Facts
The assessee sold an apartment and household items, and deposited the proceeds along with a gift and cash balance into her bank account. She then purchased another residential flat and claimed deduction under section 54 of the Income Tax Act, 1961. The Assessing Officer (AO) added the cost of the new flat and cash deposits as unexplained monies under section 69A, which was confirmed by the CIT(A).
Held
The Tribunal held that the AO was unjustified in denying the deduction under section 54 and making additions under section 69A for the purchase of the new flat, as the transaction was supported by registered deeds and bank statements, and the source of funds was traceable to the sale of the old flat. The addition for cash deposits was also deleted as the assessee provided plausible explanations and supporting documents for the cash received from the sale of personal effects and the cash portion of the sale of the old flat.
Key Issues
Whether the additions made under section 69A for unexplained monies and the denial of deduction under section 54 for the purchase of a new residential flat were justified.
Sections Cited
69A, 54, 114B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the
Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter
referred to as “the Ld.CIT(A)”), Delhi, dated 23.05.2025 for the
Assessment Year (hereinafter referred to as "AY”) 2017-18.
The grievance of the assessee relates to the action of the Ld.CIT(A)
confirming the additions of ₹49,80,330/- & ₹10,80,000/- made by the AO
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 2 ::
by way of unexplained monies u/s.69A of the Income Tax Act, 1961
(hereinafter referred to as "the Act”).
Brief facts of the case as discernible from the records are that, the
assessee an individual lady had sold her apartment at Rajparis, Crystal-
Spring on 04.10.2016 to Shri K. Manoharan vide registered Sale Deed
No.10626/2016 for a sale consideration of ₹35,50,000/-, according to
which ₹33,00,000/- was received in bank and ₹2,50,000/- was received
in cash. Simultaneously in the event of such sale, the assessee had also
separately disposed off imported household utensils, electronic items etc.
of her apartment at Rajparis, Crystal- Spring to several vendors and had
realized ₹8,09,600/- in cash. The assessee is found to have deposited the
cash of ₹2,50,000/- received from sale of flat, ₹8,09,600/- received from
sale of household items, ₹1,00,000/- received by way of gift from her
husband and daughter along with her cash balance of ₹20,400/-,
aggregating to ₹11,80,000/- in her bank account. Thereafter, the
assessee invested the ibid sale-consideration, by purchasing a Residential
Flat viz., Flat No.B-3,Third-Floor, Raj Castle, Medavakkam from the seller
represented by Shri Mr. M.S. Swaminathan, Power of Attorney-holder
(PoA) of vendor, Shri Vijay Guruswami, son-in-law of the assessee at a
cost of ₹35,00,000/- vide registered deed D.No.123/2017 dated
05.01.2017. The assessee had incurred stamp duty and registration
charges of ₹2,80,330/- in relation to this acquisition of flat. The assessee
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 3 ::
had further spent ₹12,00,0000/- on the interiors of the newly acquired
flat. The assessee accordingly claimed to have spent ₹49,80,330/-
towards the new residential flat at Raj Castle, Medavakkam. According to
the assessee, she had re-invested the sale consideration from transfer of
her residential flat at Rajparis, Crystal- Spring in acquisition of new
residential flat at Raj Castle, Medavakkam and thus, she claimed the long
term capital gain arising from sale of her flat by way of deduction u/s 54
of the Act. It is seen that, the appellant had inter alia reported long term
capital loss of ₹7,05,542/- after claiming exemption u/s 54 of the Act and
declared total income of ₹2,01,156/-.
The case of the assessee was selected for scrutiny. The AO is found
to have taken note of the sale of flat at Crystal-Spring apartment on
04.10.2016 for ₹35,50,000/- (₹33 lakhs through bank & ₹2.5 lakhs in
cash), which was supported by sold registered Sale Deed No.10626/2016
and thus did not dispute the long term capital gains derived therefrom.
The AO thereafter called for the details of the flat purchased at Raj Castle
to verify the deduction claimed u/s 54 of the Act. Upon examination of the
details, particularly the registered deed dated 05.01.2017 and the bank
statements, the AO noted that, the payment made towards acquisition of
flat to the vendor and the cost of interiors of ₹35,00,000/- and
₹12,00,000/- respectively was made only in the month of August 2017
and not January 2017, as stated in the registered deed. The AO required
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the assessee to explain this discrepancy and provide the source of
payment. The AO was of the view that, if the assessee had already paid
₹33,00,000/- in January 2017, as mentioned in the registered deed, then
why did she paid sums of ₹33,00,000/- and ₹12,00,000/- again in August
2017. To this, the assessee is found to have explained that, though she
had issued and handed over the cheque of ₹33,00,000/- at the time of
registration in January 2017, but the same was encashed by the seller
only on in August 2017. The assessee clarified that, the payment made in
August 2017 [whose cheque was issued in January 2017] was the sole
payment and no other sum was paid to the vendor. The assessee further
explained that, the flat which was purchased from her son-in-law had
been leased by the latter to certain tenant(s), who had sought time to
vacate the premises until they got suitable alternative accommodation.
Accordingly, she had proposed to the seller [her son-in-law] that the
cheque issued by her upon registration ought to be encashed only when
the tenant(s) vacate the flat and the physical possession is given to her.
The assessee submitted that, though she was given symbolic possession
vide registered deed in January 2017, but the physical possession was
received only in August 2017 and accordingly, the seller had encashed the
cheque then, which was issued in January 2017. The AO is noted to have
asked the assessee to adduce proof in support of this explanation. In
response, the assessee furnished a copy of the lease agreement dated
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05.01.2017 between her and the seller. The AO however doubted the
veracity of the said lease deed since it was executed on a stamp paper
dated November 2017, and the stamp paper was also issued in someone
else’s name. The AO thus disbelieved the entire transaction, as explained
by the assessee. The AO is found to have curiously not only denied the
deduction claimed u/s 54 of the Act, but he went on reject the nature and
source of payment of ₹49,80,330/- viz., the cost of purchase of flat,
stamp duty & registration charges and the cost of interior works, and
added the same by way of unexplained monies u/s 69A of the Act. The AO
is noted to have also added the cash deposits of ₹10,80,000/- in
assessee’s bank account treating it to be unexplained u/s 69A of the Act.
On appeal, the Ld. CIT(A) concurred with the findings of the AO. Being
aggrieved, the assessee is now in appeal before us, assailing the
impugned action of authorities below.
The Ld AR, assailing the action of AO/CIT(A) submitted that the
addition made by AO of ₹49,80,000/- was incomprehensible and flawed,
and that the Ld.CIT(A) did not even bother to appreciate the inherent
fallacy and improbability of the case as built by AO to saddle the huge
addition. The Ld. AR brought to our notice that, though the Ld.CIT(A)
acknowledged at Para No.5.2.2 of his order that sale consideration was
actually paid several months after the registration of Sale-Deed on
05.01.2017, but then, he curiously observed that such payment points to
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an unexplained inflow of fund at a later date, whereas the Ld. AR showed
us that there was none. The Ld. AR further rebutted the assertion of the
Ld CIT(A) that there was no evidence available regarding source of such
funds at the time of purchase in January 2017, by showing us that the
assessee had sufficient bank balance in excess of Rs 45 lakhs at that
material time. According to Ld. AR therefore, such findings rendered by
the Ld.CIT(A) to justify the impugned addition, is not only self-
contradictory, but perverse and is nothing but based on suspicion and
conjectures.
According to the Ld.AR, both the Ld.CIT(A) & the AO has
misdirected themselves on the basis of post-dated stamp-paper of
November, 2017, to disbelieve the entire transaction. He submitted that
the undisputed contemporaneous facts was that, the assessee had sold
her flat and received sum of ₹35,50,000/- from the purchaser and further
sum of ₹8,09,600/- upon sale of household items and electronics &
appliances. The Ld. AR argued that, the veracity of the registered
purchase deed of January 2017 was not in question, in as much as, the
assessee had indeed paid the stamp duty and registration charges, at that
material time. In so far as the payment of consideration towards the
purchase of flat is concerned, the Ld. AR showed us that, the said
payment was indeed cleared later on in August 2017, which is verifiable
from the bank statements, and supported by the confirmation furnished
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 7 ::
by the vendor. The Ld. AR submitted that, the time gap between the
execution of deed and the clearance of cheques and/or the explanation of
the same, was totally indecisive to ascertain the eligibility of exemption
claimed u/s 54 of the Act or for that matter make any addition u/s 69A of
the Act, when the fact remains that, the source of payment towards the
flat acquired by the assessee was evidently out of the proceeds of flat
sold by the assessee.
The Ld. AR reminded us that registration of the purchase of Raj-
Castle apartment made in January, 2017 had not been questioned, and
that without payment of registration charges/stamp-duty of ₹35,330/- &
₹2.45 lakhs, it was impossible to register the property in assessee’s
name. The Ld. AR showed us that, even this payment was added by the
AO way of unexplained monies u/s 69A of the Act, which according to
him, exposes the whimsical attitude and arbitrary exercise of power by
the AO/Ld.CIT(A). The Ld. AR further brought to our notice that, the
source of payment of ₹49,80,330/- inter alia comprised of the cash
deposits of ₹10,80,000/- in assessee’s bank account. He submitted that,
the AO had first arbitrarily added the payment made out of such cash
deposits towards purchase of flat, while making addition of ₹49,80,330/-
by way of unexplained monies u/s 69A of the Act, and thereafter he again
added the cash deposits itself of ₹10,80,000/-, resulting in double
addition. The Ld. AR contended that, even this double addition, which was
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ex-facie evident from the records, had not been correctly appreciated by
the Ld. CIT(A) / AO, which in his view, showed the high-handed action
taken against the assessee. He thus urged that the impugned additions
were factually perverse and wants us to delete the same.
Per Contra the Ld. DR fully supported the action of both Ld CIT(A)
as well as that of AO, and doesn’t want us to interfere with the impugned
action of Ld CIT(A).
We have heard both the parties and perused the records. The issue
before us is regarding the impugned additions of ₹49,80,330/- &
₹10,80,000/- as unexplained money u/s.69A of the Act. Since both the
additions are based on facts which are inter-twined with each other, we
are taking them up together for adjudication.
The background facts leading to the impugned addition(s) are that,
the assessee had conducted two separate transactions during the relevant
year. Firstly, the assessee had sold her apartment at Crystal Spring from
which she had derived proceeds of ₹35,50,000/- comprising of
₹33,00,000/- in cheque and sum of ₹2,50,000/- in cash. This is verifiable
from the terms of the deed bearing no. 10626/2016 dated 04.10.2016.
Secondly, the assessee had executed purchase/sale deed dated
05.01.2017 in terms of which she had purchased a new residential flat at
Raj Castle Apartments on which she had expended stamp duty and
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 9 ::
registration charges aggregating to ₹2,80,330/-. The assessee is noted to
have claimed deduction u/s 54 of the Act on the ground that the capital
gain equivalent arising from transfer of her flat at Crystal-Spring had
been re-invested in purchase of new residential flat at Raj Castle. The
assessee is found to have furnished the relevant deeds before the lower
authorities, which are found to be verifiable from Pages 1 to 51 of the
paper book filed before us as well. It is further seen that the receipt of
₹33,00,000/- in cheque [out of total consideration of ₹35,50,000/-] upon
sale of her flat at Crystal Palace is found to be verifiable from assessee’s
bank statements as well. As regards the discharge of purchase
consideration of flat at Raj Castle Apartment is concerned, it is seen that,
the assessee is shown to have issued and handed over cheques on
05.01.2017 of Rs.35 lacs and Rs.12 lacs each, which was albeit encashed
by the vendor in August 2017.
According to the Revenue however, the amount was actually paid to
the vendor in January 2017 along with registration and stamp duty
charges out of unexplained sources and therefore the monies of
₹49,80,330/- was added u/s 69A of the Act. We find that this assertion of
the Revenue is not based upon the facts, as is verifiable from the records
before us. We find that the vendor had confirmed the sale made in
January 2017 and that the consideration of Rs.47 lacs, in aggregate, was
received by him in August 2017. The payment of registration charges and
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 10 ::
stamp duty charges is also traceable to the bank statement of the
assessee. We further observe that, the assessee had sufficient bank
balance on 04.01.2017 to issue and hand over cheques of Rs.47 lacs to
the vendor on 05.01.2017. It is also not in dispute that, later on, the
vendors had encashed the cheques and the amounts were paid out of the
bank account of the assessee in August, 2017. We thus find that the
addition made by the AO u/s 69A was without any basis and on incorrect
appreciation of relevant facts and that he had misdirected himself on
irrelevant material.
We find that the AO was swayed by the post-dated stamp paper of
the lease agreement furnished by the assessee, for explaining the delayed
encashment of cheques by the vendor. The AO found this agreement
furnished by the assessee to be an after-thought, to justify the delay in
clearance of payment and thus disbelieved not only this lease agreement,
but the entire transaction/arrangement itself. According to us, the
disputed lease agreement has no bearing on the issue at hand. It is not
the Revenue’s case that, the deed bearing no.123/2017 registered on
05.01.2017 was obtained through fraud or was sham. The payment of
stamp duty and registration charges, rather, fortifies, the veracity of the
acquisition of flat. It is also an undeniable fact that, the assessee had
sufficient bank balance on the date of registration and therefore it can be
plausibly accepted that she could have issued cheques of Rs.45 lacs on
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 11 ::
that date, whose receipt has been acknowledged by the seller in the
registered deed. It could be for varied reasons that, the payment was
ultimately encashed and cleared later on viz., in August 2017, but the fact
remains that, the payment was made to the bank account of the seller
alone. Indeed, the lease agreement furnished by the assessee to explain
the delay in clearance of cheques suffers from skepticism. The Ld. AR
however has rightly explained that, if the AO had doubt about the belated
presentation of cheque and wanted to verify when the vendor’s tenant
vacated Raj-Castle Apartment in August 2017, then the AO should have
confronted the vendor, whose details including PAN, Aadhar, address
details were in the possession of AO and not the assesseee. In this
context, we note that, the vendor had furnished confirmation which is
found placed at page 54 of PB, where the details of sale-consideration of
Rs 35 lakhs transferred from bank account of assessee to vendor account
dated 03.08.2017 is found placed therein and page 55 of PB gives similar
details of payment of Rs 12 Lakhs in August 2017 through bank. This
confirmation further affirms the case of the assessee that, there was no
unexplained payment made towards the purchase of the flat at Raj Castle
in January 2017 and that the cheques issued then had been encashed by
the vendor in August 2017 and therefore there was no involvement of any
unexplained monies. It is also seen that the source of payment is found to
be out of the proceeds received upon sale of flat at Crystal Spring by the
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 12 ::
assessee. It is also not the Revenue’s case that, the payment was not
cleared within the time limit specified in Section 54 of the Act viz., two
years from the date of sale of capital asset, which could have otherwise
resulted in denial of deduction u/s 54 of the Act. The Ld. DR was also
unable to clarify that, if for the sake of argument, it is assumed that, the
assessee had discharged the sale consideration out of unexplained
sources in January 2017, then for what purpose could have the same
amount been paid and cleared to the vendor from her bank account in
August 2017. We thus are in agreement with the Ld. AR that the case
made out by the lower authorities was bereft of logic and fraught with
conjectures and that the impugned addition of ₹49,80,330/- made u/s
69A was unsustainable.
At the cost of repetition, it is noted the assessee has placed the
relevant documents to prove the claim u/s 54 of the Act by adducing the
best evidence to prove the sale of her apartment in October 2016 by
producing the registered Sale-Deed dated 04.10.2016 & thereafter
purchase of flat in January 2017 by registered Purchase Deed dated
05.01.2017. It is settled position of law that a registered Sale-deed
carries with it a formidable presumption of validity and genuineness.
Registration is not a mere formality but a solemn act that imparts high
degree of sanctity to the document. Consequently, it was held by Hon’ble
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 13 ::
Supreme Court in plethora of cases to name one, Prem Singh and Ors
vs Birbal and Ors (2006) 5 SCC 353, that a Court must not lightly or
casually declare a registered instrument as ‘Sham’. Further, the entries in
bank statement of the assessee also corroborates both the sale and
purchase transactions executed by the assessee. The registered purchase
Deed dated 05.01.2017 between the assessee and the PoA-holder of the
vendor, has not been questioned by the latter before any court or
authority alleging fraud. Only because the assessee purchased the
property from her son-in-law who encashed the cheques issued towards
the consideration amount subsequent to registration of the property,
cannot be a ground to disbelieve such a fact, unless there is any evidence
to show that registration of purchase/sale-deed dated 05.01.2017 is
sham, which is not the case of AO. In the absence of such insinuation, the
assessee’s title of Raj-Castle Apartment from 05.01.2017, cannot be
disputed. When these are the proved facts, the assessee is noted to have
discharged the burden to prove investment of sale-consideration she
received from sale of flat in October 2016, by proving purchase of
residential flat in January 2017, and satisfied the condition precedent for
claiming capital-gain exemption u/s 54, which claim is legally tenable and
hence, in our view, ought to have been allowed.
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 14 ::
For the above reasons, we hold that, not only was the AO
unjustified in denying the deduction claimed by the assessee u/s 54 of the
Act, but the addition of ₹49,80,330/- made u/s 69A of the Act is held to
be arbitrary and unsustainable, in the light of foregoing discussions. We
thus direct the AO to delete the impugned addition of ₹49,80,330/-
holding it to be erroneous and allow the deduction claimed by the
assessee u/s 54 of the Act.
Now coming to the addition of ₹10,80,000/- on account of cash
deposited by the assessee in her bank account. It is seen that, the
assessee had deposited sums aggregating to ₹11,80,000/-. When asked
to provide the nature and source of the same, the assessee is noted to
have furnished confirmations of ₹50,000/- each from her husband &
daughter as gift, which was deposited in her bank account. These gifts
were accepted by the AO. In respect of the balance amount of
₹10,80,000/-, the assessee explained that, portion of it represented the
cash received upon sale of her flat i.e. ₹2,50,000/- and the balance was
represented by the proceeds from sale of expensive imported house-hold
utensils, electronic gadgets, etc., which she had to dispose of in the event
of her selling her Crystal-Spring apartment. The assessee is noted to have
provided the details of the purchasers along with the relevant bills and
invoices in support of the same. The AO however disbelieved the
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 15 ::
explanation of the assessee, on the ground that the assessee was unable
to furnish confirmations from the purchasers and that summons sent to
five out of eight parties had returned un-served. This action has been
confirmed by Ld CIT(A). Hence, assessee is now before us.
Heard both parties. The break-up of the nature and source of cash
deposits of ₹10,80,000/- in dispute before us, as provided by the
assessee, is noted to be as under:
(i) Rs. 50,000/- gifted by husband. (i) Rs. 50,000/- gifted by daughter. (iii) Rs. 2,50,000/- cash received on sale of property to Mr.Manohar (see page No. 6 of the Sale Deed dated 04.10.2016).
(iv) Rs. 97,000/- received on sale of personal effects to smart electronics. (v) Rs.1,95,000/- received on sale of personal effects to Guna Enterprises. (vi) Rs.94,600/- received on sale of personal effects to smart electronics. (vii) Rs.1,41,000/- received on sale of personal effects to Madan Enterprises. (viii) Rs.1,43,000/- received on sale of personal effects to H. Khader and Sons.
(ix) Rs.1,39,000/- received on sale of personal effects to S.K.S. Traders.
In respect of the cash of ₹2,50,000/- received upon sale of flat at
Crystal-Spring, we find that, the said receipt is verifiable from Page no 6
of the registered sale deed dated 04.10.2016. It is also observed that this
cash receipt of ₹2,50,000/- was accepted and taken as a part of the sale
consideration by the AO, while assessing the capital gains arising on sale
of the property. We are therefore of the view that, the AO was unjustified
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 16 ::
in treating the said receipt to be unexplained and thus direct the AO to
delete the same.
The balance deposits of ₹8,30,000/- is found to be inter alia
represented by proceeds of ₹8,09,600/- derived by the assessee upon
sale of household items, electronic gadgets and appliances, upon the
event of disposal of her flat at Crystal-Spring. The remaining cash
deposit of ₹20,400/- [₹8,30,000 – ₹8,09,600] is found to have been
explained out of the current year’s income and cash balance of the
assessee, which we find to be correct. The Ld. AR has showed us that, the
individual value of sales to the respective vendors, to whom these second
hand items aggregating to Rs.8,09,600/- were sold, was less than
Rs.2,00,000/- and therefore we are in agreement with him, that the
assessee was under no obligation to obtain and retain their PAN details in
terms of Rule 114B of the Income Tax Rules, 1962. It is seen that, the
sales were supported by the relevant bills and vouchers and the
surrounding facts and circumstances also justified the quantum of such
sales, as she had to dispose them off upon sale of her flat in October
2016, as noted supra. The Ld. AR explained that these vendors who had
purchased these items and household effects generally deal in cash and
that the assessee did not have any continuing relationship with them,
basis which she could have obtained any further confirmations in the
manner as requisitioned by the AO or ensure their attendance of
ITA No.2034/Chny/2025 (AY 2017-18) Mrs. Chandra Swaminathan :: 17 :: summons. Given the overall facts and circumstances in this specific facts of this case, according to us, the explanation furnished by the assessee regarding the proceeds derived on sales of household items, electronic appliances and gadgets of Rs.8,09,600/- is found to be plausible. We thus hold the action of the AO in adding the same as unexplained monies to be unjustifiable. Overall therefore, the addition of Rs.10,80,000/- made u/s.69A of the Act can’t be sustained and is directed to be deleted.
In the result, appeal filed by the assessee is allowed
Order pronounced on the 17th day of April, 2026, in Chennai.
Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (S.R.RAGHUNATHA) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 17th April, 2026. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF
TUMMALACH Digitally signed by TUMMALACHARLA ARLA LAKSHMI LAKSHMI NARAYANA Date: 2026.04.17 NARAYANA 17:03:59 +05'30'