The Income Tax Appellate Tribunal, Agra, has clarified that under Section 69B of the Income Tax Act, unexplained investment cannot be aggregated and taxed in a single assessment year unless the entire consideration was paid in that year. The Tribunal emphasized that reassessment proceedings must comply with the principles of natural justice, particularly the right to access material relied upon by the revenue.
Background & Facts
The Dispute
The dispute arose from the purchase of an immovable property by the respondent trust, Pyare Lal Sharma Trust, in Noida. The property, Plot No. 023, Valencia Villas, Jaypee Greens Wish Town, Sec-128, was registered in the financial year 2015-16 for a total consideration of Rs. 1,97,16,060, inclusive of stamp duty and incidental charges. The trust declared a total income of Rs. 2,10,000 for the assessment year 2016-17. The Assessing Officer (AO) reopened the assessment under Section 147 after receiving an information report from the Director of Income Tax (Investigation & Central Intelligence), Kanpur, alleging that the investment was grossly disproportionate to the declared income.
Key Facts
- The property was registered on 15.06.2016 (F.Y. 2015-16)
- Total purchase cost: Rs. 2,42,36,568 (including stamp duty of Rs. 9,88,268)
- Payments were made across three financial years:
- F.Y. 2010-11: Rs. 1,77,00,000 via account payee cheques from trust corpus
- F.Y. 2013-14: Rs. 43,07,829 via loan from M/s Elate India Pvt. Ltd. (Rs. 38,50,000) and recovery from Veda Charitable Trust (Rs. 19,00,000)
- F.Y. 2015-16: Rs. 22,28,739 via recovery from Vivek Family Trust, Shyam Sunder Family Trust, and earlier deposits
- Only Rs. 22,28,739 was paid during F.Y. 2015-16 (A.Y. 2016-17)
- The AO added Rs. 2,06,86,000 under Section 69B (Rs. 1,97,00,000 as property cost + Rs. 9,86,000 as stamp duty), treating the entire amount as unexplained investment in A.Y. 2016-17
- The AO applied Section 115BBE at 30% for taxing the addition
- The DIT(I&CI) report, which formed the basis for reopening, was not furnished to the assessee despite repeated requests
Procedural History
- 09.11.2016: Original return filed for A.Y. 2016-17 declaring income of Rs. 2,10,000
- Processed under Section 143(1) on 15.12.2016
- 28.02.2021: AO recorded reasons for reopening under Section 147, citing disproportionate investment
- 30.03.2021: Notice under Section 148 issued
- 24.04.2021: Return filed under Section 148, same income declared
- 31.03.2022: Assessment order passed adding Rs. 2,06,86,000 under Section 69B
- 08.10.2025: CIT(A), NFAC, Delhi allowed appeal, deleted addition, held reassessment invalid due to lack of "reason to believe" and violation of natural justice
- 19.02.2026: Hearing before ITAT Agra
- 21.04.2026: ITAT Agra dismissed revenue’s appeal
Relief Sought
The appellant revenue sought to set aside the CIT(A)’s order and restore the AO’s addition of Rs. 2,06,86,000 under Section 69B, with tax at 30% under Section 115BBE. The assessee sought dismissal of the appeal and confirmation of the CIT(A)’s order.
The Legal Issue
The central question was whether Section 69B of the Income Tax Act permits the entire purchase consideration of an immovable property to be treated as unexplained investment in the assessment year when only a partial payment was made, and whether reassessment under Section 147 is valid when the material basis (DIT report) is withheld from the assessee.
Arguments Presented
For the Appellant (Revenue)
- The AO’s reasons were sufficient to constitute "reason to believe" under Section 147, as the investment (Rs. 1.97 crore) vastly exceeded declared income (Rs. 2.10 lakh)
- Section 135 empowers DIT to conduct investigations, and the AO need not independently verify the DIT report
- The CIT(A) erred in relying on Kelvinator and GKN Driveshaft, as the reasons were communicated and opportunity to respond was given
- Section 115BBE was correctly applied at 30% as it was effective from A.Y. 2013-14, not 2017-18 as claimed by the assessee
- The bank statements submitted were incomplete and failed to establish source of funds for the entire investment
For the Respondent (Assessee)
- The entire investment was funded through banking channels over three years, with documentary proof (cheque copies, ledger entries, loan agreements)
- Only Rs. 22,28,739 was paid in A.Y. 2016-17; taxing the full Rs. 2.42 crore in that year under Section 69B is legally unsustainable
- The DIT report, which triggered reopening, was never disclosed despite requests, violating principles of natural justice
- The CIT(A) correctly applied Kelvinator and GKN Driveshaft, holding that "reason to suspect" is not equivalent to "reason to believe"
- Section 115BBE applies only to unexplained income, not unexplained investment; even if applicable, the rate was correctly applied
The Court's Analysis
The Tribunal undertook a detailed review of the payment schedule and the statutory framework under Section 69B. It observed that Section 69B applies to "any investment made by the assessee" and mandates that the entire amount invested in a financial year, if unexplained, may be deemed income. However, the Tribunal emphasized that the provision does not permit aggregation of investments made in prior years into a later year simply because the property was registered in that year.
"The fact that the property was registered in F.Y. 2015-16 does not transform payments made in earlier years into unexplained investment of the current year. The source of funds must be examined in the year in which the payment was actually made."
The Tribunal further held that the AO’s reliance on the DIT(I&CI) report without disclosing it to the assessee was a fatal flaw. The AO’s own order stated that the request for the report was denied on grounds of limitation, which the Tribunal found to be an admission that the material was not shared to avoid procedural scrutiny.
"The withholding of the DIT report, which formed the sole basis for reopening, is a clear violation of the audi alteram partem principle. The assessee was denied the opportunity to rebut the very evidence that triggered the reassessment."
The Tribunal also rejected the revenue’s argument that Section 135 absolved the AO of the duty to verify. It held that while DIT may conduct investigations, the AO remains responsible for ensuring procedural fairness and must disclose material relied upon.
Regarding Section 115BBE, the Tribunal noted that the rate of 30% was correctly applied, as the provision had been effective since A.Y. 2013-14. However, since the addition under Section 69B was invalid, the applicability of Section 115BBE became academic.
The Tribunal concluded that the CIT(A)’s findings were fully supported by documentary evidence and legal precedent. The addition under Section 69B was unsustainable because the investment was not unexplained in the year of payment, and the reassessment was vitiated by procedural illegality.
The Verdict
The appeal was dismissed. The ITAT Agra upheld the CIT(A)’s order dated 08.10.2025, deleting the addition of Rs. 2,06,86,000 under Section 69B. The Tribunal held that the reassessment under Section 147 was invalid due to violation of natural justice and lack of "reason to believe." The AO’s order dated 31.03.2022 was set aside. No further directions were issued as the addition was fully deleted.
What This Means For Similar Cases
Unexplained Investment Must Align with Payment Year
- Practitioners must argue that Section 69B applies only to payments made in the relevant financial year, not to the registration date of property
- Aggregating payments across multiple years into one assessment year is legally untenable unless the entire amount was paid in that year
- Documentary proof of payments in prior years (bank statements, cheques, loan agreements) must be systematically organized to rebut presumptions under Section 69B
Natural Justice Is Non-Negotiable in Reassessment
- Any material relied upon by the revenue to initiate reassessment under Section 147 must be disclosed to the assessee
- Denial of access to investigation reports, DIT findings, or third-party information constitutes a fatal procedural defect
- Citations of Kelvinator and GKN Driveshaft remain binding: "reason to suspect" cannot substitute "reason to believe"
Section 115BBE Cannot Salvage Invalid Additions
- Even if the rate of tax under Section 115BBE is correctly applied, the underlying addition under Section 69B must be legally valid
- Taxing unexplained investment without establishing its unexplained nature in the correct year renders the entire tax demand void
- Practitioners should challenge the foundation of the addition before contesting the rate
