ITAT Chennai Deletes ₹49.80 Lakh Additions On Flat Purchase And Cash Deposits, Allows Reinvestment Benefit

The Income Tax Appellate Tribunal (ITAT) in Chennai has recently deleted additions of Rs.49.80 lakh and Rs.10.80 lakh made against a taxpayer after finding that her investment in a new flat and cash deposits were wrongly treated as unexplained, despite being traceable to the sale of her earlier property and household items.

A bench of Judicial Member Aby T. Varkey and Accountant Member S.R. Raghunatha held, “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."

The taxpayer had sold a residential flat for Rs.35.50 lakh. Rs.33 lakh was received through the bank. Rs.2.50 lakh was received in cash. She also sold household items and electronic goods for Rs.8.09 lakh in cash. The amounts were deposited in her bank account.

She then purchased a new flat for Rs.35 lakh. She paid Rs.2.80 lakh towards stamp duty and registration. She spent Rs.12 lakh on interiors. The total investment came to Rs.49.80 lakh.

The Assessing Officer noted that the property was registered in January 2017. But the payments were reflected in August 2017. On this basis, and relying on doubts about a lease agreement, the officer denied exemption under Section 54 (which allows tax exemption on capital gains if money from the sale of a house is reinvested in another residential property).

He treated the entire Rs.49.80 lakh as unexplained money under Section 69A (which allows tax authorities to treat money as income if the taxpayer cannot satisfactorily explain its source). He also added Rs.10.80 lakh deposited in the bank account as unexplained. The CIT(A) upheld this.

The assessee said the cheques were issued at the time of registration. They were encashed later due to practical reasons. She relied on bank statements and confirmation from the seller.

The Tribunal accepted this explanation. It observed, “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. "

It rejected the view that delay in encashment made the transaction unexplained. It also found that the authorities relied on irrelevant material.

The bench noted, “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. .”

On cash deposits, the tribunal accepted that Rs.2.50 lakh came from the flat sale. The balance came from the sale of household items. These were supported by records.

The bench held, “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.”

The tribunal held that the additions under Section 69A could not be sustained. It also held that exemption under Section 54 could not be denied in the facts of the case. Both additions were deleted.

For Appellant: Mr. J. Radhakrishnan, Advocate and Mr. Vishnu Jayaram. R, Advocate

For Respondent: Ms. R. Anitha, Addl.CIT