ITAT Deletes Unexplained Investment Addition as Payments Were Fully Traceable Through Banking Channels

ITO 23(2)(6) Vs Paresh Mulayamchand Panday (ITAT Mumbai)

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) deleting additions made under Sections 69 and 56(2)(x) for Assessment Year 2020-21. The assessee had filed a return declaring income of Rs. 10,36,854, and the case was selected for scrutiny. During assessment, the Assessing Officer observed that the assessee had paid Rs. 1 crore to a developer and Rs. 25 lakh to an outgoing tenant under a Permanent Alternate Accommodation Agreement. In the absence of satisfactory responses during assessment proceedings, the Assessing Officer treated the total payment of Rs. 1.25 crore as unexplained investment under Section 69. Further, relying on information available on the Insight Portal, the Assessing Officer treated the difference between the alleged stamp duty value of Rs. 2.585 crore and the consideration of Rs. 1.25 crore as income under Section 56(2)(x), resulting in an addition of Rs. 1.335 crore.

In appeal, the assessee furnished additional evidence, including bank statements, cash-flow statements, PPF records, and other financial documents. These were admitted under Rule 46A, and a remand report was sought from the Assessing Officer. The assessee maintained that the payments were made through banking channels and that the transaction related to tenancy rights and allotment of additional area under a redevelopment arrangement.

The CIT(A) examined the agreement and found that Rs. 25 lakh had been paid for acquisition of tenancy rights and Rs. 1 crore for allotment of additional area. The CIT(A) further found that the payments were fully traceable through banking channels and supported by bank statements and cash-flow records. Since there was no evidence of unaccounted cash transactions, the source of investment was held to be satisfactorily explained and the addition under Section 69 was deleted.

With respect to Section 56(2)(x), the CIT(A) observed that the Assessing Officer had not established the precise nature of the property, the applicability of stamp duty valuation, or the relationship between the valuation reflected on the Insight Portal and the rights actually acquired by the assessee. The agreement did not clearly specify the stamp duty value, physical area, or extent of the property. No independent valuation exercise was undertaken, nor was any reference made to a Valuation Officer. Accordingly, the addition under Section 56(2)(x) was deleted.

Before the Tribunal, the Revenue argued that the CIT(A) had improperly admitted additional evidence and had not sufficiently examined the source of funds. The Tribunal rejected these contentions, noting that the assessee had submitted detailed documentation during appellate and remand proceedings, including bank statements, PPF statements, inflow-outflow statements, and supporting records. The Tribunal found that the CIT(A) had followed due process under Rule 46A and had provided the Assessing Officer an opportunity to verify the material.

The Tribunal held that the payments of Rs. 1.25 crore were fully traceable through banking channels and sourced from withdrawals from PPF accounts, funds received from relatives, and internal fund movements reflected in the bank records of the assessee, spouse, and HUF. Since no cash deposits or unexplained transactions were found, the assessee had discharged the burden under Section 69.

The Tribunal also upheld the deletion of the addition under Section 56(2)(x), observing that the Assessing Officer had relied solely on Insight Portal information without establishing a nexus between the reported valuation and the rights acquired under the redevelopment agreement. The Tribunal agreed that the transaction formed part of a redevelopment arrangement involving tenancy rights and alternate accommodation and that the Assessing Officer had failed to establish the applicability of Section 56(2)(x).

Accordingly, the Tribunal upheld the order of the CIT(A), dismissed all grounds raised by the Revenue, and dismissed the appeal.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 24.09.2025, arising out of the assessment order passed by the Assessing Officer under section 143(3) read with section 144B of the Income-tax Act, 1961 dated 19.09.2022 for the Assessment Year 2020–21.

Facts of the Case

2. The assessee is an individual. The assessee filed the return of income for the year under consideration on 09.01.2021 declaring total income of Rs. 10,36,854/-. The return of income was processed under section 143(1) and thereafter the case was selected for scrutiny under CASS. Notice under section 143(2) dated 29.06.2021 was issued and served upon the assessee.

3. During the course of assessment proceedings, the Assessing Officer noted that there was information that the purchase value of property declared by the assessee along with income offered under section 56(2)(x) was substantially less than the value adopted by the Stamp Valuation Authority. Accordingly, notices under section 142(1) dated 04.11.2021 and 26.11.2021 were issued calling for details such as purchase deed, source of payment and supporting evidences for deductions claimed. Initially, no compliance was made by the assessee.

4. Subsequently, in response to notices issued through the Verification Unit, the assessee furnished computation of income, inflow-outflow statement, bank account statement of Central Bank of India, proof of deduction under section 80C and copy of the “Permanent Alternate Accommodation Agreement”. On perusal of the said agreement, the Assessing Officer observed that the document did not mention the value of the property or the stamp duty value. However, it was noted that the assessee had made payment of Rs. 1,00,00,000/- to the developer M/s Sanghvi Parsssva Enterprise LLP and Rs. 25,00,000/- to the outgoing tenant Shri Jayesh Chandra Patel.

5. The Assessing Officer issued further notice under section 142(1) dated 16.08.2022 calling for detailed explanation regarding the source of payment of Rs. 25,00,000/- and Rs. 1,00,00,000/- and corresponding bank entries. However, no reply was furnished by the assessee.

6. In the absence of explanation, a show cause notice dated 23.08.2022 was issued proposing to treat the total payment of Rs. 1,25,00,000/- as unexplained investment. Since no response was received, the Assessing Officer treated the said amount of Rs. 1,25,00,000/- as unexplained investment under section 69 and added the same to the income of the assessee.

7. Further, based on information available on the Insight Portal, the Assessing Officer observed that the stamp duty value of the property was Rs. 2,58,50,000/- as against consideration of Rs. 1,25,00,000/- reflected in the agreement. A show cause notice dated 07.09.2022 was issued requiring the assessee to explain the difference of Rs. 1,33,50,000/- and in the absence of any reply, the said difference was treated as income under section 56(2)(x) and added to the total income.

8. Accordingly, the assessment was completed determining total income at Rs. 2,68,86,854/- after making addition of Rs. 1,25,00,000/- under section 69 and Rs. 1,33,50,000/- under section 56(2)(x). Penalty proceedings under sections 271AAC(1) and 270A were also initiated.

9. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). During appellate proceedings, the assessee furnished documentary evidences including bank account statements, cash flow statement and reiterated submissions. The assessee also filed additional evidences under Rule 46A, which were admitted by the Ld. CIT(A) and remand report was called from the Assessing Officer.

10. In the remand proceedings, the Assessing Officer objected to the admission of additional evidences and reiterated that the assessee had failed to furnish complete details during assessment proceedings as well as during remand proceedings. The assessee contended that the payments of Rs. 1,25,00,000/- were made through banking channels and were duly reflected in the bank statements. It was further submitted that the transaction pertained to transfer of tenancy rights under the Permanent Alternate Accommodation Agreement and did not constitute purchase of property attracting provisions of section 56(2)(x). It was also contended that the Assessing Officer had wrongly relied upon information from the Insight Portal without establishing the actual nature and value of the property.

11. The Ld. CIT(A) examined the Permanent Alternate Accommodation Agreement and noted that the assessee, along with his wife, had entered into an agreement with the developer, owner and outgoing tenant for redevelopment of property and relocation of tenants. It was observed that the assessee paid Rs. 25,00,000/- for acquisition of tenancy rights and Rs. 1,00,00,000/- for allotment of additional area.

12. The Ld. CIT(A) further noted that the bank statements and cash flow statements demonstrated that the payments were made through banking channels and there was no evidence of unaccounted cash transactions. Accordingly, it was held that the assessee had satisfactorily explained the source of investment and the addition of Rs. 1,25,00,000/- under section 69 was deleted.

13. With regard to the addition under section 56(2)(x), the Ld. CIT(A) observed that the Assessing Officer had not established the exact nature of the property or the applicability of stamp duty valuation and had not referred the matter to a Valuation Officer. It was further observed that the agreement did not clearly specify the stamp duty value or extent of property and therefore the addition was made on presumptions. Accordingly, the addition of Rs. 1,33,50,000/- under section 56(2)(x) was also deleted.

14. Aggrieved by the order of the CIT(A), the Revenue is in appeal before us raising following grounds of appeal:

1. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in admitting bank statements as additional evidence u/r.46A which was not submitted by the assessee before the AO during assessment and also during remand proceedings despite giving multiple opportunities.

2. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in concluding the fact that the payments were made through banking channels without looking into the origin of the funds deposited into those bank accounts and also failed to enquire into the source of these depositor‘s funds.

3. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred by ignoring the settled legal position that the initial onus is on the assessee to prove the nature and source creditably, which remained undischarged by the assessee.

4. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred by shifting the burden of proof of stamp duty value on the AO by stating that the value is all inclusive.

5. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred the fact that the legal form of a ^„tenancy right transfer does not automatically oust the application of section 56(2)(x) if the effect is receipt of a valuable capital asset for a consideration lower than its stamp value.

6. The tax effect involved in this case is Rs. 98,37,750/-, which is above the prescribed limit mentioned in the CBDT‘s Circular F.No.279/Misc.142/2007-ITJ(Pt.) amended vide No. 09/2024 dated 17.09.2024. Hence, further appeal is recommended in this case.

7. The appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal.

15. The Ld. Departmental Representative (DR), relying upon the assessment order, submitted that the Ld. CIT(A) has erred in allowing relief to the assessee without properly considering the remand report and without appreciating the deficiencies pointed out by the Assessing Officer during the assessment proceedings. In this regard, the Ld. DR drew our attention to the specific findings recorded by the Assessing Officer in the assessment order in para 6. The Ld. DR submitted that the Assessing Officer had specifically called upon the assessee to explain the source of the cheque deposits which were utilised for making payment to the developer, and the assessee had failed to discharge the onus cast upon him during the assessment proceedings. It was thus contended that the Ld. CIT(A), without ensuring proper verification of the source of such funds and without addressing the concerns raised by the Assessing Officer in the remand proceedings, has erroneously accepted the assessee’s explanation merely on the basis of bank entries and thereby deleted the additions. The Ld. DR further invited our attention to the relevant clauses of the “Permanent Alternate Accommodation Agreement”, particularly clause ^„L’, to contend that the payment of Rs. 1,00,00,000/- was not merely towards transfer of tenancy rights but was in the nature of consideration for acquisition of additional area. Placing reliance on the said clause, the Ld. DR contended that the transaction is not a simple case of transfer of tenancy rights but involves acquisition of additional built-up area for consideration, thereby attracting the provisions relating to valuation under the Act. It was thus argued that the Ld. CIT(A) has erred in accepting the assessee’s contention that the transaction was merely a tenancy arrangement and in overlooking the express terms of the agreement which indicate purchase of additional area.

16. Per contra, the Ld. Authorised Representative (AR) strongly relied upon the order of the Ld. CIT(A) and submitted that the observations made by the Ld. DR are factually incorrect inasmuch as the assessee had duly furnished all relevant evidences before the Ld. CIT(A), which were also subjected to remand proceedings.

17. In this regard, the Ld. AR drew our attention to the written submission filed before the Ld. CIT(A), wherein it was specifically stated that the assessee had filed an application under Rule 46A dated 01.10.2023 (submitted on 02.10.2023) along with necessary supporting documents and had requested for calling of a remand report from the jurisdictional Assessing Officer. It was further submitted therein that the Ld. CIT(A), after considering the application, forwarded the additional evidences to the Jurisdictional Assessing Officer for submission of remand report and the assessee‟s counsel had duly attended the proceedings before the Assessing Officer and furnished physical copies of all documents along with explanations. It was also pointed out that the remand report remained pending with the Assessing Officer and repeated requests were made to the authorities to direct the Assessing Officer to submit the remand report before finalisation of the appellate proceedings.

18. The Ld. AR further placed reliance on the list of documents furnished before the Ld. CIT(A), which, inter alia, included detailed bank statements of the assessee, his HUF and family members, PPF statements, inflow and outflow statement, and the application filed under Rule 46A. The said documents, as reflected in the record, comprised: bank statements of the assessee and his spouse, HUF bank statement, PPF statements of the assessee, spouse and daughter, inflow and outflow statement, and other supporting financial records.

19. The Ld. AR further invited our attention to the remand proceedings initiated by the Assessing Officer and the corresponding reply filed by the assessee, as placed in the paper book at pages 157 to 172. Referring to the remand notice issued by the Assessing Officer dated 10.01.2024, it was submitted that the Assessing Officer had specifically called upon the assessee to submit relevant documents for verification in connection with the remand report to be furnished before the Ld. CIT(A). In response thereto, the assessee had duly filed a detailed reply through the e-proceedings portal. The Ld. AR pointed out that in the said reply, the assessee had categorically stated that he was submitting the following documents:

• Reply to show cause notice as called by the Assessing Officer
• Proof of payment of Rs. 1.25 crore along with complete source thereof
• Copy of the Permanent Alternate Accommodation Agreement
• Copy of Clause 12 of the said agreement
• Computation of total income

20. It was further submitted that along with the above reply, the assessee had also furnished comprehensive documentary evidences including bank statements of the assessee, spouse and HUF, PPF account statements, and other financial records demonstrating the inflow and outflow of funds. The acknowledgment placed on record evidences that these documents were uploaded and made available to the Assessing Officer during remand proceedings. The Ld. AR emphasised that the remand notice itself demonstrates that the Assessing Officer was seized of the matter and had initiated verification of the additional evidences. However, despite the assessee having furnished complete details along with supporting documents, the Assessing Officer failed to carry out proper verification and did not submit any conclusive adverse findings on the merits of the evidences furnished.

21. On the strength of the above material, the Ld. AR submitted that the assessee had fully discharged the onus cast upon him by furnishing complete documentary evidences establishing the source of funds and the flow of transactions through banking channels. It was thus contended that the Ld. CIT(A), after duly admitting the additional evidence and considering the same along with the remand proceedings, has rightly appreciated the facts and granted relief, and therefore no interference is called for in the order of the Ld. CIT(A).

22. The Ld. AR, in further support of the order of the Ld. CIT(A), placed reliance upon the decision of the co-ordinate bench of the Tribunal in the case of Jigar Sevantilal Shah vs. ITO reported in 185 com 818 (Mumbai – Trib.) and submitted that the issue involved in the present case is squarely covered by the said decision.

23. We have heard the rival submissions and perused the material available on record including the assessment order, appellate order of the Ld. CIT(A), submissions before Assessing Officer in remand proceedings, evidences placed in the paper book and the judicial precedent relied upon by the Ld. AR.

24. The grievance of the Revenue is that the Ld. CIT(A) has erred in admitting additional evidence under Rule 46A and in deleting the addition made under section 69 without proper verification of the source of funds. Before adjudicating the issue, it is relevant to reproduce the findings recorded by the Ld. CIT(A) in para 5 :

“The appellant, at the appellate stage, furnished the copies of relevant bank account statements along with the cash flow statement… The above mentioned transactions are clearly verifiable from the bank account statements of the appellant, his wife and the HUF… All the payments to the developers have been made through cheques and banking channels… Had the transactions been done through some unaccounted means such as cash deposits, the same could be considered as unexplained. However, the bank account statements clearly indicate that there is nothing suspicious about the transactions…”

“The bank account statements were admitted as additional evidence and yet the AO, in remand report, failed to consider the transactions done by the appellant and his wife through banking channels… The nature and source of funds used for making the payments are self-explanatory and hence, the appellant has discharged the onus of explanation… the addition of Rs. 1,25,00,000/- u/s 69 is deleted.”

25. From the above findings, it is evident that the Ld. CIT(A) has not granted relief merely on technical grounds but after examining the evidences placed on record and after calling for remand report. We further note that the record clearly demonstrates that:

i. The assessee had filed application under Rule 46A along with documentary evidences.

ii. The Ld. CIT(A) forwarded the same to the Assessing Officer for verification.

iii. The Assessing Officer issued notice during remand proceedings calling for documents.

iv. The assessee furnished reply along with complete evidences including bank statements, PPF statements and inflow-outflow statement.

Thus, the contention of the Revenue that no opportunity was granted to the Assessing Officer or that remand report was not considered is factually incorrect.

26. On merits also, we find that the assessee has demonstrated, both before the Ld. CIT(A) and before us, that the payments aggregating to Rs. 1,25,00,000/- were made through banking channels and the sources thereof were duly explained. From the material placed before us, it is evident that the amounts utilised were sourced primarily from withdrawals from PPF accounts, funds received from relatives, and internal fund movements duly reflected in bank statements of the assessee, spouse and HUF.

27. The Ld. CIT(A) has specifically recorded that there were no cash deposits preceding such payments and the entire flow of funds is traceable through banking channels. This factual finding has not been controverted by the Revenue by bringing any material on record. In view of the above, we find no infirmity in the finding of the Ld. CIT(A) that the assessee has discharged the onus cast upon him under section 69. Accordingly, Ground Nos. 1 to 3 of the Revenue are dismissed.

28. The next grievance of the Revenue relates to deletion of addition made under section 56(2)(x), primarily on the ground that the Ld. CIT(A) failed to appreciate that the assessee had acquired a valuable asset at a value lower than the stamp duty value. The Ld. CIT(A) has examined the issue in detail. The relevant findings are reproduced as under:

“On perusal of the copy of the ^„Permanent Alternate Accommodation Agreement‟… it is observed that… the outgoing tenant surrendered his tenancy rights in favour of the appellant… in lieu of which the appellant paid Rs. 25 lacs… Further, the appellant had paid the developer an amount of Rs. 1 crore in lieu of allotment of additional area…”

“The PAAA does not specify the Stamp Value or physical area… it is incomprehensible whether the amount of Rs. 2.585 crore pertains to whole of the property or just the additional area…”

“In this state of inconclusiveness, the AO ought to have referred the valuation… However, the AO… merely relied on the information received from Insight Portal…”

“It is not possible to conclude to which property the amount of Rs. 2.585 crore pertains to. Hence, the benefit of doubt shifts towards the appellant… the addition of Rs. 1,33,50,000/- is not sustainable…”

29. From the above, it is clear that the Ld. CIT(A) has examined three crucial aspects:

i. Nature of transaction (tenancy vs transfer)

ii. Absence of conclusive valuation evidence

iii. Failure of the AO to establish applicability of section 56(2)(x)

30. We further note that the Ld. CIT(A) has specifically dealt with the nature of agreement and recorded that the transaction arises out of redevelopment arrangement involving tenancy rights and allotment of alternate accommodation. The Ld. CIT(A) has also taken note of the fact that the agreement does not clearly specify stamp duty value of the subject property, the extent and nature of additional area is not determined, and the Assessing Officer has not carried out any independent valuation nor invoked provisions relating to reference to Valuation Officer.

31. In addition, the Ld. CIT(A) has examined the aspect of additional area purchase (Clause L) and correctly appreciated that the payment of Rs. 1 crore is linked to allotment of additional area under the redevelopment agreement and not a straightforward purchase of immovable property comparable with stamp duty valuation.

32. We also find merit in the finding of the Ld. CIT(A) that the Assessing Officer has merely relied upon information from the Insight Portal without establishing nexus between such valuation and the rights actually acquired by the assessee.

33. Further, the Ld. CIT(A) has considered the contention relating to continuity of tenancy rights and has appreciated that the transaction is part of redevelopment scheme, wherein the rights of the assessee cannot be equated with outright purchase of immovable property.

34. This view also finds support from the decision of the co­ordinate bench relied upon by the Ld. AR, wherein it has been held that in redevelopment arrangements, the taxable event arises only upon extinguishment of tenancy rights upon handing over of possession of alternate accommodation and not at the stage of agreement.

35. Considering the entirety of facts and circumstances of the case, we are of the considered view that:

• the Ld. CIT(A) has followed due process under Rule 46A and afforded opportunity to the Assessing Officer,
• the deletion of addition under section 69 is based on proper appreciation of evidences demonstrating source of funds through banking channels without any cash component, and
• the deletion of addition under section 56(2)(x) is based on correct appreciation of nature of transaction, absence of conclusive valuation and failure of the Assessing Officer to establish applicability of the provision.

36. We, therefore, find no infirmity in the well-reasoned order of the Ld. CIT(A) and the same is hereby upheld. Accordingly, all the grounds raised by the Revenue are dismissed.

37. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 20.05.2026.