ITAT Jodhpur Ruling: Unexplained Investments Must Be Taxed in the Year of Actual Payment, Not the Year of Property Registration

The intersection of real estate transactions and income tax assessments often creates complex disputes, particularly when advance payments are made in one financial year while the final conveyance deed is registered in a subsequent year. The Income Tax Appellate Tribunal (ITAT), Jodhpur Bench, recently delivered a crucial judgment in the case of Anita Bafna Vs ITO, addressing this exact conundrum.

The core legal question revolved around the application of Section 69 of the Income-tax Act, 1961. Specifically, the Tribunal had to determine whether an alleged unexplained investment should be assessed in the year the funds were actually disbursed by the assessee or in the later year when the legal title of the property was formalized through registration. By summarizing the full text of this judicial decision, this analysis explores the factual background, the divergent views of the tax authorities, and the definitive legal principles established by the Tribunal.

The Factual Matrix of the Dispute

The controversy originated from the acquisition of an immovable property by the assessee. The agreed purchase consideration for the new property was Rs. 1.55 crore, which was marginally lower than its stamp duty valuation of Rs. 1,59,27,000.

To fund this acquisition, the assessee relied on a prior real estate transaction that had failed to materialize. The chronological sequence of events is critical to understanding the dispute:

  1. The Initial Investment: On 31.12.2011, the assessee entered into a registered agreement with a builder, M/s Sai Leela Corporation, to purchase Flat No. 402 located in Sunita Building.
  2. The Refund: The builder was unable to construct and deliver the promised flat. Consequently, the funds previously advanced by the assessee were refunded by M/s Sai Leela Corporation.
  3. The Subsequent Acquisition: The assessee utilized these refunded amounts to purchase a different property, identified as Flat No. 302-B. The final agreement for this new property was executed on 28.03.2019.

During the reassessment proceedings, the Assessing Officer (AO) scrutinized the source of the funds used for the new property. The records indicated that out of the total Rs. 1.55 crore, the assessee made payments totaling Rs. 84,22,500 via various cheques.