ITAT Grants Relief on Unexplained Income in ₹94-Lakh Property Sale Despite Invalid Income Tax Return [Read Order]

The Income Tax Appellate Tribunal ( ITAT ) has held that the assessing officer cannot ignore the examination of source of funds merely because of the error in income tax return ( ITR ) due to technical issues.

The tribunal granted relief to a woman who sold her property for Rs. 94L and kept a cash deposit of Rs. 13L in bank, which was later treated as unexplained income.

‘Once the registered sale deed itself confirms the receipt of cash, then the same amount cannot be treated as unexplained income’ said the tribunal.

In this matter, the assessee, a woman, sold her property for Rs.₹94.06 lakh. She deposited Rs. 13L in her ICICI bank account. However, no income tax return was filed by her initially. Noting that no ITR filed, the Assessing Officer (AO) proceeded to reopen the assessment by issuing a notice under section 148 on 28 April 2022.

After, in the month of May 2022, the assessee filed her return declaring a total income of Rs.6,95,000. However, the return came to be flagged by the system as invalid. The AO treated the return filed under Section 148 as no return filed. It did not recognise the return.

The assessee contended that during the proceedings, she has produced the computation of income, copy of the purchase deed, registered sale deed, bank statement of ICICI Bank, and detailed replies dated 25 April 2023 and 19 May 2023

These replies, which contained a complete narration of the transaction including receipt of consideration through cheque and cash, were reproduced in the assessment order. However, the same was not considered by the AO and treated the entire amount of Rs. 94L as unexplained income only because he regarded the return filed under section 148 as invalid.

The assessee appealed before the Commissioner of Income Tax (Appeals), where she got partial relief. What was left before the ITAT was that the adjudication of addition of Rs.13,00,500 was treated as unexplained under section 69A.

According to the assessee, out of the total consideration of Rs.61,00,000 received during the year from the purchaser, an amount of Rs.38,15,000 was received in cash and this very cash was deposited into the ICICI Bank account. She added that the sale deed itself contains a clear recital acknowledging these cash receipts.

The bench of Girish Agarwal (Accountant member) and Amit Shukla (Judicialmember) observed that “The statutory mandate under section 69A requires that where the explanation furnished by the assessee is supported by credible evidence and is not shown to be false, no addition is warranted.”

“Non acceptance of the assessee’s return on account of a system generated technicality cannot eclipse the fundamental obligation of the Assessing Officer to examine the source of funds when tangible evidence is placed before him”, said the bench.

Therefore, the tribunal declared that addition Rs.13,00,500 under section 69A is wholly unsustainable. The bench noted that there is record to suggest that the assessee possessed any source of income other than the sale consideration in question.

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