Section 69A IT Act | 'On Money' from Property Sale Taxable as Capital Gains, Not Unexplained Income: ITAT Delhi

The Income Tax Appellate Tribunal, Delhi, has clarified a critical distinction in direct tax jurisprudence: cash payments received as 'on money' in property transactions, though not reflected in registered sale deeds, constitute part of the sale consideration and cannot be taxed as unexplained income under Section 69A of the Income Tax Act. This ruling resolves a recurring dispute between taxpayers and revenue authorities over the classification of undisclosed cash components in real estate deals.

Background & Facts

The Dispute

The appeals involve two brothers, Sandeep Kapoor and Amarjeet Singh Kapoor, who jointly owned residential properties in Gurgaon with two other co-owners. During the assessment years 2021-22 and 2023-24, the Assessing Officer (AO) reopened their assessments under Section 147 after a search and seizure operation under Section 132 on 31.10.2022. The search uncovered agreements to sell and loose papers indicating that properties were sold for amounts significantly higher than the values declared in registered sale deeds. The differential amounts - termed 'on money' - were treated as unexplained income under Section 69A.

Key Facts

• Sandeep Kapoor held a 25% share in Property C-213, Sushant Lok-1, Gurgaon, sold on 12.01.2021 for a total consideration of ₹1.67 crore, with ₹1 crore recorded in the registered sale deed dated 09.04.2021.
• The balance ₹67 lakh received in cash constituted the 'on money', of which Sandeep Kapoor’s 25% share was ₹16,75,000.
• Amarjeet Singh Kapoor held an identical 25% share in the same property and was similarly assessed for ₹16,75,000 under Section 69A.
• In a separate transaction, both appellants jointly sold Property C-411, Sushant Lok-1, for ₹3.10 crore under an agreement dated 01.04.2022, with only ₹2 crore recorded in the sale deed. The differential ₹1.10 crore was treated as 'on money'. Each appellant’s 1/3rd share (₹36,66,666) was added under Section 69A.
• The AO treated these amounts as unexplained income because they were not recorded in the assessee’s books of account.
• The appellants filed returns under Section 139(1) on 15.03.2022, declaring income of ₹2,18,58,700, and later filed revised returns on 14.06.2023 after notice under Section 148.
• The Commissioner of Income Tax (Appeals) deleted all additions except the Section 69A additions of ₹16,75,000 and ₹36,66,666.

Procedural History

• 31.10.2022: Search and seizure conducted under Section 132 at residential premises of the appellants.
• 16.05.2023: Notice under Section 148 issued for reopening assessment for AY 2021-22.
• 14.06.2023: Revised return filed by both appellants.
• 24.03.2025: Assessment orders passed under Section 147 read with Section 143(3) for AY 2021-22.
• 28.07.2025: Order of Ld. CIT(A) passed, deleting all additions except Section 69A additions.
• 18.05.2021: Review petition dismissed by CIT(A) (for earlier proceedings).
• 18.03.2026: Hearing before ITAT Delhi.
• 29.04.2026: Judgment pronounced.

The Parties' Positions

For the Appellants

• The 'on money' was received from identifiable buyers named in the sale deeds.
• The amounts were part of the total sale consideration, not unexplained receipts.
• The source was disclosed and accepted by the AO himself.
• Tax should be levied under 'Income from Capital Gains' at applicable rates, not under Section 69A as unexplained income.
• Relied on the principle that if the source is known and the transaction is genuine, Section 69A cannot apply.

For the Respondent (Revenue)

• The 'on money' was received in cash and not recorded in the books of account.
• Section 69A applies when any money is not recorded and no satisfactory explanation is offered.
• The fact that the buyer’s identity is known does not negate the requirement of recording in books.
• The addition was justified as the assessee failed to maintain proper books.

Relief Sought

The appellants sought deletion of the Section 69A additions of ₹16,75,000 and ₹36,66,666 for both assessment years, and directed the AO to include these amounts in the computation of long-term capital gains under Section 45, with appropriate indexation and tax calculation.

The Legal Issue

The central question was whether cash received as 'on money' in a property sale, though not recorded in the registered sale deed or books of account, constitutes unexplained income under Section 69A of the Income Tax Act, or whether it forms part of the sale consideration and must be taxed under the head 'Income from Capital Gains'.

Arguments Presented

For the Appellant

The appellants contended that Section 69A is a deeming provision applicable only when the source of funds is truly unexplained. Here, the buyer’s identity was disclosed in the agreement and sale deed, and the payment was made in the course of a genuine transaction. The AO himself acknowledged receipt from the buyer. Therefore, the 'on money' was not unexplained - it was merely unrecorded in the books. The Supreme Court in CIT v. S. Ramanathan and CIT v. K. S. Srinivasan held that if the source is traceable and the transaction is real, Section 69A cannot be invoked. The appellants argued that the correct legal treatment is to include the entire consideration in capital gains computation, not to treat a portion as unexplained income.

For the Respondent

The Revenue argued that Section 69A is triggered by non-recording in books and absence of a satisfactory explanation. The fact that the buyer’s name is known does not satisfy the statutory requirement of maintaining books of account. The cash receipt was not reflected in any ledger, and the assessee failed to prove the source through documentary evidence. The Revenue relied on CIT v. S. K. Gupta and CIT v. R. K. Jain, where similar cash receipts were upheld as unexplained income under Section 69A.

The Court's Analysis

The Tribunal undertook a detailed analysis of Section 69A, emphasizing its deeming nature and the cumulative conditions required for its application. The provision mandates three conditions: (i) ownership of the asset, (ii) non-recording in books of account, and (iii) unsatisfactory explanation regarding the nature and source of acquisition.

"The explanation must be credible and supported by evidence; otherwise, the addition can be made."

The Tribunal noted that the AO had himself recorded in the assessment order that the 'on money' was received from the buyer named in the sale deed. This admission negated the third condition: the source was not unexplained. The Tribunal held that the mere fact that the amount was received in cash and not recorded in books does not, by itself, make it unexplained income.

"Once the source is established, provision of section 69A cannot be invoked for making addition of sale consideration received over and above the declared sale consideration in cash."

The Tribunal further observed that the 'on money' was part of a single transaction - the sale of jointly owned property. The entire consideration, including cash, flowed from the buyer to the joint owners. The character of the receipt remained sale consideration. Taxing it under Section 69A as 'income from other sources' would be legally incorrect and economically inequitable, as it would subject the same income to higher tax rates than capital gains.

The Tribunal distinguished CIT v. S. K. Gupta on the ground that in that case, the source of cash was not traceable. Here, the buyer was identified, the transaction was documented, and the payment was linked to a specific asset sale. The Tribunal held that Section 69A is not a tool to penalize lack of bookkeeping when the source is otherwise known.

The Tribunal applied the principle of mutatis mutandis to both appellants, as their factual positions were identical. The same reasoning applied to the second property transaction involving ₹36,66,666.

The Verdict

The appeals were partly allowed. The Tribunal set aside the additions of ₹16,75,000 and ₹36,66,666 under Section 69A for both assessment years. The AO was directed to recompute the long-term capital gains by including the 'on money' amounts in the total sale consideration. Tax shall be computed under Section 45 at the applicable capital gains rates, with indexation benefits allowed. The AO shall pass fresh orders within 8 weeks of the judgment date.

What This Means For Similar Cases

Sale Consideration Cannot Be Disguised as Unexplained Income

• Practitioners must argue that if the buyer is identified and the transaction is documented, Section 69A is inapplicable even if cash is unrecorded.
• The burden shifts to the Revenue to prove the transaction is sham or the source is fictitious - not merely that books are incomplete.

Capital Gains Must Reflect Full Consideration

• All amounts received in a property sale, whether via bank transfer or cash, must be aggregated to compute capital gains.
• Tax authorities cannot bifurcate consideration to tax part under Section 69A and part under capital gains.

Bookkeeping Deficiency ≠ Unexplained Income

• Failure to maintain books does not automatically trigger Section 69A if the source is verifiable.
• This ruling reinforces that Section 69A is not a substitute for penalizing non-compliance with accounting norms.

Practical Takeaways

• In property transactions, ensure all agreements clearly state total consideration, including cash components.
• Maintain internal records of cash receipts even if not reflected in registered deeds.
• In appeals, emphasize traceability of source and genuineness of transaction over bookkeeping formalities.

Judicial Precedent Strengthened

This judgment aligns with the Supreme Court’s view in CIT v. S. Ramanathan that tax law must reflect economic reality. It curbs arbitrary use of Section 69A and promotes consistency in taxing real estate transactions.