What happened
Two recent tribunal rulings, reported by the Economic Times, show how taxpayers can successfully challenge income tax notices before the Income Tax Appellate Tribunal (ITAT), the body that hears appeals against orders of the tax department’s first appellate authority.
Delhi: redevelopment gain and Section 54
A Vasant Vihar resident inherited 400 square yards of leasehold land from his mother in 1997. The Delhi Development Authority mutated the property in his name on 20 September 1998, and it became freehold on 12 August 1999. In 2018 he and the owners of three first-floor units signed a redevelopment deal with a builder.
He received ₹75 lakh from the builder and kept the basement, ground floor and third floor. He paid no tax by claiming a long-term capital gains exemption under Section 54, which covers gains reinvested in a residential house. The assessing officer treated the three portions as separate houses and allowed the exemption only for the ground floor, citing the 2015 change to Section 54 limiting it to one residential house.
On 13 July 2026, ITAT Delhi disagreed. It held that floors or independently usable portions within one building do not by themselves mean the taxpayer acquired more than one house. Its reasoning rested chiefly on an earlier Delhi High Court ruling, Pr. CIT v. Lata Goel, which dealt with multiple floors in one residential property.
The tribunal also held that the officer could not reject registered valuers’ reports and substitute a lower value without identifying defects or referring the matter to the Departmental Valuation Officer (DVO). It noted a builder’s certificate showing a construction cost of ₹2.54 crore for the portions handed to him. The officer was told to recompute the gains, resulting in no taxable long-term capital gain.
Bengaluru: a notice to a Canada-based senior
In a second case, a Canada-based senior citizen faced a tax liability of ₹83.2 lakh as short-term capital gains. ITAT Bengaluru quashed the reassessment notice and the reassessment that followed, because the taxpayer living abroad was given five days to respond instead of the legally required seven, according to the Economic Times.
What it means for you
Both outcomes turned on specifics. In Delhi, the question was how many houses a redevelopment produced, and what valuation and cost evidence the taxpayer could show. In Bengaluru, the decision rested on a procedural deadline rather than on the merits of the gain.
If you receive a notice, the dates, the response window and the paperwork behind your valuation or cost claims can matter as much as the tax rule itself. If you live abroad, check the response period stated in the notice. You can estimate your own position with the NRI Residential Status Calculator and read about capital gains.
These are decisions on individual facts, so they do not automatically apply to your case. A chartered accountant can tell you whether similar arguments fit your situation.
Background
The tax department’s assessing officer first decides a case. A taxpayer can appeal to the Commissioner of Income Tax (Appeals), or CIT(A), and then to the ITAT. In the Delhi case, the CIT(A) had upheld the officer’s findings before the tribunal reversed them.
Disputes sit alongside large collections. Net direct tax collections rose 13.21% to ₹13.38 lakh crore till 14 October 2026, while total refunds rose 24.22% to ₹2.65 lakh crore. See our collections report.
Read our full coverage of the Delhi redevelopment case and the Bengaluru reassessment ruling.
