Case Commentary: ITAT Delhi on Taxation of ‘On Money’ in Property Sales – Sandeep Kapoor & Amarjeet Singh Kapoor vs. DCIT
Introduction
The Income Tax Appellate Tribunal (ITAT), Delhi ‘F’ Bench, in a consolidated order dated 29.04.2026, addressed a recurring issue in real estate transactions: the tax treatment of ‘on money’ received over and above the registered sale consideration. The appeals, filed by Sandeep Kapoor and Amarjeet Singh Kapoor for Assessment Years 2021-22 and 2023-24, arose from search and seizure actions under Section 132 of the Income Tax Act, 1961. The core dispute centered on whether such undisclosed cash receipts should be taxed as unexplained money under Section 69A or as part of the sale consideration for capital gains computation. The Tribunal, comprising Judicial Member Satbeer Singh Godara and Accountant Member Manish Agarwal, delivered a nuanced ruling that clarifies the boundary between these two provisions, emphasizing that when the source of money is identified and linked to a specific transaction, Section 69A cannot be mechanically invoked.
Facts of the Case
The assessees, Sandeep Kapoor and Amarjeet Singh Kapoor, were directors of M/s. Kapoor Waters Company Ltd. A search under Section 132 was conducted on 31.10.2022 on the Johnson Watch & Kapoor Watch Group, covering their residential premises. During the search, loose papers and incriminating material were seized, leading to the reopening of assessments under Section 148 for AY 2021-22. For AY 2023-24, regular assessments under Section 143(3) were completed.
The key factual matrix involved the sale of two properties:
1. Property C-213, Sushant Lok-1, Gurgaon (AY 2021-22): Jointly owned by Sandeep Kapoor (25% share), Amarjeet Singh Kapoor, and Parvinder Singh Taneja. The registered sale deed dated 09.04.2021 showed a consideration of INR 1.00 crore, but an agreement to sale found during the search revealed a total consideration of INR 1.67 crore. The differential of INR 67 lakhs was treated as ‘on money’. Sandeep Kapoor’s 25% share (INR 16,75,000) was added under Section 69A by the Assessing Officer (AO). The CIT(A) confirmed this addition, leading to the appeal.
2. Property C-411, Sushant Lok-1, Gurgaon (AY 2023-24): Sandeep Kapoor’s 1/3 share in on money of INR 1.10 crores (INR 36,66,666) was similarly added under Section 69A.
The AO’s reasoning was that the cash received over the registered value was not recorded in the books of account and thus constituted unexplained money under Section 69A. The CIT(A) upheld this view for the first property but granted relief for other additions.
Reasoning of the ITAT
The Tribunal’s reasoning is a masterclass in statutory interpretation, focusing on the cumulative conditions required to invoke Section 69A. The analysis can be broken down into three key legal principles:
1. Strict Construction of Section 69A Conditions
The Tribunal meticulously examined the text of Section 69A, which states: “Where in any financial year the assessee is found to be the owner of any money… and such money… is not recorded in the books of account… and the assessee offers no explanation about the nature and source of acquisition… the money… may be deemed to be the income of the assessee.” The Bench identified three cumulative conditions:
– Ownership: The assessee must be the owner, not merely in possession. The Supreme Court has clarified that ownership implies legal rights over the asset.
– Non-recording in books: The asset must not be recorded in the books of account.
– Unsatisfactory explanation: The assessee must fail to provide a credible explanation for the source.
The Tribunal emphasized that all three conditions must coexist. In this case, while the money was not recorded in books, the ownership was established. However, the critical failure was on the third condition.
2. Source Identification Defeats Section 69A
The pivotal finding was that the AO himself accepted the source of the on money. The Tribunal observed: “The AO himself has observed that assessee has received this cash from the buyer thus the source is duly accepted by the AO.” The identity of the buyer (Shri Pradeep Nandal for the first property) was disclosed in the sale deed. The Tribunal held that once the source is identified and accepted, the provision of Section 69A cannot be invoked. The deeming fiction under Section 69A is designed for cases where the assessee cannot explain the origin of the money. Here, the explanation was not only offered but also implicitly accepted by the Revenue.
3. Character of On Money as Sale Consideration
The Tribunal delved into the commercial reality of the transaction. It noted that the on money was received “at the time of sale of immovable property owned by them” and thus “partakes the character of sale consideration.” This is a crucial distinction: the money was not an independent, unexplained asset but an integral part of the sale proceeds. The Tribunal directed that the on money should be added to the sale consideration for computing Long-Term Capital Gains (LTCG). This approach aligns with the principle that substance over form governs tax treatment. The assessee had already declared LTCG on the registered value of INR 25 lakhs (25% of INR 1 crore), but the on money of INR 16.75 lakhs was excluded. By directing recomputation, the Tribunal ensured that the entire economic benefit from the sale is taxed under the correct head.
4. Rejection of Revenue’s Argument
The Revenue argued that since the cash was not disclosed in the regular books, it must be treated as unexplained. The Tribunal rejected this, holding that the non-recording in books is only one condition. The more critical condition is the failure to explain the source. Since the source was explained (buyer of the property), the deeming provision under Section 69A cannot apply. The Tribunal also noted that the AO had not disputed the identity of the buyer or the fact that the payment was for the property.
5. Practical Implications for Taxpayers
The ruling provides clarity for taxpayers involved in property transactions where part of the consideration is paid in cash. It establishes that:
– On money cannot be automatically taxed under Section 69A if the recipient can demonstrate the source (i.e., the buyer’s identity and the transaction link).
– The correct treatment is to include the on money in the sale consideration for capital gains computation, which may result in higher tax but under the correct head.
– The burden of proof shifts to the Revenue to show that the source is unexplained, not merely that the money is unrecorded.
Conclusion
The ITAT Delhi’s decision in Sandeep Kapoor & Amarjeet Singh Kapoor vs. DCIT is a significant precedent for the taxation of undisclosed cash components in property sales. By holding that on money cannot be taxed under Section 69A when the source is identified, the Tribunal reinforced the principle that deeming provisions must be strictly construed. The direction to recompute capital gains by including the on money ensures that the income is taxed appropriately, preventing double taxation or misclassification. This ruling will likely impact numerous pending assessments where AOs have mechanically applied Section 69A to cash receipts in real estate transactions. Taxpayers and practitioners should note that the key to avoiding Section 69A is to provide clear evidence of the source and the transactional link, even if the amount is not recorded in books. The appeals were partly allowed, with the Tribunal dismissing other grounds due to lack of effective submissions.
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