A Delhi taxpayer has successfully challenged the Income Tax Department's reassessment notice after constructing a new house before selling his old residential property. According to reports from Mint and The Economic Times, Raj Kumar, a resident of Rajouri Garden, Delhi, owned a residential flat in Paschim Vihar, which he had purchased on 20 July 2005 for ₹6.48 lakh, including stamp duty. He sold the property on 9 October 2013 for ₹53 lakh, resulting in long-term capital gains treatment since he held the property for more than 36 months. Kumar claimed a Section 54 exemption after investing in a new residential house in Tilak Nagar with a total investment of approximately ₹47.37 lakh. The dispute arose over the timing of construction, with the new house construction starting on 31 October 2012, almost a year before selling the Paschim Vihar property.
Kumar supported his investment claims with comprehensive documentation including **bank entries from Indian Overseas Bank and invoices from vendors including Singla Iron Store and KONE Elevators. 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. The Assessing Officer had initially denied Kumar's exemption because construction of the new house had begun before the sale of the old property, treating the entire sale consideration of ₹53 lakh as Short-Term Capital Gain (STCG) and denying him the benefit of indexed cost of acquisition.
The Income Tax Appellate Tribunal (ITAT) Delhi quashed the reassessment after finding that the Section 148 notice was issued beyond the permissible limitation period. According to the tribunal's order dated 3 August 2026, Kumar had initially received a Section 148 notice on 28 May 2021. Judicial member Satbeer Singh Godara and Accountant member Naveen Chandra of ITAT Delhi examined the chronology of reassessment proceedings and found that after giving effect to the applicable TOLA extension and Supreme Court principles in Rajeev Bansal, only 33 days of the limitation period remained available to the Income Tax Department. The case was subsequently affected by the Supreme Court's judgment in Ashish Agarwal, with Kumar receiving a show-cause notice on 18 May 2022 and filing detailed submissions on 6 June 2022. The tribunal concluded that the Assessing Officer had exceeded the surviving limitation period for issuing the Section 148 notice.
The ITAT held that the surviving 33-day period commenced from 6 June 2022 and expired on 9 July 2022. As reported by Mint and The Economic Times, the Assessing Officer passed the order under Section 148A(d) and issued the fresh Section 148 notice only on 23 July 2022, after the surviving limitation period had expired. The tribunal observed that Kumar sought an adjournment and filed his detailed response on 6 June 2022, which marked the recommencement of the 33-day surviving period. Since the reassessment under Section 147 was based on that notice issued after the expiry of the surviving limitation period, the tribunal held that the resultant reassessment order could not survive, allowing Kumar's appeal. Advocate Nitin Gulati representing Kumar argued that the Income Tax Department cannot acquire or continue reassessment jurisdiction after the permissible limitation period has expired.
According to Mint and The Economic Times reports, the tribunal's order does not decide the Section 54 issue on its merits. The CIT(A) had rejected Kumar's exemption because construction of the new house had begun before the sale of the old property, but the ITAT allowed the appeal on the separate jurisdictional ground that the Section 148 notice was time-barred. The ruling should not be read as a finding that construction of a new house before selling the old property automatically qualifies for a Section 54 exemption, as the case was decided on procedural grounds rather than substantive tax law merits. The case demonstrates that while Kumar successfully claimed the exemption under Section 54, his victory was primarily based on the procedural error of the Income Tax Department issuing the notice after the limitation period had expired. The case was heard by Judicial member Satbeer Singh Godara and Accountant member Naveen Chandra of ITAT Delhi, with the order pronounced in open court on 3 August 2026.
