The Chennai Bench of the Income Tax Appellate Tribunal has held that where the taxpayer proves sale of the original asset and purchase of a new residential flat through registered documents, shows that stamp duty and registration charges were paid through bank, establishes availability of sufficient bank balance for issuance of cheques, and the vendor confirms later encashment of those cheques, the investment cannot be treated as unexplained money under Section 69A of the Income Tax Act merely because the cheques were encashed after registration or because an ancillary explanation for delayed encashment is viewed with suspicion. In such circumstances, the taxpayer is to be regarded as having discharged the burden of proving reinvestment for purposes of Section 54 of the Income Tax Act.
The ITAT further held that cash deposits cannot be added under Section 69A where the taxpayer satisfactorily explains the source by reference to cash received under a registered sale deed and supported sales of personal effects, particularly when the surrounding facts make the explanation plausible and the documentary material is consistent with the transaction.
The Division Bench comprising Aby T. Varkey (Judicial Member) and S.R. Raghunatha (Accountant Member) discarded the Revenue’s case that the purchase consideration was paid in January 2017 out of unexplained sources. It found that the vendor had confirmed that the aggregate sale consideration of Rs. 47 lakhs were received only in August 2017, the stamp duty and registration payments were traceable to the appellant’s bank account, and the appellant had sufficient bank balance on January 04, 2017 to issue the cheques on January 05, 2017. The Tribunal therefore held that the addition of Rs. 49.80 lakhs under Section 69A were made without basis and on incorrect appreciation of facts.
The Tribunal observed that the disputed lease agreement had no real bearing on the core issue, because the registered purchase deed dated January 05, 2017 was never alleged by the Revenue to be fraudulent or sham. The payment of stamp duty and registration charges fortified the genuineness of the acquisition, and the vendor’s confirmation further showed that the cheques issued in January 2017 were encashed only in August 2017. The Tribunal also noted that the source of payment was traceable to the sale proceeds received by the appellant on sale of her earlier flat, and that the payment was within the statutory time limit contemplated under Section 54.
On the cash deposit addition, the Tribunal accepted the appellant’s explanation that Rs. 2.50 lakhs were part of the cash sale consideration recorded in the registered sale deed and had already been accepted by the Assessing Officer for capital gains purposes. As regards the balance, the Tribunal found the explanation regarding sale proceeds of household items and electronics plausible, since the sales were supported by bills and vouchers, the value of each sale was below Rs. 2 lakhs, and the appellant was not required to retain PAN details of such buyers under Rule 114B. It accordingly held that the addition of Rs. 10.80 lakhs under Section 69A were also unsustainable.
Briefly, the appellant, an individual, sold her apartment on October 04, 2016 under a registered sale deed for a total consideration of Rs. 35.50 lakhs, of which Rs. 33 lakhs were received through bank and Rs. 2.50 lakhs in cash. She also sold imported household utensils, electronic items and other personal effects for Rs. 8.09 lakhs in cash, and deposited in her bank account an aggregate of Rs. 11.80 lakhs comprising the cash received from sale of flat, sale of household items, gifts of Rs. 50,000 each from her husband and daughter, and cash balance of Rs. 20,400. Thereafter, she purchased a new residential flat on January 05, 2017 for Rs. 35 lakhs, incurred stamp duty and registration charges of Rs. 2.80 lakhs, and further spent Rs. 12 lakhs on interiors, claiming total investment of Rs. 49.80 lakhs and exemption under Section 54 of the Income-tax Act.
The Assessing Officer, while scrutinizing the claim under Section 54, noted that although the purchase deed was dated January 05, 2017, the payments of Rs. 35 lakhs and Rs. 12 lakhs were actually cleared in August 2017. The appellant explained that the cheques had been issued at the time of registration in January 2017 but were encashed later because the flat was occupied by tenants and physical possession was delivered only in August 2017. The Assessing Officer disbelieved this explanation mainly because the lease agreement relied upon by the appellant was executed on a stamp paper dated November 2017 and issued in another person’s name, and consequently added Rs. 49.80 lakhs and Rs. 10.80 lakhs as unexplained money under Section 69A, which additions were confirmed by the CIT(A).
Appearances:
Advocates J. Radhakrishnan and Vishnu Jayaram. R, for the Appellant
Additional CIT, R. Anitha, for the Respondent/ Revenue
