ITAT Mumbai: Section 68 Addition Unsustainable When Purchaser Independently Confirms Cash Payment Against Property Sale

Overview of the Case

The Income Tax Appellate Tribunal (ITAT), Mumbai rendered a significant ruling in Hansa Harischandra Thakur Vs ITO concerning Assessment Year 2017–18, wherein an addition of Rs. 25,50,000/- made under Section 68 of the Income Tax Act, 1961 was challenged. The Tribunal ultimately sided with the assessee, holding that the addition was factually and legally untenable given the weight of evidence on record, including an independent confirmation from the property purchaser.

Background and Assessment History

The assessee, an individual, had filed a return of income for AY 2017–18 on 27.07.2017, declaring total income of Rs. 4,73,760/-. The return was initially processed under Section 143(1) of the Income Tax Act, 1961, following which the case was selected for limited scrutiny through CASS. A notice under Section 143(2) was issued on 09.08.2018, and subsequent notices under Section 142(1) were complied with through the e-proceedings mechanism.

Issues Selected for Scrutiny

The case was taken up for limited scrutiny on three specific issues:

  • Cash deposits and property-related transactions
  • Capital gain or loss arising from sale of immovable property
  • Cash deposits made during the demonetisation period

Assessing Officer's Findings and Addition

During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee had deposited cash aggregating to Rs. 20,36,500/- in her bank account and issued a show cause notice dated 14.06.2019 seeking an explanation for the source of such deposits.

Assessee's Explanation Before the AO

The assessee submitted that she had sold an immovable property situated in J.K. Tower to one Shri Sanjay B. Devrukhkar for a total consideration of Rs. 74,50,000/-, comprising:

  • Rs. 49,00,000/- received through banking channels (cheque)
  • Rs. 25,50,000/- received in cash

A promissory note purportedly executed by the purchaser, acknowledging the cash payments in instalments, was placed before the AO in support of this position.

Grounds for Rejection by the AO

The AO declined to accept the explanation on the following grounds:

  1. The notice issued to the purchaser under Section 133(6) of the Income Tax Act, 1961 remained uncomplied with — no response was received
  2. The complete sale deed was not furnished by the assessee
  3. The registered agreement reflected a consideration of only Rs. 49,00,000/-, with no mention of any cash component
  4. The gap between the agreement value and the alleged total receipt was unexplained

On the basis of these findings, the AO treated Rs. 25,50,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961 and assessed total income at Rs. 30,23,760/-.

First Appellate Proceedings Before CIT(A)

The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi. The CIT(A), vide order dated 12.12.2025, confirmed the addition made by the AO.

CIT(A)'s Reasoning

The CIT(A) concurred with the AO's observations and upheld the addition on the following basis: