, in the taxpayer's previous assessment years, a similar claim for exemption under Section 54 concerning multiple residential houses had been examined and approved by the tax authorities.

"Therefore, the tribunal also applied the principle of consistency and held that a different view should not be taken for the year under appeal without a valid basis," Surana said.

Thus, the ITAT held that the Assessing Officer and CIT(A) were not justified in restricting the Section 54 exemption to only one residential house. The tribunal allowed the taxpayer's claim for exemption as made in his ITR and allowed the appeal.

Surana said: "The key rationale of the ruling is that Section 54 has to be applied asset-wise and not by clubbing all capital gains arising from multiple residential houses and restricting the benefit to a single new residential house."

Chartered Accountant Ashish Karundia told ET Wealth Online: "This ruling underscores that Section 54 relief cannot always be viewed through a consolidated lens where multiple residential properties are sold in a single year."

According to Karundia, the tax tribunal has emphasised a transaction-specific approach, recognising that each transfer of a residential house gives rise to a distinct capital gains computation.

While the decision comes as a relief for taxpayers with genuine reinvestment of sale proceeds into residential properties, experts said it should not be seen as a blanket expansion of the exemption.

Karundia said: "Taxpayers need to ensure that all statutory conditions, including the nature of the assets transferred and the prescribed investment requirements, are satisfied before claiming the benefit under Section 54."

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Summary of ITAT Bangalore judgement

The ITAT Bangalore passed this judgement (ITA No.1916/Bang/2025) on June 29, 2026.

Surana says that in the present case, the issue before the ITAT Bengaluru was whether the taxpayer was entitled to claim an exemption under Section 54 in respect of capital gains arising from the sales of 17 residential flats, where the gains were reinvested in five residential properties, or whether the exemption had to be restricted to investment in only one residential house.

The appeal related to AY 2020-21 and arose from the order of the CIT(A), which confirmed the assessing officer's disallowance.

The taxpayer was an individual who owned two parcels of land in Bengaluru and had entered into joint development agreements with developers for the construction of residential apartments.

Under the sharing arrangement, the taxpayer was allotted flats in two apartment projects. During the relevant year, he sold 17 flats from these projects and earned long-term capital gains aggregating to approximately Rs 11.80 crore.

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Surana says that the taxpayer (Agarwal) reinvested the entire capital gain in the purchase of four residential properties and the construction of one residential property and accordingly claimed exemption under Section 54.

The assessing officer, however, restricted the Section 54 exemption to only one residential property, being the property purchased at the earliest, amounting to Rs 5.91 crore.

The balance exemption of Rs 5.88 crore was disallowed and added back as long-term capital gains. The CIT(A) upheld the assessing officer's view on the basis that, after the amendment to Section 54 by the Finance (No. 2) Act, 2014, the exemption is available only in respect of investment in "one residential house in India."

Before the tribunal, the taxpayer contended that Section 54 should be applied with reference to capital gains arising from the transfer of each residential house. Since the taxpayer had sold 17 residential flats, he argued that he was eligible to claim the Section 54 exemption against investment in 17 or fewer residential houses, provided the other conditions of the section were satisfied.

The taxpayer also relied on the principle that capital gains are computed asset-wise and that each transfer of a residential house constitutes a separate source of capital gain.

The tribunal accepted the taxpayer's contention and held that the exemption under Section 54 is available in respect of capital gains arising from the transfer of each long-term capital asset being a residential house.

The tribunal observed that Sections 45 and 48 of the Income-tax Act contemplate computation of capital gains for each capital asset separately. Therefore, where multiple residential houses are sold, the capital gain from each such residential house must be considered independently for applying Section 54.

The tribunal further held that the expression "one residential house in India" under Section 54 restricts the reinvestment against capital gains from one residential house to one new residential house.

However, it does not mean that where an assessee sells multiple residential houses in the same year, the entire exemption must be restricted to only one new residential house. In other words, the tribunal distinguished between a case where capital gains from one house are invested in multiple houses and a case where capital gains arise from the esale of multiple houses and are reinvested in multiple houses.