Builder delayed agreement by 5 years, tax dept denied 54F relief; why ITAT Mumbai sided with woman who sold land for Rs 70 lakh

Smt. Sonwane from Mulund, Mumbai managed to get relief from an income tax notice after she successfully proved her legitimate capital gain tax exemption claim through bank payment, cheque, etc even though the builder executed the sale agreement five years after she paid the full amount. In this case, she sold a piece of land in Nashik, Maharashtra for Rs 70 lakh and bought an under-construction apartment in Mumbai for Rs 76 lakh (76,65,000).

The income tax department challenged this transaction because Sonwane claimed a Section 54F capital gain tax exemption by reinvesting the entire money from the land sale into the Mumbai under-construction apartment. However, the tax department said that Sonwane sold the Nashik land on February 18, 2013, while the sale agreement with the builder was executed on June 21, 2017, which is more than five years after the sale.

For those who might not know, Section 54F mandates that if someone wants to avoid paying income tax on the sale of a capital asset, they must invest the proceeds from the sale into a house house property within a certain timeframe. The re-investment must occur within 2 years for purchasing of house or 3 years for constructing one. However, since the sale agreement was executed 5 years after the land sale, the tax department said Sonwane was not eligible for claiming Section 54F benefits.


So, the income tax officer added Rs 64 lakh (64,36,629) income to her file and completed her assessment under Section 143(3). This meant Sonwane now had to pay tax on this Rs 64 lakh income, and so she decided to file an appeal with the Commissioner of Appeals (CIT A). CIT (A) confirmed the tax officer’s order and disallowed her claim. Feeling aggrieved, she appealed to the Income Tax Appellate tribunal (ITAT) in Mumbai. On October 13, 2025, she won the case in ITAT Mumbai.

Sonwane’s representative (CA Sanjeev Brahme) told the ITAT Mumbai that the purchase transaction took place in 2017 through a registered agreement on June 22, 2017, as there were certain delays at the end of the builder in completing the construction within the stipulated time.

According to Sonwane’s representative, she had invested the money received in the sale of the Nashik land in purchasing the flat at Bhandup (W), Mumbai. The builder is responsible for the delay in completion of construction and handing over of the possession within the stipulated period.

The income tax department’s representative asserted that the deduction claimed has been rightly disallowed since it is not in consonance with the provisions of Section 54F, as demonstrated by the registered agreement dated June 21, 2017, a full 2 years after the date of transfer of the original asset, for the purchase of flat claimed by the assessee (Sonwane).

Also read: Lady sells property for Rs 94 lakh, gets Rs 38 lakh in cash; files no ITR, gets tax notice for unexplained income, wins case in ITAT Mumbai

Summary of the judgement

Chartered Accountant Suresh Surana, said to ET Wealth Online: "In the given case (no: ITA No. 1636/MUM/2025), the assessee, Ms. Sonwane, sold a piece of land in Nashik on February 18, 2013 for Rs 70 lakh and claimed deduction under Section 54F of the Income-tax Act, 1961 , by investing the sale consideration in a residential flat at Bhandup (W), Mumbai.

According to Surana, the total agreed value of the flat was Rs. 76.65 lakh. In order to substantiate the investment, the assessee produced an allotment letter dated 11 June 2012 issued by the builder, allotting the flat, and receipts for payments made by account payee cheques:

• Rs. 15 lakh on 5 June 2012 (cleared on 26 June 2012), and
• Rs 55 lakh on 29 July 2013 (cleared on 2 August 2013).

Surana says although the registered agreement with the builder was executed on 21 June 2017, the assessee argued that the delay in registration was due to the builder’s inability to complete construction within time, and that her investment was completed within two years of transfer of the original asset.

According to Surana, the Assessing Officer (AO) disallowed the deduction, holding that since the registered agreement was executed beyond two years, the investment fell outside the time limit prescribed under Section 54F(1). The CIT(A) upheld the AO’s view, leading to an appeal before the Income Tax Appellate Tribunal (ITAT).

Also read: Man gets tax notice of Rs 18 lakh for buying land at low price, ITAT Ahmedabad quashes it; here's why

According to Surana, the Mumbai ITAT examined the bank statements, builder’s receipts, and the allotment letter produced by the assessee and observed that:

• The payments towards the flat were made within two years from the date of transfer of the original asset, in compliance with Section 54F(1).
• The allotment letter issued by the builder specifically earmarked Flat No. 2102 on the 21st floor in favour of the assessee, conferring upon her a right in the property.
• The funds had moved from her bank accounts to the builder, and receipts were issued acknowledging such payments, none of which were disputed by the Revenue.

Surana says that the Tribunal clarified that the essence of Section 54F lies not in the completion or registration of the new residential house but in the investment of the sale proceeds towards the purchase or construction of such a house.

Surana says: "Hence, once the assessee had acquired a right in the flat through allotment and had made actual investment within the statutory period, the deduction could not be denied merely due to delay in registration or possession, particularly when such delay was attributable to the builder."

According to Surana, the ITAT adopted a liberal and purposive interpretation of Section 54F, consistent with judicial precedents treating it as a beneficial provision intended to encourage investment in residential property.

Surana says: "It reiterated that the date of investment and acquisition of right in the new property is determinative, not the date of registration as well as an allotment letter coupled with proof of payment is sufficient to establish acquisition of a residential property."

Accordingly, the ITAT Mumbai held that the assessee had fulfilled both conditions i.e. investment of consideration and acquisition of a right in the flat within two years and was thus entitled to deduction under Section 54F.

Thus, the Mumbai ITAT allowed the appeal, deleting the disallowance of Rs 64,36,629 and holding that the assessee validly satisfied the requirements of Section 54F.

Surana says: "The ruling highlights that where the taxpayer has made timely investments evidenced by cheque payments and allotment letter, the deduction cannot be denied merely because of delayed registration or possession, especially when the delay is beyond the taxpayer’s control."

Also read: Ancestral land sale: Tax department issues notice over Rs 8 crore share, taxpayer wins case in ITAT Delhi; here's what happened

ITAT Mumbai says this about the sale agreement

ITAT Mumbai said that it is an undisputed fact that assessee (Sonwane) has made investments by making payment to the builder through account payee cheques, for which the funds moved from her bank accounts and receipts were issued by the builder, acknowledging the receipt of the said payments.

ITAT Mumbai said: “These payments are within the prescribed limitation of 2 years for the purchase of a residential house as mandated by Section 54F(1). Allotment letter is issued by the builder year earmarking Flat No. 2102 on 21st floor of the proposed building for which eventually a registered agreement was executed and the possession was handed over to the assessee (Sonwane) after obtaining occupancy certificate.”

ITAT Mumbai said the fact that Sonwane had acquired a house property is not in dispute. The tax officer (AO) has based his decision to disallow the Section 54F claim on the grounds of the registered agreement which falls beyond the period of 2 years for making an investment.

She however, claims that she had made the required investment of the sale proceeds from her Pune land into a residential house for which an allotment letter issued by the builder earmarking the flat, is on record.

ITAT Mumbai said that on this factual matrix, what they have to see is whether the assessee (Sonwane) has acquired a right to a specific flat in such a building which is being constructed by the builder and whether she has made investment of the consideration received on transfer of original asset within the prescribed period so as to entitle her to obtain possession of the new flat proposed to be constructed.

ITAT Mumbai said: “Thus, the material fact in this connection is the right over the flat and the investment made therein by the assessee.”

ITAT Mumbai judgement

ITAT Mumbai said that they find that assessee (Sonwane) has met both the conditions of acquiring a right in the flat by way of allotment letter, since Flat No. 2102 on 21st floor in the proposed building is reserved for her by way of exclusion to the rest of the world.

For the investments made by her, the builder has issued receipts and the funds have moved out to the builder from her savings account which is not in dispute by the authorities below.

ITAT Mumbai said: “Therefore, considering the factual matrix and the provisions of section 54F, all of which discussed above in detail, we allow the claim of the assessee (Sonwane) under Section 54F and delete the disallowance made by the AO. Accordingly, grounds raised by the assessee are allowed. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 13.10.2025.”