In a significant ruling, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has reaffirmed that cash deposits cannot be treated as unexplained under Section 69A merely due to technical invalidation of a return, when the assessee has furnished credible documentary evidence explaining the source.
The decision in Shalaka Chandrahas Chavan vs Income Tax Officer (ITA No. 4627/Mum/2024, AY 2015-16) provides important clarity on reassessment proceedings under Section 147, the scope of Section 69A, and the evidentiary value of registered sale deeds. The Tribunal held that substantive evidence cannot be ignored on hyper-technical grounds, and deleted the addition of ₹13,00,500 made on account of alleged unexplained cash deposits.
Background of the Case
The assessee, an individual taxpayer, had sold an immovable property during the relevant assessment year. Information available with the department through the AIMS module indicated:
- Sale of immovable property during the year
- Cash deposits of ₹13,00,500 in an ICICI Bank account
- No original return filed under Section 139
Based on this information, the Assessing Officer (AO) initiated reassessment proceedings under Section 147, issuing notice under Section 148 on 28 April 2022 after following the procedure prescribed under Section 148A.
In response, the assessee filed a return of income on 17 May 2022, declaring total income of ₹6,95,000. However, the return was flagged as invalid by the system. Proceeding solely on this technical ground, the AO treated the assessee as a person who had not filed a valid return and framed assessment under Section 144.
Additions Made by the Assessing Officer
During the assessment proceedings, the assessee furnished:
- Registered purchase deed
- Registered sale deed
- ICICI Bank statements
- Computation of income
- Detailed written submissions dated 25 April 2023 and 19 May 2023
These documents clearly explained the receipt of sale consideration, including the cash component. Despite this, the AO refused to examine the evidence, holding that since the return filed in response to Section 148 was invalid, there was no obligation to consider the explanation.
While the AO initially questioned the entire transaction, the effective dispute before the Tribunal ultimately remained confined to the addition of ₹13,00,500 under Section 69A, representing cash deposited in the bank account.
Partial Relief by the Commissioner (Appeals)
In first appeal, the Commissioner (Appeals) granted substantial relief on the computation of capital gains. The appellate authority accepted:
- Sale value: ₹87,29,002
- Purchase price: ₹31,10,000
- Stamp duty: ₹3,35,600
- Registration charges: ₹30,000
- Cost of improvement: ₹12,00,000
- Brokerage: ₹1,50,000
However, the addition of ₹13,00,500 under Section 69A was sustained, without meaningful examination of the sale deed or the receipt annexed thereto.
Issue Before the ITAT
The sole issue before the Tribunal was:
Whether cash deposits of ₹13,00,500 could be treated as unexplained under Section 69A when the registered sale deed itself acknowledged receipt of cash consideration, and the bank deposits matched such receipts.
Findings and Reasoning of the Tribunal
The ITAT carefully examined the registered sale deed and the receipt forming part of its annexure. The documents clearly recorded that:
- Total consideration received during the year was ₹61,00,000
- Out of this, ₹38,15,000 was received in cash from the purchaser
The Tribunal noted that the cash deposits in the ICICI Bank account corresponded exactly with the cash receipts recorded in the sale deed. Importantly, the Revenue authorities had not disputed the genuineness or authenticity of:
- The registered sale deed
- The annexed receipt
- The bank statement entries
Key Legal Observations
The Tribunal made several crucial observations:
1. Section 69A requires examination of explanation: Where an assessee furnishes an explanation supported by credible evidence, an addition under Section 69A cannot be sustained unless the explanation is shown to be false.
2. Technical invalidation of return is not determinative: Non-acceptance of the return due to a system-generated technical issue cannot override the AO’s duty to examine evidence placed on record.
3. Automated information is only a trigger: Data from automated systems such as AIMS may initiate inquiry but cannot supplant primary documentary evidence, especially registered instruments.
4. No adverse material on record: There was no material to suggest that the assessee had any source of income other than the property sale consideration.
Final Decision
The ITAT held that the addition of ₹13,00,500 under Section 69A was legally unsustainable. The explanation offered by the assessee was consistent, corroborated by primary documents, and remained uncontroverted by the Revenue.
Accordingly, the Tribunal deleted the addition in full and allowed the appeal of the assessee.
Key Takeaways for Taxpayers and Professionals
- Registered sale deeds have strong evidentiary value, including recitals relating to cash consideration.
- Cash deposits matching documented transactions cannot be treated as unexplained merely due to procedural or technical defects.
- Reassessment proceedings must be evidence-based, not system-driven.
- Section 69A cannot be invoked mechanically without disproving the assessee’s explanation.
- Substance prevails over form in tax adjudication.
Conclusion
This ITAT Mumbai ruling reinforces a settled principle of tax law: procedural technicalities cannot defeat substantive justice. When an assessee explains cash deposits with reliable documentary evidence, the Revenue cannot sustain additions under Section 69A by ignoring such evidence on technical grounds.
The judgment is particularly relevant for reassessment cases involving cash deposits arising from property transactions, and offers valuable guidance to both taxpayers and tax professionals.