For some stupid reason that feature was removed.
Quote from a user here:
http://forum.maccast.com/index.php?/topic/18710-broken-gapless-playback-in-itunes-12/
I placed a call to AppleCare and they told me that gapless playback was removed from iTunes 12 completely and suggested using product feedback page at http://www.apple.com/feedback/ to request to put the feature back into iTunes. Perhaps if enough of us do it we'll get gapless playback back. In the meantime, stick with iTunes 10.7 if you can. It was the last version of iTunes that supported it.