Income Tax Appellate Tribunal, Chennai Bench: In an appeal filed by the assessee challenging the validity of the order of the Commissioner of Income Tax (Appeals) [CIT(A)], the Bench comprising Aby T. Varkey, Judicial Member and S.R. Raghunatha, Accountant Member, held that delayed encashment of consideration cheques cannot by itself justify denial of exemption under Section 54, Income-tax Act, 1961 or addition under Section 69-A once the assessee establishes the transaction through registered conveyance deeds, banking trail and vendor confirmation.
The Tribunal further held that registered instruments carry a strong presumption of validity and cannot be disregarded merely on suspicion.
Background
The assessee sold her residential apartment on 4 October 2016 for ₹35.50 lakhs, partly through banking channels and partly in cash, and also realised ₹8.09 lakhs from sale of household utensils, electronic items and appliances. The amounts, along with gifts received from family members, were deposited into her bank account.
Subsequently, the assessee purchased a new residential flat through a registered sale deed dated 5 January 2017 for ₹35 lakhs, apart from incurring stamp duty, registration and interior expenses, and claimed exemption under Section 54, Income-tax Act, 1961 on the ground that the investment represented reinvestment of sale proceeds from the earlier property.
During assessment, the Assessment Officer (AO) noticed that although cheques towards purchase consideration and interior expenses were issued at the time of registration, they were encashed only in August 2017. Disbelieving the assessee’s explanation that encashment was deferred until tenants vacated the premises, the AO treated the transaction as doubtful, denied exemption under Section 54 and made additions under Section 69-A towards alleged unexplained investment and cash deposits. The CIT(A) affirmed the additions. Aggrieved thereby, the assessee preferred an appeal before the Tribunal.
Issues
Whether delayed encashment of consideration cheques could justify denial of exemption under Section 54?
Whether additions under Section 69-A could survive once source of investment stood explained through registered deeds and banking trail?
Analysis, Law, and Decision
The Tribunal observed that the assessee had produced registered sale and purchase deeds, bank statements and vendor confirmations establishing both the sale of the original residential property and acquisition of the new residential flat. The vendor had also confirmed receipt of ₹35 lakhs towards sale consideration and ₹12 lakhs towards interior expenses through banking channels in August 2017.
The Tribunal held that the Revenue’s assumption that unexplained payments had been made in January 2017 was unsupported by evidence, particularly when the assessee possessed sufficient bank balance on the date of registration itself. It was further observed that delayed encashment of cheques could not by itself render the transaction non-genuine.
The Tribunal noted that even if the lease agreement explaining delayed encashment appeared doubtful, such circumstance alone could not invalidate the registered purchase transaction, especially when the Revenue had never alleged that the registered conveyance deed was fraudulent or sham. Payment of stamp duty and registration charges further strengthened the genuineness of the transaction.
Relying on Prem Singh v. Birbal, (2006) 5 SCC 353, the Tribunal reiterated that a registered instrument carries a strong presumption of validity and cannot casually be treated as sham.
The Tribunal also found the Revenue’s stand inherently inconsistent, observing that if unexplained payments had already been made in January 2017, there was no justification for transfer of identical amounts again through banking channels in August 2017.
With respect to the addition relating to cash deposits, the Tribunal accepted the assessee’s explanation that part of the amount represented cash consideration specifically recorded in the registered sale deed, while the remaining amount represented proceeds from sale of second-hand household articles and electronic appliances. Since each transaction was below ₹2 lakhs, the assessee was under no obligation under Rule 114-B to obtain PAN details from purchasers.
The Tribunal further observed that the AO had effectively made an impermissible double addition by first treating the investment in the new property as unexplained and thereafter again taxing the cash deposits constituting source of such investment.
The Tribunal held that denial of exemption under Section 54, Income-tax Act, 1961 and additions under Section 69-A were conjectural and unsupported by evidence. Accordingly, the Tribunal, deleted the addition of ₹49,80,330 under Section 69-A and the addition of ₹10,80,000 relating to cash deposits and allowed deduction claimed under Section 54.
[Chandra Swaminathan v. CIT, ITA No. 2034 of 2025, decided on 17-4-2026]
Advocates who appeared in this case:
For the Assessee: J. Radhakrishnan and Vishnu Jayaram R., Advocates.
For the Revenue: Ms. R. Anitha, Addl. CIT.
