Wife Buys Rs 7.5 Crore Mumbai Property From Husband, ITAT Allows Section 54F Tax Relief

A property deal can come under tax scrutiny when the department suspects that part of the consideration was paid outside the registered transaction. But an allegation of cash payment has to be backed by reliable evidence.

In a recent case, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) deleted a Rs 2 crore addition made in the hands of a woman who had purchased a residential property for a registered consideration of Rs 3.5 crore.

The case involved Arti Garg, who bought a property at Shankar Vihar in New Delhi from Naresh Arora through a sale deed dated December 30, 2020. The tax department alleged that the actual consideration was Rs 5.5 crore and that another Rs 2 crore had been paid in cash.

What Triggered The Rs 2 Crore Addition

The allegation arose after a search on a third-party property dealer. The department recovered a digital image of a slip from a mobile phone and treated it as evidence that the property had changed hands for Rs 5.5 crore.

Based substantially on this material, the assessing officer treated Rs 2 crore as an unexplained investment in the buyer's hands under Section 69 of the Income-tax Act, 1961.

The taxpayer disputed the addition, saying the digital material did not clearly establish any connection with her and had not been properly verified before being used against her.

The ITAT noted several gaps. The WhatsApp conversation connected with the image did not form part of the assessment order. The document carried the seller's signature but not the buyer's. There was also no satisfactory record showing when the image was transmitted.

Why The ITAT Rejected The Evidence

A major issue before the Tribunal was the chain of custody of the electronic material. The ITAT referred to the Central Board of Direct Taxes' Digital Evidence Investigation Manual, which sets out procedures for collecting, preserving, analysing and using electronic records.

The Tribunal found that the department had not adequately demonstrated how the data moved from the seized device to forensic extraction, how the master and working copies were handled, and how the particular image eventually reached the assessing officer.

It also found deficiencies in the certificate relied upon for the electronic evidence, including the absence of the relevant phone's IMEI number.

The ITAT found that the digital evidence was not strong enough to justify the Rs 2 crore addition. It therefore ruled in favour of the buyer. The seller also got relief in the related appeal.

For homebuyers, the case is also a reminder to retain records of the money paid for a property and ensure they match the sale documents. At the same time, digital material such as screenshots or WhatsApp messages needs to be properly verified before it can be used to prove an alleged cash payment.

FAQs

1. Why did the ITAT delete the Rs 2 crore addition?
The Tribunal found that the digital evidence relied upon by the tax department was not sufficiently authenticated and had gaps in its chain of custody.

2. Can screenshots or WhatsApp messages be used as evidence in tax proceedings?
Yes, but electronic evidence needs to be properly collected, preserved and authenticated before it can reliably support a tax addition.

3. What records should property buyers retain?
Buyers should keep the sale deed, bank statements, payment receipts and other documents showing how the property consideration was paid.