Reinvestment benefit under Section 54 allowed even if original I-T return was not filed.

Capital Gains Exemption Can’t Be Denied for Procedural Lapse: Mumbai ITAT.

In a taxpayer-friendly ruling, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that a capital gains exemption under Section 54 of the Income-tax Act cannot be denied merely because the taxpayer failed to file an original income-tax return under Section 139(1). The tribunal clarified that such a claim is valid if made during reassessment proceedings. The case involved an individual taxpayer who disclosed long-term capital gains only after receiving a reassessment notice under Section 148 and claimed an exemption of ₹49 lakh for reinvestment in a new residential property. While the assessing officer and commissioner (appeals) rejected the claim due to non-filing of the original return, the ITAT disagreed. It was observed that reassessment proceedings allow claims directly linked to income that escaped assessment. Since the Section 54 claim was integral to computing the escaped capital gains, it could not be treated as a barred or fresh claim. The matter was remanded for fresh examination on merits, reinforcing that procedural lapses should not override substantive tax benefits.