Case Law Details
Ramesh Vs ITO (ITAT Chennai)
Chennai ITAT: Registered Mortgage Adjustment Is Not Fresh Investment; Guideline Value Alone Cannot Trigger Section 56(2)(x) Addition
The Chennai ITAT granted complete relief to the assessee by deleting additions made under sections 69A and 56(2)(x), holding that an earlier loan adjusted against the purchase price of a property cannot be treated as a fresh unexplained investment, and that stamp duty guideline value by itself is not conclusive evidence of the property’s fair market value.
The Assessing Officer had treated ₹50 lakh as unexplained investment under section 69A on the ground that the assessee failed to establish the source of funds used for purchasing a property. The Tribunal, however, found that the registered sale deed specifically recorded that ₹50 lakh of the sale consideration had been adjusted against a mortgage debt created under a registered mortgage deed executed in the preceding year, while only the balance amount was paid through banking channels. Since no fresh investment of ₹50 lakh had been made during the relevant previous year, the Tribunal held that if the Department had any doubt regarding the source of the mortgage advance, such enquiry could be undertaken only in the year in which the advance was originally made and not in the year when the debt was adjusted against the sale consideration. The Revenue had also failed to produce any material to show that the registered documents were sham or fabricated. Accordingly, the addition under section 69A was deleted.
The Tribunal also deleted the addition made under section 56(2)(x)(b) towards the difference between the purchase consideration and the stamp duty value. It observed that the assessee had consistently disputed the guideline value and sought an independent valuation. The authorities below had mechanically adopted the stamp duty valuation without bringing any independent material on record to establish that the actual fair market value exceeded the consideration stated in the sale deed. The Tribunal emphasised that the value adopted by the Registration Department is merely a statutory benchmark for stamp duty purposes and cannot invariably be equated with the fair market value. In the absence of any independent evidence, the addition under section 56(2)(x) was held to be unsustainable.
On the addition of ₹31.56 lakh towards cash deposits under section 69A, the Tribunal observed that the assessee had furnished explanations attributing the deposits to opening cash balance, rental income, redeposit of earlier withdrawals and gifts from relatives. It held that the CIT(A) erred in rejecting additional evidence on technical grounds under Rule 46A without examining its evidentiary value or calling for a remand report. Relying on the Supreme Court’s decision in CIT v. P.K. Noorjahan (237 ITR 570), the Tribunal reiterated that an unsatisfactory explanation does not automatically mandate an addition under section 69A, as the provision confers discretion which must be exercised judiciously based on the facts of each case. Since the Revenue failed to objectively verify the explanation or establish that the deposits represented undisclosed income, the addition was also deleted. The assessee’s appeal was accordingly allowed in full.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
The captioned Appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [CIT(A)] dated 05.12.2025 Assessment Year 2019-20.
2. The following grounds of appeal has been raised by the assessee:
1. On the facts and circumstances of the case the order of first appellate authority dated 05.12.2025 of the appellant is bad in law and is not legally justified.
2. On the facts and circumstances of the case, there is a legal error in issuance of notice u/s 143(2) of the Act dated 01.06.2023. The notice u/s 143(2) of the Act has been issued in an invalid format in violation to the CBDT instruction no F.No 225/157/2017/ITA-II dated 23-06-2017 and accordingly, the assessment order passed consequently is void-ab-initio and bad in law.
3. On the facts and circumstances of the case, the CIT(A) is not justified in sustaining the addition made by the AO amounting to Rs.50,00,000/- u/s 69A r.w s. 115BBE of the Act. The appellant has purchased an immovable property where the same was obtained from the seller for non payment of loan amount to the appellant. Making addition of a loan amount provided on 23 07 2020 ie AY. 2021-22, in A.Y.2022-23 is not justified.
4. On the facts and circumstances of the case, the CIT(A) is not justified in sustaining the addition made by the AO amounting to Rs. 18,34,250/- as income from other sources being difference between consideration paid and stamp duty value of the property purchased. In the course of appellate proceedings, the appellant has requested to the CIT(A) to refer the property to DVO for assessing the actual market value of the property Instead, the CIT(A) sustained to action of AO without referring the property for valuation to DVO, which is against the principles of natural justice.
5. On the facts and circumstances of the case, the CIT(A) is not justified in sustaining the addition made by the AO amounting to 31,56,850/- u/s 69A rws 115BBE of the act being cash deposits made in the bank account of the appellant. The appellant has adequate sources on support of above cash deposits made in the bank account.
6. In view of the above grounds and other submissions to be made at the time of Appeal hearing, the order U/S 250 passed by Commissioner of Income Tax (Appeals), NFAC may be cancelled and justice rendered.
Based on the material provided, the following is a concise and formal summary suitable for incorporation in an appellate order.
3. Brief facts of the case are that the appellant, an individual, filed the return of income for AY 2022-23 declaring a total income of Rs.4,35,720/-. The case was selected for scrutiny under CASS to verify (i) the source of investment in immovable properties in view of large property purchases reported in Form 26QB vis-à-vis the returned income, and (ii) the source of large cash deposits in the bank account coupled with purchase/sale of immovable properties. 3.1 During the assessment proceedings, notices u/s.143(2) and 142(1) of the Income Tax Act were issued, and the appellant furnished replies from time to time. The Assessing Officer (AO) observed that the appellant had purchased two immovable properties for considerations of Rs.52,00,000/- and Rs.1,20,00,000/-, the latter having a stamp duty value of Rs.1,38,34,250/-. The AO also noticed cash credits of Rs.31,56,850/- in the appellant’s bank account.
3.2 As the AO was not satisfied with the explanations and supporting evidence regarding the source of funds for the property purchase and cash deposits, additions were made comprising: (i) Rs.50,00,000/- u/s. 69A as unexplained investment in property, (ii) Rs.18,34,250/- u/s. 56(2)(x)(b) being the difference between the stamp duty value and purchase consideration, and (iii) Rs.31,56,850/- u/s. 69A as unexplained money representing cash deposits in the bank account. Accordingly, the assessment was completed u/s. 143(3) read with section 1448 vide order dated 27.03.2024, determining the total assessed income at Rs.1,04,26,820/-. Aggrieved by the assessment order, the appellant preferred the present appeal.
4. The aggrieved assessee challenged the assessment both on legal and factual grounds before the Id.CIT(A) and made the following submissions before the Id.CIT(A):
1. Legal Ground: The notice issued u/s. 143(2) dated 01.06.2023 was stated to be invalid as it was allegedly issued in violation of CBDT Instruction No. F. No. 225/157/2017/ITA-II dated 23.06.2017. Consequently, it was contended that the assessment order is void ab initio.
2. Addition of Rs.50,00,000/- u/s. 69A: The appellant submitted that the property purchased for Rs. 52,00,000 was acquired from Smt. A. Manoranthini, out of which Rs. 50,00,000 represented adjustment of an earlier loan advanced to the seller under a registered mortgage deed dated 23.07.2020, which was subsequently cancelled through a registered mortgage cancellation deed dated 30.07.2021. It was contended that the loan had been advanced through banking channels during FY 2020-21, supported by the registered mortgage deed mentioning the cheque details. Therefore, the source of the amount pertained to AY 2021-22 and could not be treated as unexplained investment in AY 2022-23. The balance consideration of Rs. 2,00,000 was stated to have been paid through the appellant’s Karur Vysya Bank account.
3. Addition of Rs.18,34,250/- u/s. 56(2)(x)(b): The appellant submitted that the difference represented only the variation between the purchase consideration and the stamp duty guideline value. It was argued that the guideline value fixed by the State Government is intended only for stamp duty purposes and does not necessarily represent the fair market value of the property. The AO ought to have referred the matter to the Departmental Valuation Officer (DVO) before making the addition. Reliance was placed on various judicial precedents, including Rallis India Ltd. v. CIT(A), Sunil Kumar Agarwal v. CIT, Amarshiv Construction Pvt. Ltd. v. DCIT, Yogesh Jashubhai Patel v. ITO, Ram Bhuvan Yadav v. DCIT, and Harshadkumar Hargovandas Patel v. ITO, to contend that where stamp duty valuation is disputed, reference to the DVO is warranted and the first appellate authority also possesses co-terminus powers to direct such valuation.
4. Addition of Rs.31,56,850/- u/s. 69A: The appellant submitted that the sources of the cash deposits had already been explained during the assessment proceedings. Out of the total deposits, Rs.5,74,223 represented opening cash balance, rental income, and redeposit of cash withdrawn earlier from bank accounts, which the AO had not specifically disputed. The balance amount included cash gifts aggregating to Rs.30,00,000 received from relatives. Confirmation letters along with PAN details of eight donors were filed as additional evidence under Rule 46A, while confirmations from the remaining donors were proposed to be produced subsequently. It was also requested that the AO may verify the genuineness of the gifts by issuing notices u/s. 133(6) and by calling for a remand report. Accordingly, it was contended that the entire cash deposits stood satisfactorily explained and the addition deserved to be deleted.
5. The Id. CIT(A) has noted the following findings:
I. Admission of Additional Evidence (Rule 46A):
The Id.CIT(A) has rejected the appellant’s request for admission of additional evidence. He further noted that the appellant failed to satisfy any of the conditions prescribed under Rule 46A, and the explanation of lack of professional guidance was held to be insufficient. Reliance placed on NTPC Ltd. v. CIT is found to be misplaced as it relates to admission of additional legal grounds before the Tribunal and not admission of evidence before the Commissioner (Appeals).
II. Ground – Addition of Rs.50,00,000 u/s. 69A:
The Id.CIT(A) noted that the appellant failed to establish the source of the alleged advance of Rs.50 lakh claimed to have been adjusted against the purchase consideration of property. He further observed that although reliance was placed on a registered mortgage deed, no supporting evidence such as bank statements, cheque clearance details, books of account, balance sheet or proof of financial capacity was produced. Mere execution of a registered mortgage deed was held insufficient to establish the genuineness and source of funds. The contention that the transaction pertained to an earlier assessment year was rejected since the appellant failed to establish the source of the funds at any stage. Accordingly, the addition u/s. 69A was confirmed.
III. Ground – Addition of Rs.18,34,250 u/s. 56(2)(x)(b): The appellant challenged the adoption of the stamp duty value and contended that the property should have been referred to the Departmental Valuation Officer (DVO). Ld.CIT(A) observed that no valuation report, comparable sale instances or any other evidence was produced to dispute the stamp duty valuation. The appellant failed to rebut the statutory presumption attached to the stamp duty value. Accordingly, the addition made u/s. 56(2)(x)(b) was upheld.
IV. Ground – Addition of Rs.31,56,850 u/s. 69A:
The explanation regarding cash deposits comprising opening cash balance, rental income, withdrawals and cash gifts was found to be unsupported by documentary evidence. No satisfactory evidence was furnished regarding the identity, creditworthiness and genuineness of the alleged donors. Since the appellant failed to discharge the burden of proving the source of the cash deposits, the AO was justified in treating the deposits as unexplained money u/s. 69A. The addition was accordingly confirmed.
V. Additional Ground – Validity of Notice u/s. 143(2): The contention that the notice u/s. 143(2) was invalid for not specifying whether the case was selected for limited or complete scrutiny was rejected. He held that the notice was issued within the prescribed time, the appellant had participated in the assessment proceedings, and no prejudice had been caused. Any procedural omission was held to be curable u/s. 292B of the Act. The additional ground was accordingly dismissed.
The Commissioner of Income-tax (Appeals) held that the appellant failed to substantiate the source of investment in property, the difference between the purchase consideration and the stamp duty value, and the source of cash deposits with credible documentary evidence. The additions made by the AO u/s. 69A and 56(2)(x)(b) were found to be in accordance with law. Consequently, all the grounds of appeal, including the additional legal ground, were dismissed and the assessment order was confirmed in full.
6. Ground No. 1: Addition of Rs.50,00,000 u/s. 69A:
The Id. Authorised Representative (AR) submitted that the AO as well as the Id.CIT(A) proceeded on an erroneous premise that the assessee had made an unexplained investment of Rs.50,00,000/-during the previous year relevant to AY 2022-23. It was submitted that the property purchased vide registered Sale Deed dated 30.07.2021 for Rs.52,00,000 was not paid by fresh investment during the year. Out of the total consideration, Rs.50,00,000/-stood adjusted against a loan already advanced to the vendor, Smt. A. Manoranthini, under a registered Mortgage Deed dated 23.07.2020, while the balance consideration of Rs.2,00,000/- was paid through banking channel.
It was argued that the registered mortgage deed and the registered mortgage cancellation deed clearly establish that the property was transferred in discharge of an existing mortgage liability. Therefore, there was no investment of Rs.50,00,000/- during the relevant previous year so as to attract section 69A.
6.1 The AR further submitted that even assuming that the Revenue doubted the source of the mortgage advance, such enquiry could only relate to the year in which the advance was allegedly made and not to AY 2022-23. It was contended that the AO has taxed an amount in a wrong assessment year.
7. The Id. Departmental Representative (DR) supported the orders of the lower authorities. It was submitted that the assessee failed to establish the source of Rs.50,00,000/- by producing bank statements, books of account, capital account, cash flow statement or other documentary evidence. According to the Id.DR, the mortgage deed merely records a recital and does not establish financial capacity or actual advancement of money.
7.1 We have carefully considered the rival submissions and examined the material available on record. The undisputed factual position is that the registered Sale Deed dated 30.07.2021 specifically records adjustment of Rs.50,00,000/- against the mortgage debt created under the registered Mortgage Deed dated 23.07.2020. The Revenue has not disputed the execution or registration of either document. The AO has not brought any material on record to demonstrate that the recitals contained in these registered documents are false, fabricated or sham transactions. The addition has been made solely because the assessee could not establish the source of the loan allegedly advanced in July 2020.
8. In our considered opinion, the approach adopted by the Revenue authorities is legally unsustainable. The subject matter of assessment is the investment made during the previous year relevant to AY 2022-23. Once the consideration payable under the sale deed stood discharged by adjustment of an earlier mortgage liability, no fresh investment of Rs.50,00,000/- was made during the relevant previous year. If the Department/revenue entertained doubts regarding the source of the mortgage advance, such enquiry could have been undertaken in the year in which the alleged advance was made. However, the source of an earlier transaction cannot be brought to tax in a subsequent assessment year merely because the earlier debt stood adjusted against purchase consideration.
9. It is well settled that suspicion, however strong, cannot substitute legal evidence. Section 69A contemplates addition where the assessee is found to be owner of unexplained money during the relevant previous year. In the present case, the Revenue has failed to establish that any unexplained money of Rs.50,00,000/- came into existence or was invested during the year under appeal. Accordingly, we hold that the addition of Rs.50,00,000/- made u/s. 69A is unsustainable and deserves to be deleted. This ground of appeal is allowed.
10. Ground No. 2: Addition of Rs.18,34,250 u/s. 56(2)(x)(b)
The Id. AR submitted that the AO mechanically adopted the guideline value fixed by the Registration Department without determining the actual fair market value of the property. It was argued that guideline value is only for collection of stamp duty and cannot automatically be treated as fair market value. It was further submitted that the assessee specifically disputed the stamp valuation and requested that the property be referred to the Departmental Valuation Officer (DVO). Reliance was placed on various judicial precedents to contend that where stamp valuation is disputed, the AO ought to obtain an independent valuation instead of making addition merely on the basis of guideline value.
11. The Id. DR submitted that the assessee did not produce any valuation report, comparable sale instances or other evidence to rebut the stamp duty valuation. Therefore, the AO rightly adopted the value determined by the Stamp Valuation Authority.
12. We have considered the rival submissions. The addition has been made solely on the basis of difference between the purchase consideration and the stamp duty value. The assessee consistently disputed the correctness of the guideline value both during assessment as well as appellate proceedings. Once such objection was raised, the AO was expected to objectively examine the claim instead of mechanically proceeding on the basis of the stamp duty valuation. The authorities below have proceeded on the assumption that the guideline value conclusively represents the fair market value. Such an approach is not legally justified. The value adopted by the Registration Department is only a statutory benchmark and cannot invariably be equated with actual market value in every case. Significantly, neither the AO nor the Id.CIT(A) has brought any independent material on record to establish that the fair market value of the property actually exceeded the consideration stated in the sale deed. In the absence of any independent evidence and having regard to the facts of the present case, we are of the considered opinion that the addition u/s. 56(2)(x)(b) cannot be sustained. Accordingly, the addition of Rs.18,34,250 is deleted. This ground of appeal is allowed.
13. Ground No. 3: Addition of Rs.31,56,850 u/s. 69A
The Id. AR submitted that the AO ignored the explanation furnished regarding cash deposits. It was explained that the deposits represented opening cash balance, rental income, redeposit of earlier cash withdrawals and gifts received from relatives. It was further submitted that confirmation letters along with PAN details of several donors were produced before the first appellate authority. However, the CIT(A) rejected the same on technical grounds under Rule 46A without examining their evidentiary value or calling for a remand report from the AO.
14. The Id. DR supported the orders of the authorities below and submitted that the assessee failed to establish the identity, creditworthiness and genuineness of the alleged donors.
15. We have carefully examined the rival submissions. The assessment order itself records that the assessee had explained the various sources of cash deposits. Thus, it is not a case where no explanation whatsoever was offered. The grievance of the Revenue is essentially that the explanation was not supported by adequate documentary evidence.
16. During appellate proceedings, the assessee sought to produce confirmations in support of the explanation. Instead of examining the evidentiary value of such material or exercising the co-terminus powers available u/s. 250, the Id.CIT(A) rejected the request solely on technical grounds under Rule 46A. The first appellate authority [Id.CIT(A)] is expected to determine the correct tax liability. Where evidence is crucial for adjudication of the dispute, the appellate authority ought to examine the same or call for a remand report rather than dismissing the claim on technical considerations. It is also relevant that the AO has not established that the deposits represented undisclosed income of the assessee. The addition has been sustained merely because the explanation was considered inadequate. In the case of CIT v. P.K. Noorjahan [1999] 237 ITR 570 (SC), the Apex Court has held that the phraseology of Section 69, in creating the legal fiction, employs the word “may” and not “shall’. Thus, the unsatisfactoriness of the explanation does not, and need not, automatically result in deeming the value of the investment to be the income of the assessee. That is still a matter within the discretion of the officer and, therefore, of the Tribunal. In other words, a discretion has been conferred on the Income-tax Officer under Section 69 to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. The Income-tax Officer is not obliged to treat the value of investment as income in every case where the explanation offered by the assessee is found to be unsatisfactory.
17. The settled legal position is that although the initial burden lies upon the assessee, the explanation has to be examined objectively and additions cannot be sustained merely on suspicion without proper verification.
18. Considering the totality of facts and circumstances, we are of the opinion that the Revenue authorities were not justified in treating the entire cash deposits as unexplained money u/s. 69A. Accordingly, the addition of Rs.31,56,850 is deleted. This ground of appeal is allowed.
19. Additional Ground: Validity of Notice u/s. 143(2)
The assessee has challenged the validity of the notice issued u/s. 143(2) on the ground that it did not specify the nature of scrutiny. Since the appeal has been allowed on merits and the additions have been deleted in entirety, adjudication of this legal ground would be merely academic. Accordingly, the same is left open.
20. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on the 13th day of July 2026 in Chennai.
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