Synopsis

Constructs house for Rs 47 lakh in Tilak Nagar, sells old property in Paschim Viharfor Rs 53 lakh, pays no tax, tax dept sent notice, man wins case in ITAT Delhi; Know how. This Paschim Vihar property was purchased on July 20, 2005 for Rs 6.48 lakh (including stamp duty).

When Mr Kumar from Rajouri Garden, Delhi sold his property in Paschim Vihar for Rs 53 lakh, he did not pay any income tax. Instead he used the long term capital gain (LTCG) from this deal to construct a house in Tilak Nagar and for this he claimed Section 54 tax exemption while filing his income tax return (ITR).



To tell you in a brief, this Paschim Vihar property was purchased on July 20, 2005 for Rs 6.48 lakh (including stamp duty). The property was sold on October 9, 2013 and since the property was held for more than 36 months, the resulting gain was a Long-Term Capital Gain (LTCG).



Kumar knew that Section 54 gives tax exemption to individuals who sell their residential property and reinvests the LTCG from such sale to buy or construct a property within a specified period. Thus he used Section 54 provisions and thus paid no tax. To claim Section 54 tax exemption, you must reinvest the capital gains in a new residential house property situated in India, within the prescribed timelines:

• Purchase of a new house property within 1 year before or 2 years after the date of transfer or
• Construction of a new house property within 3 years from the date of transfer.

But this construction of the Tilak Nagar house was started one year earlier to the Paschim Vihar house sale. Thus for this reason, the Income Tax Department thought Kumar made a mistake in claiming Section 54 tax exemption and this mistake meant his tax exemption could be withdrawn thus making him liable to pay tax.



To reiterate, the error was the fact that Kumar started constructing the Tilak Nagar house on October 31, 2012 which was almost one year prior to him selling the Paschim Vihar house which happened on October 9, 2013 to reiterate.



Thus acting on this premise, the Income Tax Department Assessing Officer (AO) denied Kumar the Section 54 tax exemption and treated the entire sale consideration of Rs 53 lakh as Short-Term Capital Gain (STCG) and also denied him the benefit of indexed cost of acquisition. Kumar however, felt aggrieved and thus filed an appeal. Both NFAC and CIT (A) dismissed his appeal and sustained the denial of tax exemption.



After losing the appeal in NFAC and CIT (A) Kumar who was still aggrieved filed an appeal in Income Tax Appellate Tribunal (ITAT Delhi). Advocate Nitin Gulati represented him in ITAT Delhi. Judicial member Satbeer Singh Godara and Accountant member Naveen Chandra of ITAT Delhi heard his case and passed their judgement on August 3, 2026.



Also read: Inherited mother's land, converted it into business stock, and invested over Rs 5 crore in a new home; ITAT Surat grants Section 54F tax exemption relying on a 1983 CBDT circular; Know why



Kumar claimed that the total investment towards land and construction of the Tilak Nagar house amounted to approximately Rs 47.37 lakh. To support his claims, Kumar showed his Indian Overseas Bank passbook and invoices from vendors like Singla Iron Store and KONE Elevators also.



Advocate Nitin Gulati representing Kumar told the ITAT that Kumar has filed a petition for admission of additional evidence under Rule 11 of the Income Tax (Appellate Tribunal) Rules 1963 wherein he has challenged the validity of notice u/s 148 being barred by limitation.



Gulati also said that in light of the Supreme Court judgement in case of Union of India vs. Rajeev Bansal, [2024] 469 ITR 46 (SC) the Section 148 tax notice sent to Kumar is time-barred.



On August 3, 2026 Kumar won the case in ITAT Delhi.



Also read: Man sells property for Rs 48 lakh, constructs a new house but faces delay, income tax dept denies Section 54 claim; he fights and wins case in ITAT Chennai

Why did Kumar win the case in ITAT Delhi?

Chartered Accountant Suresh Surana said to ET Wealth Online that the ITAT Delhi ruled in Kumar’s favour on the ground that the Section 148 tax notice was time-barred by limitation. Thus, when the original re-assessment of Kumar’s originated from an invalid, time-barred Section 148 notice, the consequential Section 147 re-assessment order could not be allowed to continue; thus, the ITAT Delhi quashed it too.



This chronology of events leading to the tax notice became a decisive factor in Kumar’s win before the ITAT Delhi.



Surana says that the ITAT Delhi examined the chronology of the reassessment proceedings and observed that the initial Section 148 notice was sent to him on May 28, 2021.



So after giving effect to the applicable TOLA extension and the principles subsequently explained by the Supreme Court in Rajeev Bansal, the ITAT Delhi found that only 33 days of the limitation period remained available to the Income Tax Department.



Moreover, the Section 148A(b) show cause tax notice was issued by the Income Tax Department on May 18, 2022 by following the Supreme Court's decision in Union of India v. Ashish Agarwal. Kumar sought an adjournment and on June 6, 2022, he replied to this show-cause notice.



For this reason, the ITAT Delhi held that the surviving period of 33 days recommenced from 6 June 2022, when Kumar filed his response. Consequently, the available limitation period expired on July 9, 2022.



However, the Income Tax Assessing Officer (AO) passed the order under section 148A(d) and issued the fresh notice under section 148 only on July 23, 2022, i.e., after expiry of the surviving limitation period.



Surana says: “The ITAT Delhi therefore concluded that the AO had exceeded the permissible time available for issuing the notice.”

ITAT Delhi order

ITAT Delhi said that it is an admitted fact that the assessee was initially issued notice under Section 148 on May 28, 2021which in terms of TOLA and CBDT instruction, left surviving period of 33 days in terms of the decision of hon’ble Supreme Court in case of Rajeev Bansal.



ITAT Delhi said that subsequently, in accordance with Hon’ble Supreme Court judgement in the case of Ashish Agarwal, Kumar was issued a show cause notice under Section 148A(b) on May 18, 2022 wherein Kumar sought adjournment.



On June 6, 2022, Kumar filed a detailed submission. So in totality, the surviving period of 33 days, for passing order under Section 148A(d) and issuance of notice under Section 148, commenced from June 6, 2022 which expired on July 9, 2022.



ITAT Delhi said that AO passed the Section 148A(d) and the Section 148 tax notice on July 23, 2022.



ITAT Delhi said: “Thus, the AO has exceeded the surviving period, for issuance of notice u/s 148, in accordance with the decision of Supreme Court in case of Rajeev Bansal.”



Thus ITAT Delhi quashed the tax notice under Section 148 as it is barred by limitation. Accordingly, the resultant reassessment order u/s 147 is also rendered unsustainable in the eyes of law. The additional ground is allowed.



In the result, appeal of the assessee ITA No. 3396/Del/2026 is allowed. Order pronounced in the open court on 03.08.2026.

What is the importance of this case for other taxpayers?

The case rationale is that compliance with the statutory limitation for reopening an assessment is a jurisdictional requirement.



Surana says: “The Income Tax Department cannot acquire or continue reassessment jurisdiction after the permissible limitation period has expired.”



In this case, although the reassessment proceedings were affected by the special TOLA regime and the transition resulting from the Ashish Agarwal decision, the Revenue was entitled only to the surviving limitation period calculated in accordance with the Supreme Court's ruling in Rajeev Bansal.



On the facts recorded by the ITAT, that period was 33 days and expired on July 9, 2022. The subsequent section 148 notice dated July 23, 2022 was therefore invalid.



Accordingly, the relevant “limitation period” in this particular case should not be understood simply as the general limitation presently prescribed for issuing a section 148 notice.



Surana says that it was a case-specific surviving period of 33 days, determined after applying the TOLA extensions and the Supreme Court's decisions governing the transitional reassessment notices.



Surana says: “Since the Income Tax Department issued the notice after that surviving period had expired, the notice was quashed, and the entire reassessment fell with it.”

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