ITAT Chennai Deletes Section 69A Additions on Misread Timing of Payment for New Residential Flat

Background of the Dispute

The appeal in Chandra Swaminathan Vs ITO came before the ITAT Chennai for AY 2017–18, challenging the order of the Commissioner of Income Tax (Appeals)/NFAC, Delhi dated 23.05.2025. The core controversy was the confirmation of two additions treated as unexplained money under Section 69A of the Income Tax Act 1961:

  • ₹49,80,330 – representing investment in a new residential flat, stamp duty/registration, and interiors
  • ₹10,80,000 – representing part of cash deposits in the assessee’s bank account

The assessee, an individual lady, contended that both additions were founded on an incorrect appreciation of facts, misunderstanding of banking dates versus actual issuance of cheques, and a failure to properly consider documentary evidence, including registered deeds and bank statements.

Key Facts: Sale of Old Flat and Purchase of New Flat

Sale of Existing Residential Property

The assessee owned an apartment at “Rajparis, Crystal-Spring”. The following transactions took place:

  • The flat was sold on 04.10.2016 to Shri K. Manoharan
  • The sale was evidenced by registered Sale Deed No.10626/2016
  • Total sale consideration: ₹35,50,000
    • ₹33,00,000 received via banking channel
    • ₹2,50,000 received in cash

Simultaneously, as part of vacating and disposing of the contents of the apartment, the assessee sold various imported household articles and electronic items to different vendors, realizing:

  • ₹8,09,600 in cash from sale of personal effects, house-hold utensils, and electronic gadgets

In addition, the assessee received:

  • ₹1,00,000 by way of gifts (₹50,000 from her husband and ₹50,000 from her daughter)
  • She also had a cash balance of ₹20,400 on hand

All of the above cash components (₹2,50,000 + ₹8,09,600 + ₹1,00,000 + ₹20,400), aggregating to:

  • ₹11,80,000

were deposited into her bank account.

Investment in New Residential Property and Interiors

The assessee reinvested the sale proceeds in a new residential property as follows:

  • Purchased a flat at Raj Castle, Medavakkam, being Flat No. B-3, Third Floor
  • Vendor was represented by Power of Attorney-holder, Shri M.S. Swaminathan, acting for Shri Vijay Guruswami (assessee’s son-in-law)
  • Purchase was under registered deed D.No.123/2017 dated 05.01.2017
  • Purchase price of the new flat: ₹35,00,000
  • Stamp duty and registration charges incurred: ₹2,80,330
  • Interiors expenditure claimed: ₹12,00,000

Thus, the assessee claimed she had invested:

  • ₹49,80,330 in total (₹35,00,000 + ₹2,80,330 + ₹12,00,000)

out of the sale proceeds of the earlier flat and related funds, and accordingly claimed exemption under Section 54 on the long-term capital gain arising from the sale of the Crystal-Spring flat. In the return of income, she reported a long-term capital loss of ₹7,05,542 after claiming exemption u/s 54 and declared total income of ₹2,01,156.

Assessment Proceedings and AO’s Reasoning

Acceptance of Sale, Dispute on Reinvestment and Source

During scrutiny, the Assessing Officer (AO):

  • Accepted that the assessee sold the Crystal-Spring flat for ₹35,50,000 as per Sale Deed No.10626/2016
  • Did not dispute the computation of long-term capital gain on this sale
  • However, examined the claim under Section 54 based on the purchase of the Raj Castle flat and the related payments

On comparing the registered purchase deed (dated 05.01.2017) with the bank statements, the AO noticed that:

  • The actual debits of ₹35,00,000 (purchase price) and ₹12,00,000 (interiors) were reflected in the bank account only in August 2017
  • The deed, however, recited that the consideration was paid on 05.01.2017

The AO questioned:

  1. If the sale deed in January 2017 stated that ₹33,00,000 had already been paid, why did the bank reflect payments much later in August 2017?