SynopsisA taxpayer successfully challenged an Rs 83 lakh capital gains tax exemption denial in ITAT Mumbai. The Income Tax officer erred by reopening the assessment without specifying the Section 54F exemption as a reason. ITAT Mumbai ruled the officer lacked jurisdiction for this addition, quashing the disallowance based on a Bombay High Court precedent.ET OnlineITAT Mumbai allows Rs 83 lakh capital gains tax exemption after tax officer makes reassessment jurisdictional error; Know why lady won (AI generated representative image)On January 8, 2026, a taxpayer won her Rs 83 lakh Section 54F capital gains tax exemption case in ITAT Mumbai as the income tax officer made an error by not mentioning the specific reason for re-opening the taxpayers’ file. Income Tax GuideIncome Tax Union Budget FY 2026-27 LiveIncome Tax Slabs FY 2025-26Income Tax Calculator 2025The taxpayer, Smt Shah, had claimed capital gains tax exemption under Section 54F on long-term capital gains from sale of shares and using the gains to buy a house. The Income Tax assessing officer reopened her assessment under Section 147 on the basis of information from the Investigation Wing about large investments, share buyback transactions, and possible mismatch between income and investments.However, when the reassessment was finalized, the tax assessing officer did not make any addition on the issues that prompted the reopening. The only addition made was the denial of the Section 54F exemption, which wasn’t even part of the reasons given fot reopening the case. Feeling aggrieved, she appealed to the Commissioner (Appeals) (CIT A) who in turn upheld the order of the Assessing Officer. He relied on Explanation 3 to Section 147 to hold that Assessing Officer was allowed to make addition without addressing any of the 'original items' listed as the reasons for reopening the assessment. After this decision from CIT A, she took the case to ITAT Mumbai.On January 8, 2026, she won the case in ITAT Mumbai. CA Piyush Chhajed represented the taxpayer Smt Shah in ITAT Mumbai.Section 54F of the Income-tax Act, 1961 allows tax exemption on long-term capital gains when the gains arose from the transfer of any long-term capital asset other than a residential house property. This is applicableas long as the assessee, either an individual or a Hindu Undivided Family (HUF), invested the net proceeds to buy or construct a residential house in India. Here are the key conditions: The asset transferred must be a long-term capital asset, but not a residential house.The assessee should, within: One year before or two years after the date of transfer, buy a residential house in India, or three years after the date of transfer, build a residential house in India.The extent of tax exemption would be as follows: If the entire net consideration was invested in the new residential house, the whole of the capital gain was exempt. If only a part of the net consideration was invested, the exemption was proportionate, i.e. capital gain × (amount invested ÷ net consideration).If the new residential house was transferred within three years from the date of purchase or construction, the exemption would be withdrawn.Also read: Lady sells listed equity shares for Rs 26 crore and constructs house, pays no capital gains tax; ITAT Kolkata rules in her favourSummary of the judgementShah filed her ITR for AY 2012-13 claiming capital gain tax exemption under Section 54F of the Income-tax Act on long-term capital gains arising from investment in a residential house. The ITR was originally processed under Section 143(1). Subsequently, the Assessing Officer reopened the assessment under Section 147 based on information received from the Investigation Wing regarding large investments, high-value buyback of shares of a private company, multiple bank accounts, and an alleged mismatch between investments and declared income.During the reassessment proceedings, however, the AO did not make any addition on the issues which were cited as reasins for reopening the assessment. Instead, the reassessment resulted in addition of ₹83.43 lakh, by disallowing the exemption claimed under Section 54F, an issue that was not mentioned in the reasons recorded for reopening. The Commissioner (Appeals) upheld the reassessment, relying on Explanation 3 to Section 147, holding that the Assessing Officer could make additions on other issues even if no addition was made on the original reasons.On further appeal, the ITAT Mumbai held that where no addition is made on the issues for which the assessment was reopened, the Assessing Officer lacks jurisdiction to make any other addition. Relying on a binding Bombay High Court precedent, the ITAT Mumbai quashed the disallowance of Section 54F exemption and allowed her appeal.Also read: ITAT Delhi rejects Rs 2.53 crore STCG on reduced property interest caused by share dilution; Lady succeeds in ITAT for this reasonITAT Mumbai analysis and discussionParagraph 4 of the r