Capital Gains Exempt Under Section 54G Must Be Excluded When

Capital Gains Exempt Under Section 54G Must Be Excluded When Computing MAT Book Profit

Issue

Whether an assessee, whose entitlement to capital gains exemption under Section 54G is accepted under normal provisions, can claim exclusion of such capital gains while computing book profit under Section 115JB, even if omitted in the original return.

Facts

Property Sale & Reinvestment: The assessee-company sold an urban industrial shed and reinvested the capital gains in a rural area during A.Y. 2019-20.
Return Filing: The assessee claimed Section 54G exemption under normal provisions (declaring NIL income) and computed MAT under Section 115JB. The return was filed on November 30, 2020, within the CBDT-extended due date.
CPC Processing & Appeal: CPC processed the return under Section 143(1) and raised a demand for unpaid MAT. On appeal, the assessee sought to exclude the Section 54G capital gains from MAT book profits.
CIT(A) Rejection: The CIT(A) dismissed the claim, holding that the relief was omitted in the return and required CBDT condonation under Section 119(2)(b).

Decision

Section 54G Relief Under Section 115JB (In Favour of Assessee): Since entitlement under Section 54G was accepted under normal provisions and Section 115JB contains no specific bar, the assessee is entitled to exclude Section 54G gains while computing MAT liability.
Procedural Omission Bar (In Favour of Assessee): Otherwise admissible statutory relief cannot be denied simply because the assessee omitted to claim the corresponding adjustment under Section 115JB in the return.
Timeliness of Extended Return (In Favour of Assessee): The claim cannot be rejected on grounds of late filing, as the return was furnished within the extended due date permitted by the CBDT.

Key Takeaways

Harmonization of Section 54G with MAT: Capital gains exempt under Section 54G under normal provisions are excludable from book profits under Section 115JB.
Substance Over Technical Omission: Valid legal claims and deductions are allowable during appellate proceedings even if accidentally omitted in the original tax return.
Extended Due Date Validity: Returns filed within CBDT-extended timelines are treated as valid for claiming statutory exemptions and benefits.

IN THE ITAT BANGALORE BENCH ‘A’

HDP Hydraulics (P.) Ltd.

Income-tax Officer

Sandeep Singh Karhail, Judicial Member
and Waseem Ahmed, Accountant Member

IT Appeal No. 2599 (Bang) of 2025
[Assessment year 2019-2020]

OCTOBER 1, 2026

Siddesh Gaddi, CA for the Appellant. N. Balusamy, JCIT for the Respondent.

ORDER

Waseem Ahmed, Accountant Member. – The present appeal filed by the assessee pertaining to A.Y. 2019-20 is directed against the order of the Ld. Commissioner of Income Tax (Appeals) [hereafter “Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) dated 17.07.2025.

2. At the outset, we note that the present appeal has been filed before the Tribunal with a delay of 60 days. In this regard, the assessee has filed an application dated 11.11.2025 seeking condonation of the delay, supported by medical certificates. The Ld. AR submitted that the delay was due to the managing director’s health issues. It was submitted that the delay was neither intentional nor deliberate. The Ld. AR relied on the judgment of the Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji 167 ITR 471 (SC) and prayed that the delay be condoned.

3. The Ld. DR, on the contrary, vehemently opposed the condonation of delay and submitted that the assessee had failed to explain the delay satisfactorily. The Ld. DR accordingly prayed that the appeal may be dismissed as barred by limitation.

4. We have heard the rival submissions of both the parties and perused the materials available on record. We have also considered the application for condonation of delay and the supporting medical certificates. The reasons stated by the assessee show that the delay occurred on account of health issues of the director, personal difficulties, delay in collecting the necessary evidence and transition in professional assistance. There is nothing before us to suggest that the delay was deliberate or that the assessee stood to gain by filing the appeal belatedly.

4.1 The Hon’ble Supreme Court in the case of Mst. Katiji (supra) has held that the expression “sufficient cause” should receive a liberal construction so as to advance substantial justice. Considering the explanation furnished by the assessee and the material placed before us, we deem it to opine that there was sufficient cause for not filing the appeal within the prescribed time. Accordingly, the delay in filing the present appeal is condoned and the appeal is admitted for adjudication on merits.

5. In the memo of appeal, the assessee has raised various grounds which are interconnected and pertain to denial of deduction u/s 54G of the Act to the tune of Rs. 3,11,03,852/- while computing income under MAT.

6. The brief facts of the case are that the assessee is a private limited company. The assessee during the year under consideration sold its urban industrial shed for a consideration of Rs. 3,58,60,000/-, resulting in capital gain of Rs. 3,34,79,788/-. The assessee claimed to have reinvested the said capital gain in a rural area and claimed exemption u/s 54G of the Act while computing its income under the normal provisions of the Act. Accordingly, under the normal computation of income, the assessee declared NIL income. However, under MAT, as per section 115JB, the assessee declared income of Rs. 3,34,79,788/- u/s 115JB of the Act and computed tax liability of Rs. 68,92,417/-. The CPC processed the return u/s 143(1) of the Act and accepted the income declared under normal computation and under MAT without variation. However, the CPC raised a demand of Rs. 91,52,257/- (including interest & charges) because the tax liability computed under MAT was not paid.

7. Aggrieved by the intimation issued u/s 143(1) of the Act, the assessee filed an appeal before the Ld. CIT(A). It was submitted that while filing the return of income, the accountant of the assessee company, who was entrusted with return filing, inadvertently omitted to claim the benefit available u/s 54G of the Act while computing its income u/s 115JB of the Act. Accordingly, the assessee sought the benefit of section 54G of the Act while computing the income u/s 115JB of the Act.

8. The Ld. CIT(A), however, rejected the appeal of the assessee. The Ld. CIT(A) observed that the benefit now sought by the assessee while computing the book profit u/s 115JB of the Act was not claimed in the return of income. He further observed that the return of income was filed belatedly and, therefore, the claim could not be entertained at the appellate stage. According to the Ld. CIT(A), the power to condone the delay in making such claim vested with the CBDT u/s 119(2)(b) of the Act and the assessee was required to approach the CBDT for the same. On this basis, the Ld. CIT(A) declined to entertain the claim and dismissed the appeal of the assessee.

9. Aggrieved by the order of the Ld. CIT(A), the assessee filed the present appeal before us. The Ld. AR before us filed a paper book running from pages 01 to 205 and submitted that the Ld. CIT(A) dismissed the appeal without properly considering the materials and evidence placed on record by the assessee, including the evidence submitted under Rule 46A of the Income-tax Rules, 1962. The Ld. AR specifically drew our attention to page 3 of the paper book, wherein a screenshot of the return of income has been placed. Referring to the same, the Ld. AR submitted that the assessee had, in fact, claimed deduction u/s 54G of the Act in its return of income under the normal computation. The learned AR further submitted that while computing income under MAT as per section 115JB, there was no column in the return form to claim the benefit of section 54G of the Act.

10. The Ld. DR, on the contrary, vehemently supported the order passed by the Ld. CIT(A). He submitted that the deduction u/s 54G of the Act can be allowed only when the conditions prescribed under the relevant provisions are duly satisfied by the assessee. He further submitted that the claim of the assessee and the documents relied upon in support thereof require proper verification. Accordingly, the Ld. DR submitted that no interference with the order of the Ld. CIT(A) is called for.

11. We have heard the rival submissions of both the parties and perused the materials available on record. We have also gone through the orders of the lower authorities and the paper book filed by the assessee. On consideration of the rival contentions, in our view, the following issues arise for our consideration:

(i)

Whether the capital gain in respect of which the assessee is entitled to exemption u/s 54G of the Act under the normal provisions is liable to be excluded while computing the book profit u/s 115JB of the Act;

(ii)

Whether such benefit can be considered if the same was not claimed in the return of income, as observed by the Ld. CIT(A);

(iii)

Whether the claim u/s 54G of the Act could be rejected on the ground that the return of income was filed belatedly on 30.11.2020; and

(iv)

Whether the matter requires to be restored to the AO for verification of the quantum of claim u/s 54G of the Act, as contended by the Ld. DR.

11.1 Coming to the first issue, the dispute is whether the benefit available to the assessee u/s 54G of the Act under the normal provisions can also be given while computing its tax liability u/s 115JB of the Act. It is not in dispute that the assessee’s claim u/s 54G of the Act has been accepted under the normal provisions. The only question is whether the same benefit can be denied while computing the book profit u/s 115JB of the Act.

11.2 In this regard, we find that the issue is substantially covered by the judgment of the Hon’ble Madras High Court in the case of CIT v. Metal & Chromium Plater (P.) Ltd. [2019] 415 ITR 123 (Madras). In that case also, the assessee had claimed exemption from capital gain u/s 54EC of the Act. The eligibility of the assessee for such exemption under the normal provisions was not disputed by the AO. However, while computing tax u/s 115JB of the Act, the AO denied the benefit of section 54EC of the Act. The Ld. CIT(A) as well as the Tribunal allowed the claim of the assessee and the matter travelled before the Hon’ble High Court. The Hon’ble Madras High Court considered the provisions of section 115JB(5) of the Act and observed that section 115JB of the Act permits the application of the other provisions of the Act unless their application is specifically barred by section 115JB itself.

11.3 The Hon’ble High Court accordingly held that the adjusted book profit is also eligible for the benefits available under the other provisions of the Act. It was specifically held that the language of section 115JB of the Act permits the grant of relief u/s 54EC of the Act even while making an assessment under the MAT provisions. The Hon’ble High Court further distinguished the decisions rendered in the context of section 115J of the Act by noticing that section 115J did not contain a provision corresponding to section 115JB(5) of the Act. The relevant para of the said judgment is reproduced below:

“6. The allowance or otherwise of the claim under Section 54AC has to be seen in the context of the provisions of Section 115JB which is a self contained code of assessment. The levy of tax is on the ‘book profits’ after effecting various upward and downward adjustments as set out in terms of the Explanation thereto. The provisions of sub-section (5) of s. 115JB open the assessment to the application of all other provisions contained in the Income tax Act except if specifically barred by that section itself. S. 115JB (5) reads as follows:

‘(5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.’

7. Thus, the adjusted book profits would be further eligible to the benefits set out in the other provisions of the Act and the plain language of Section 115JB thus admits of the grant of relief under section 54 EC in an assessment thereunder. We now deal with the case law relied upon by the Assessing officer in denying relief to the assessee. The Supreme Court, in the case of Apollo Tyres Ltd. (supra) is to the effect that the assessing officer is not empowered to embark on an enquiry with regard to the entries in the profit and loss account maintained in accordance with the provisions of the Companies Act 1956 and approved in the AGM except to the extent of effecting modifications in accordance with the Explanation to section 115J. The Bombay High Court in the case of Veekaylal Investments (supra) considers the inclusion of capital gain for the purposes of assessment under section 115J. Both judgements are rendered in the context of Section 115J which does not contain a provision analogous to sub-sections (4) of section 115JA or (5) of section 115JB of the Act. Thus while an assessment u/s 115J would be concluded exclusively on the basis of the book profits as adjusted by the items set out in the Explanation thereunder, in an assessment in terms of sections 115JA or JB, the adjusted book profits would be further subjected to the effect of other provisions of the Act that are specifically brought into play by virtue of sub-sections (4) of section 115JA and (5) of section 115JB.”

11.4 In the present case, the exemption is u/s 54G of the Act instead of section 54EC of the Act. However, in our considered view, this distinction does not alter the principle laid down by the Hon’ble Madras High Court. Both provisions operate in the computation of capital gains and grant of relief subject to fulfilment of the conditions prescribed therein. Once the assessee’s entitlement to exemption u/s 54G of the Act has already been accepted under the normal provisions, and there is nothing in section 115JB of the Act specifically barring the application of section 54G of the Act, the ratio laid down in Metal & Chromium Plater (P.) Ltd. (supra) squarely applies to the issue before us.

11.5 Respectfully following the aforesaid judgment of the Hon’ble Madras High Court, we hold that the assessee is entitled to the benefit u/s 54G of the Act while computing its tax liability u/s 115JB of the Act. Accordingly, the capital gain to the extent of exemption u/s 54G of the Act cannot be brought to tax merely by applying the provisions of section 115JB of the Act. The first issue is, therefore, decided in favour of the assessee.

11.6 Coming to the second issue, it is an admitted fact that the assessee did not claim the benefit u/s 54G of the Act while computing the book profit u/s 115JB of the Act. However, the benefit u/s 54G of the Act was duly claimed by the assessee while computing its income under the normal provisions of the Act. Thus, the claim now made by the assessee does not arise from any new transaction or new set of facts. The omission is only with regard to claiming the consequential benefit while computing the book profit u/s 115JB of the Act.

11.7 In this regard, it is relevant to refer to CBDT Circular No. 14 (XL-35) dated 11.04.1955. The CBDT has specifically instructed that the officers of the Department should not take advantage of the ignorance of an assessee as to his rights and that it is their duty to assist the taxpayer in claiming and securing reliefs which are legitimately due to the assessee. The Circular further provides that where the material available before the authority indicates that a refund or relief is due to the assessee, the officer should bring the same to the notice of the assessee. Thus, the legitimate tax liability has to be determined in accordance with law, and an otherwise admissible relief should not be denied merely because the assessee omitted to make the claim in the return of income.

11.8 We also find support from the judgment of the Hon’ble Madras High Court in the case of CIT v. Perlo Telecommunication and Electronic Components India (P.) Ltd. (Madras). In the said case, the assessee had not made the particular claim in the original return of income but raised the same through a revised computation. The Hon’ble High Court, after considering the decision of the Hon’ble Supreme Court in Goetze (India) Ltd. v. CIT 284 ITR 323 (SC), observed that the restriction laid down in Goetze (India) Ltd. is confined to the power of the AO and does not curtail the powers of the appellate authorities. It was further noticed that a claim which is otherwise allowable in law can be considered by the appellate authorities even though the same was not made in the return of income.

11.9 In the present case, the position of the assessee is on a stronger footing. The assessee had already claimed the benefit u/s 54G of the Act under the normal provisions and the said claim has been accepted by the Department. Therefore, the relevant facts relating to the claim were already available on record. The assessee had merely omitted to claim the corresponding benefit while computing the book profit u/s 115JB of the Act. In our considered view, such an omission cannot result in denial of a relief which is otherwise available to the assessee in law.

11.10 There is also another important aspect. The dispute before us relates to the computation of book profit u/s 115JB of the Act. As pointed out by the Ld. AR, the prescribed return form does not provide a specific column for making the particular adjustment claimed by the assessee while computing the book profit u/s 115JB of the Act. When the return form itself does not provide a specific column for making such a claim, the assessee cannot be denied an otherwise legally admissible benefit merely because the claim was not reflected at a particular place in the return. The claim has to be considered on its merits and in accordance with the provisions of the Act. Accordingly, the second issue is also decided in favour of the assessee.

11.11 We now come to the third issue regarding the filing of the return of income on 30.11.2020. The Ld. CIT(A) has observed that since the return was filed belatedly, the assessee ought to have approached the CBDT for condonation of delay u/s 119(2)(b) of the Act and that the Ld. CIT(A) had no power to condone such delay.

11.12 We find that the above finding does not take into consideration the facts prevailing during the relevant period. The assessee filed its return of income u/s 139(4) of the Act on 30.11.2020. The CBDT, vide Order F. No. 225/150/2020-ITA-II dated 30.09.2020, in exercise of the powers conferred u/s 119(2)(a) of the Act, had extended the time for furnishing belated and revised returns for A.Y. 2019-20 from 31.03.2020 to 30.11.2020 on account of the difficulties arising due to the COVID-19 pandemic. Thus, the return filed by the assessee on 30.11.2020 was within the extended time available for furnishing the belated return for the relevant AY.

11.13 Further, the eligibility of the assessee for benefit u/s 54G of the Act has to be examined with reference to the conditions prescribed under the said provision. Merely because the return was filed u/s 139(4) of the Act cannot, by itself, be a ground to deny the substantive claim of the assessee. In the present case, the return was filed within the extended time granted by the CBDT. Therefore, the reasoning of the Ld. CIT(A) that the assessee was required to approach the CBDT separately for condonation u/s 119(2)(b) of the Act cannot be accepted in the facts of the present case.

11.14 We therefore are of the considered view that the claim of the assessee u/s 54G of the Act under MAT computation cannot be rejected merely on the ground that the return of income was filed on 30.11.2020. Accordingly, the third issue is also decided in favour of the assessee.

11.15 We now come to the last issue. At the time of hearing, the Ld. DR submitted that the quantum of deduction claimed by the assessee had not been verified by the lower authorities and, therefore, the matter may be restored to the file of the AO for verification. We have considered the said contention. However, in the facts of the present case, we do not find any reason to restore the matter merely for verification of the quantum.

11.16 It is an undisputed fact that the assessee had claimed deduction u/s 54G of the Act while computing its income under the normal provisions of the Act. The said claim and the quantum thereof have already been accepted by the Department under the normal provisions. The dispute before us is only with regard to allowing the benefit of the same amount while computing the book profit u/s 115JB of the Act. Thus, the amount sought to be considered under the MAT provisions is not a fresh claim requiring a separate factual exercise. It is the very same claim which already stands accepted under the normal provisions of the Act.

11.17 Once the Department has accepted the eligibility as well as the quantum of the claim u/s 54G of the Act under the normal provisions, no useful purpose would be served by restoring the matter to the AO for verification of the very same amount. The issue which survives before us is only whether the benefit already accepted under the normal provisions can also be given while computing the book profit u/s 115JB of the Act. For the reasons discussed hereinabove, we have answered the said issue in favour of the assessee. Therefore, the request of the Ld. DR for restoring the matter to the AO does not merit acceptance.

11.18 In view of the above discussion and considering the facts of the case in their entirety, we hold that the assessee is entitled to the benefit claimed u/s 54G of the Act while computing the book profit u/s 115JB of the Act. Accordingly, the AO is directed to allow the claim of the assessee while computing the book profit u/s 115JB of the Act. Hence, the grounds of appeal of the assessee are allowed.

12. In the result, the appeal of the assessee is allowed.