Man sells 17 flats and pays no tax; Know how
Credit of brought forward TDS Capital gains deduction claimed Why ITAT delivers judgement in Agarwal's favour Summary of ITAT Bangalore judgement Mr Agarwal, a resident
Credit of brought forward TDS Capital gains deduction claimed Why ITAT delivers judgement in Agarwal's favour Summary of ITAT Bangalore judgement 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: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.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.
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