ITAT Chennai Deletes ₹60.60 Lakh Additions Under Section 69A; Allows Section 54 Relief on Explained Investment

April 17, 2026 : The Income Tax Appellate Tribunal (ITAT), Chennai Bench, has set aside additions aggregating to ₹60.60 lakh made under Section 69A of the Income-tax Act, 1961, holding that the Assessing Officer (AO) acted on incorrect appreciation of facts and irrelevant considerations while treating the assessee’s investment and cash deposits as unexplained.

The Bench comprising Aby T. Varkey (Judicial Member) and S.R. Raghunatha (Accountant Member) allowed the appeal filed by Mrs. Chandra Swaminathan against the order of the Commissioner of Income Tax (Appeals) dated 23.05.2025 for Assessment Year 2017–18.

The assessee had sold her residential flat on 04.10.2016 for ₹35.50 lakh, receiving ₹33 lakh through banking channels and ₹2.50 lakh in cash. She also realized ₹8.09 lakh in cash from sale of household items and electronic appliances, which along with other minor receipts was deposited into her bank account. Thereafter, she purchased a new residential flat on 05.01.2017 for ₹35 lakh, incurred ₹2.80 lakh towards stamp duty and registration, and spent ₹12 lakh on interiors, aggregating to ₹49.80 lakh. She claimed exemption under Section 54 on reinvestment of sale proceeds.

During assessment, the AO doubted the transaction on the ground that although the purchase deed was executed in January 2017, payments were reflected in August 2017. Based on this discrepancy and suspicion regarding a lease agreement, the AO denied exemption under Section 54, treated ₹49.80 lakh as unexplained under Section 69A, and also added ₹10.80 lakh towards cash deposits as unexplained. The CIT(A) upheld these findings.

On appeal, the Tribunal found that the assessee had issued cheques at the time of registration in January 2017, which were encashed by the vendor in August 2017, and that sufficient bank balance existed at the time of issuance. The payments were ultimately made through banking channels and were fully traceable. It held that mere delay in encashment of cheques could not render the transaction unexplained when the source of funds stood established.

The Tribunal observed that the AO had misdirected himself by relying on irrelevant material such as doubts surrounding a lease agreement, which had no bearing on the core issue of source of investment. It emphasized that registered sale and purchase deeds carry a strong presumption of genuineness and had not been challenged by the Revenue. The source of investment was clearly traceable to the sale proceeds of the earlier property, and the Revenue had not alleged that the transactions were sham.

With respect to the claim under Section 54, the Tribunal held that the assessee had successfully demonstrated reinvestment within the prescribed time limit and that denial of exemption was unjustified.

On the addition of ₹10.80 lakh, the Tribunal accepted the assessee’s explanation that ₹2.50 lakh represented cash received from sale of the flat and the remaining amount arose from sale of household items and appliances, supported by bills, vouchers, and surrounding circumstances. It held the explanation to be plausible and noted that such transactions did not necessarily require PAN details under Rule 114B given the value involved.

The Tribunal also noted that the AO had effectively made a double addition by treating both the investment and its source as unexplained, which was held to be arbitrary and unsustainable.

Accordingly, the Tribunal directed deletion of both additions and allowed the exemption claimed under Section 54. The appeal was allowed.

Case Title: Mrs. Chandra Swaminathan v. ITO, Non-Corporate Ward-22(1), Tambaram
Case No.: ITA No. 2034/Chny/2025
Date: 17 April 2026