ITAT Bangalore Allows Nexus Between Property Sale Proceeds and Cash Deposit, Curtails Section 68 Addition

Capital Gains Accepted, Corresponding Cash Receipt Cannot Be Branded Unexplained

The Bangalore SMC Bench of the Income Tax Appellate Tribunal, presided over by Prashant Maharishi, partly allowed the appeal of Pradip Kumar Roy for Assessment Year 2011–12, holding that once the sale consideration of immovable property is accepted for capital gains purposes, the linked cash deposit arising from the same transaction cannot be treated as unexplained income under Section 68. The reassessment was initiated after the Assessing Officer noticed substantial cash deposits in the assessee’s bank account and sale of a residential property during the year. Although the assessee had not originally filed a return, he later explained that the property was sold for ₹61 lakh, part of which was received in cash and deposited into the bank on the very date of execution of the sale deed. The Assessing Officer accepted the computation of long-term capital gains on the full sale consideration but simultaneously added ₹31.17 lakh as unexplained cash credit. The CIT(A) sustained the addition, citing lack of conclusive nexus.

Tribunal Rejects Double Taxation of Same Transaction

The ITAT found the Revenue’s approach internally contradictory. It noted that when the Assessing Officer had accepted the sale price of ₹61 lakh for capital gains purposes, the receipt of ₹31 lakh in cash forming part of that very consideration could not be disbelieved without any contrary evidence. The deposit of ₹29.15 lakh on the same date of sale clearly established a direct linkage between the transaction and the bank credit. However, since the assessee could not explain the remaining difference of ₹2.02 lakh, the Tribunal sustained the addition to that limited extent while directing deletion of the balance ₹29.15 lakh.

The Bench thus reaffirmed that once the source of money is explained through a disclosed and accepted transaction, invoking Section 68 on the same amount amounts to impermissible double taxation.