The Income Tax Appellate Tribunal, Bangalore, in a recent order, addressed two critical issues: the condonation of a 1,226-day delay in filing an appeal, including the Covid-19 pandemic period, and the misapplication of Section 54 instead of Section 54F of the Income Tax Act for capital gains deduction. The Tribunal remanded the matter for re-assessment, emphasizing that a genuine claim cannot be denied merely due to citation of the wrong statutory provision.
Background & Facts
The Dispute
The appellant, Ms. Annapurna Dibbur Girish, an individual assessee, filed her return of income for Assessment Year 2017-18 on 28.06.2017, admitting a total income of Rs. 17,21,270. The return was processed under Section 143(1) of the Income Tax Act. Subsequently, the case was selected for limited scrutiny under the Computer Assisted Scrutiny Selection (CASS) for the following reasons:
- Deduction/exemption from capital gains
- Investment in immovable property
- Capital gain/loss on sale of property
Key Facts
- The assessee sold a joint commercial property and a residential house during the assessment year.
- She claimed deduction under Section 54 of the Income Tax Act for Rs. 1,75,00,000 (commercial property) and Rs. 72,50,000 (residential property).
- The Assessing Officer (AO) issued a notice under Section 143(2) on 02.08.2018, followed by a detailed questionnaire under Section 142(1) on 14.08.2019.
- The AO denied the deduction, holding that the assessee should have claimed it under Section 54F instead of Section 54, and made an addition of Rs. 2,03,69,760.
- The AO passed the assessment order under Section 143(3) on 26.11.2019.
Procedural History
- 26.11.2019: AO passed assessment order under Section 143(3).
- 25.12.2019: Last date for filing appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].
- 02.09.2025: CIT(A) dismissed the appeal as time-barred, holding that the assessee failed to show sufficient cause for the delay of 1,226 days (including the Covid-19 pandemic period).
- 05.01.2022: AO passed penalty order under Section 270A.
- 07.10.2025: CIT(A) dismissed the appeal against the penalty order.
- 16.04.2026: Present appeals filed before the ITAT, Bangalore.
Relief Sought
The assessee sought:
- Condonation of the 1,226-day delay in filing the appeal before the CIT(A).
- Remand of the matter to the AO for re-assessment of the deduction claim under the correct statutory provision.
- Quashing of the penalty imposed under Section 270A.
The Legal Issue
The Tribunal had to resolve two primary questions:
- Whether the delay of 1,226 days in filing the appeal before the CIT(A) could be condoned, considering the Covid-19 pandemic period as a valid ground.
- Whether the assessee’s claim for deduction under Section 54 instead of Section 54F was fatal to her case, even if the claim was otherwise genuine.
Arguments Presented
For the Appellant
- The learned Authorized Representative (AR) contended that the delay should be condoned as it was only 510 days if the Covid-19 pandemic period (as directed by the Hon’ble Supreme Court) was excluded.
- The assessee could not respond to the CIT(A)’s notice due to ill health arising from Covid-19.
- The AR argued that the AO erred in denying the deduction merely because the assessee cited Section 54 instead of Section 54F, as the claim was genuine and substantiated by documents.
For the Respondent
- The learned Departmental Representative (DR) submitted that the appeal before the CIT(A) ought to have been filed by 25.12.2019, and the Covid-19 limitation period (as per the Supreme Court’s directions) commenced only on 15.03.2020.
- The assessee failed to demonstrate sufficient cause for the delay, and thus, the CIT(A) rightly dismissed the appeal as time-barred.
- The DR argued that the AO’s order should be upheld, as the assessee’s claim under the wrong section was not tenable.
The Court's Analysis
The Tribunal examined the rival contentions and the material on record. It observed:
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Condonation of Delay: The Tribunal noted that the assessee’s appeal before the CIT(A) expired on 25.12.2019, before the Covid-19 pandemic period commenced. Relying on judicial precedents, it held that once the limitation period begins, subsequent events cannot extend or curtail it. However, in the interest of natural justice and considering the huge demand involved, the Tribunal condoned the delay and provided the assessee with another opportunity to substantiate her claim.
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Misapplication of Section 54 vs. Section 54F: The Tribunal emphasized that the AO erred in denying the deduction solely because the assessee cited Section 54 instead of Section 54F. It relied on judicial pronouncements holding that claiming the wrong section is not fatal if the claim is genuine and supported by documents. The Tribunal directed the AO to re-examine the claim in accordance with the applicable provisions of the Act after considering the assessee’s submissions.
"Various judicial pronouncements have held that claiming the wrong section cannot be fatal to the assessee if the claim is genuine."
The Verdict
The Tribunal disposed of the appeals as follows:
- ITA No. 2367/Bang/2025: The appeal was allowed for statistical purposes. The Tribunal set aside the CIT(A)’s order dated 02.09.2025 and remanded the matter to the AO for de-novo assessment. The AO was directed to re-examine the assessee’s claim for deduction under the correct statutory provision after affording her an adequate opportunity of being heard.
- ITA No. 2857/Bang/2025: The appeal against the penalty order under Section 270A was dismissed, as the quantum appeal was remanded, rendering the penalty order unsustainable.
What This Means For Similar Cases
Condonation of Delay: A Balancing Act
- Covid-19 Pandemic Period: While the Tribunal acknowledged the Supreme Court’s directions on condonation of delay during the pandemic, it clarified that limitation periods commencing before 15.03.2020 cannot be extended retrospectively. Practitioners must ensure timely filing of appeals, even during extraordinary circumstances.
- Natural Justice Overrides Technicalities: The Tribunal’s decision to condone the delay, despite the assessee’s failure to demonstrate sufficient cause, underscores the importance of natural justice in tax proceedings, especially where substantial demands are involved.
Wrong Section Claim: Not Fatal If Genuine
- Substance Over Form: The Tribunal’s ruling reinforces that citing the wrong statutory provision is not fatal if the assessee’s claim is genuine and supported by evidence. This principle applies broadly to deductions under Sections 54, 54F, 54EC, and similar provisions.
- Remand for Re-assessment: Where the AO denies a claim solely on technical grounds (e.g., wrong section cited), practitioners can argue for remand to allow the assessee to substantiate the claim under the correct provision.
Penalty Under Section 270A: Dependent on Quantum Appeal
- Penalty Sustainability: The Tribunal’s dismissal of the penalty appeal highlights that penalties under Section 270A cannot stand if the quantum appeal is remanded or allowed. Practitioners should ensure that penalty proceedings are closely tied to the outcome of the substantive appeal.
