ITAT Quashes Rs 1.70 Crore Cash Addition In Property Sale Dispute

A Delhi couple sold a jointly owned property in Sukhdev Vihar, New Delhi, to Colorbar Cosmetics. The registered sale deed recorded a consideration of Rs 1.60 crore. But the Income Tax Department (ITD) alleged the actual price was Rs 3.30 crore, with an additional Rs 1.70 crore paid in cash.

In its September 2026 order, the ITAT Delhi cancelled the tax addition and penalty. It noted that the department had not summoned Anil Upreti, whose statement and records were central to the alleged cash payment, for questioning.

How The Department Built Its Case

The tax department’s case stemmed from a February 2021 search of premises linked to Samir Modi and Shivani Modi. Officials relied on entries in an Excel workbook, handwritten diary notes and WhatsApp conversations recovered during the search, according to a recent Times of India report.

The records allegedly referred to Rs 1.55 crore paid in cash in instalments, plus a further Rs 15 lakh. The department also relied on a statement by Anil Upreti, who allegedly said that Rs 1.55 crore had been paid to the husband for the property.

The Assessing Officer treated the total Rs 1.70 crore as unexplained money under Section 69A of the Income-tax Act for the financial year 2018-19. The Commissioner of Income Tax (Appeals) later retained an addition of Rs 1.16 crore, corresponding to the husband’s 75 per cent share in the property.

The taxpayer disputed the allegation, saying the sale was completed through a registered conveyance deed dated October 31, 2019. He said he received the consideration in a single payment on October 25, 2019, and reported his share of the capital gains in the return for assessment year 2020-21.

Tribunal Questions Evidence And Procedure

The ITAT observed that the WhatsApp messages referred to figures but did not clearly establish their context or prove that the taxpayer had received undisclosed cash. It said the Assessing Officer should have examined the people whose statements and messages formed part of the case, and given the taxpayer a meaningful chance to cross-examine them.

The tribunal noted that Upreti, whose statement and seized material were central to the department’s inference, had not been summoned during the assessment. Without examining him and allowing the taxpayer to question him, the material could raise suspicion but did not conclusively establish an “on-money” payment, the ITAT said.

The tribunal also found a defect in the proceedings under Section 153C. The satisfaction note initiating action covered seven assessment years, even though the alleged material related to only a limited period. The ITAT said the department needed to connect the seized material to the relevant assessment year and the taxpayer’s income.

It therefore allowed the taxpayer’s appeal, quashed the assessment and set aside the consequential penalty. The ruling turned on the evidence and the way the proceedings were conducted; it does not mean that WhatsApp messages or spreadsheets can never be used in tax assessments.

For property sellers, the case underlines the value of keeping the sale deed, payment records and capital gains reporting consistent. If an assessment relies on third-party records or statements, taxpayers can seek the material being used and ask to question the people whose evidence supports the allegation.

FAQs

Why did the ITAT cancel the tax addition and penalty?
The tribunal said the department had not examined a key witness or given the taxpayer a chance to cross-examine him. The seized records also did not conclusively prove that the taxpayer received cash.

Does this ruling mean WhatsApp messages and spreadsheets cannot be used as tax evidence?
No. The ITAT said the material in this case did not establish the alleged payment. Such records may be considered if they are properly linked to the taxpayer and the relevant assessment year.

What should property sellers keep to support their tax reporting?
Keep the sale deed, payment records, and capital gains documents, and ensure the amounts reported are consistent. If an assessment relies on third-party evidence, taxpayers can seek access to it and ask to question the witnesses.