Addition for unexplained loan deleted as identity proven, while undervaluation matter remanded for agreement verification.

By | September 9, 2026
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Addition for unexplained loan deleted as identity proven, while undervaluation matter remanded for agreement verification.

Issue

  1. Unexplained Investments (Section 69): Whether an addition made by the AO under Section 69 on account of an unexplained loan investment is liable to be deleted when the assessee furnished the lender’s PAN, loan confirmation letter, and bank statements showing banking channel receipt, and the AO pointed out no defects.
  2. Income from Other Sources (Section 56(2)(vii)(b)): Whether the addition under Section 56(2)(vii)(b) for purchasing property below stamp duty value requires remanding to the CIT(A) to examine an earlier agreement/MOU, part performance, transfer of possession, and payment details under Section 53A of the Transfer of Property Act, 1882.

Facts

  • Issue 1 – Unexplained Loan:
    • For Assessment Year 2015–16, the assessee received a loan from her sister through regular banking channels.
    • The assessee submitted the sister’s PAN, a written loan confirmation letter, and relevant bank statements.
    • The Assessing Officer (AO) made an addition under Section 69, treating the amount as an unexplained investment on the ground that confirmation was not submitted, ignoring the documents on record.
  • Issue 2 – Property Valuation / Section 56(2)(vii)(b):
    • The assessee purchased a property where the purchase price was lower than the stamp duty value, leading the AO to invoke Section 56(2)(vii)(b).
    • The assessee contended that an agreement/MOU was executed in March 2014 with a part payment of ₹1.5 lakhs, transferring substantial rights and possession under Section 53A of the Transfer of Property Act, 1882, prior to the final sale deed executed in December 2014.
    • The CIT(A) confirmed the AO’s addition without thoroughly examining the March 2014 agreement/MOU details.

Decision

  • Issue 1 – Unexplained Loan: Held in favor of the assessee. Since all requisite supporting documents were available before the AO and no defects or discrepancies were pointed out, the addition under Section 69 was ordered to be deleted [Para 6].
  • Issue 2 – Property Valuation: Matter remanded to the CIT(A). The CIT(A) is directed to examine the March 2014 agreement/MOU, including its terms, payment details, evidence of delivery/transfer of possession, and the applicability of Section 56(2)(vii)(b) alongside Section 2(47) of the Income-tax Act and Section 53A of the Transfer of Property Act [Paras 17 and 18].

Key Takeaways

  • Genuineness of Loans: An addition under Section 69 for unexplained investments cannot stand if the assessee provides primary evidence (PAN, bank statements, confirmation letters) and the tax authority fails to point out any factual defect or discrepancy.
  • Date of Agreement vs. Date of Registration: When claiming that property purchase terms were fixed on an earlier agreement/MOU date with part performance and possession transfer under Section 53A of the Transfer of Property Act, the appellate authority must factually verify the execution, payment trail, and transfer of possession before applying Section 56(2)(vii)(b) stamp duty valuations.
IN THE ITAT MUMBAI BENCH ‘D’
Deepa Brijesh Singh
v.
Income-tax Department
Sandeep Gosain, Judicial Member
and BIJAYANANDA PRUSETH, Accountant Member
IT Appeal No. 1982 (MUM) of 2026
[Assessment year 2015-16]
AUGUST  13, 2026
Pradeep Hathi for the Appellant. Annavaram Kosuri, SR AR for the Respondent.
ORDER
Sandeep Gosain, Judicial Member.- This appeal is filed by the Assessee against the order of NFAC, Delhi vide DIN: ITBA/NFAC/S/250/2025-26/1083217119(1) dated 02.12.2025 for the Assessment Year 2015-16. The Assessee has raised the following grounds of appeal:
GROUND NO. 1
Erroneous confirmation of addition of Rs. 3,20,499 under Section 69-Unexplained Investment Facts and Issue:
1. The learned Assessing Officer (AO) added 23,20,499 under Section 69, claiming it to be unexplained investment.
2. The appellant submitted that the amount represented a loan received from her real sister, evidenced by (as submitted to the Assessing Officer):
i Loan confirmation letter from the sister,
ii. PAN of the lender (sister);
iii. Bank passbook showing account-payee cheque transaction;
iv. Entries recorded in the books of accounts.
3. Despite the above submission to the AO vide the appellant’s submission dated 1″ December, 2023, the AO ignored the above submission and treated the transaction as unexplained and have also claimed in his remand report to the learned CIT(A) – as reproduced by the CIT(A) in page no. 10 of the Appeal order “However, no documentary evidence such as confirmation, PAN details, bank statement, or copy of the sister’s income tax return was furnished. In the absence of any such supporting evidence, the identify and creditworthiness of the lender and the genuineness of the transaction could not be verified.”
The fact about the submission of the above details to the AO was also mentioned by the appellant in her written submission to the CIT(A) on 11 November 2025 (refer to point no. 2).
However, based on the remand order of the AO, and ignoring the written submission to the CIT(A), the CIT(A) upheld the addition made by the AO in his order. The AO could have issued summons to the lender and confirmed the transaction. The Assessee had taken loan from her real sister, which she could have treated as gift, but the assessee had honest intention of repaying the loan and hence treated it as loan.
Errors in CIT(A) Order:
1. Burden of Proof Misapplied:
i. CIT(A) held that the that the appellant failed to prove the lender’s financial capacity via ITR or other financials.
ii. However, the law mandates that once the identity and genuineness of the transaction are established, the burden shifts to the AO to disprove it.
iii. CIT(A) ignored that the transaction was through banking channels and not cash, which under Sections 269SS/269T is considered legitimate
2. Failure to Apply Judicial Precedent:
i. Supreme Court in CIT v. Durga Prasad More (1971) 82 ITR 540 held that reasonable explanation of the source precludes addition under Section 69.
ii. In Kishinchand Chellarum v. CIT (1980) 125 ITR 713, the Court ruled that Section 69 cannot be invoked on conjecture or suspicion
iii. In CIT v. Divine Leasing & Finance Ltd. (2001) 248 ITR 338 (Delhi HC), it was held that a direct nexus hetween unexplained investment and assessee’s income must be established, which was absent here.
3. Procedural Lapses Ignored:
i. AO did not summon the lender to verify the genuineness of the loan.
ii. CIT(A) upheld the addition even though no independent enquiry was made by the revenue.
Legal Arguments:
• Section 69 applies only when investments are not recorded in books or when explanation is unsatisfactory. Here, the investment/transaction was on recorded and explained.
• Mere non-furnishing of lender’s ITR or financial details cannot convert a banked transaction into unexplained income.
• The addition is therefore arbitrary, unjust, and legally unsustainable.
Prayer in Ground 1:
Delete the addition of 23,20,499 under Section 69.
GROUND NO.2
Erroneous confirmation of addition of 14,60,000 under Section 56(2)(vii)(b)
Facts and Issue:
1. The AO added 14,60,000 under Section 56(2)(vii)(b) claiming the property was purchased at lower than stamp duty value.
2. The appellant contended that:
i. A Memorandum of Understanding (MOU) was executed in March 2014 (FY 2013-14) with a part payment of Rs. 1,50,000;
ii. Final sale deed was executed in December 2014, but substantial rights and part performance occurred in March 2014;
iii. Property was in dilapidated condition (not used for the last 15 years before this sale) and sold at distressed price, requiring further expenditure to make it habitable.
Errors in CIT(A) Order:
1. Misinterpretation of Section 56(2)(vii)(b):
i. CIT(A) relied on the AO’s view that absence of bank proof for part payment invalidates the claim.
ii. Section 56(2)(vii)(b) requires part payment through banking channels, but the MOU and actual possession transfer clearly establish a valid right in personam as per Sanjeev Lal v. CIT  365 ITR 389 (SC) (SC)).
2. Improper Rejection of MOU:
i. CIT(A) disregarded the MOU, ignoring principles of part performance under Section 53A of the Transfer of Property Act.
ii. Supreme Court rulings confirm that rights and obligations under MOU can constitute transfer if part consideration is paid
3. Failure to Consider Market Reality:
i. The addition ignores the fact that the property was uninhabited for 15 years and purchased at a distressed price.
ii. No independent valuation by a registered valuer (was considered, despite specific request in our submission to CIT(A) (point no. 5 of the submission to CIT(A)).
iii. There is a convention of giving token on agreement, by the buyer to the seller. It’s not necessary that the token should not be in cash or that it has to be in the form of an account payee cheque only. There is no monetary ceiling set on the inken amount, under any law of the land. At times if there are more than one buyer, the seller agrees to sell to any buyer who gives token money first, irrespective of the fact that the token is in cash or in cheque.
iv. The addition ignores the negotiation skill of the appellant which helped her to get a bargain deal of a dilapidated property, which may be referred as equivalent to a trade discount after which the parties agrees on the final sale price. Such negotiation skill in the form of Trade Discount which is not recorded in the books as income, especially in case of a distress sale.
4. Failure to understand the facts of the case:
i. CIT(A) noted in point 8,3 of its order that the appellant had purchased two properties one of Rs. 65,00,000/- and the other of Rs.79,60,000/- totaling Rs. 1,44,60,000/- whereas the fact of the case is that the appellant had purchased only one property for Rs. 65,00,000/-and the AO is referring the same property to have the Stamp Duty Value of Rs. 79,00,000/-and hence the AO added Rs. 14,60,000/-(being the difference) as income escaping assessment, which is less than Rs. 50,00,000/-
It is therefore evident that the learned CIT(A) has passed the order without understanding the complete facts of the case. In the interest of natural justice, the matter deserves to be set aside and restored to the file of the CIT(A) for passing a fresh order after correctly appreciating the facts and examining the issue in its proper perspective.
ii. The token money given in cash by the appellant (following a usual convention) to the seller on 15th March, 2014 (FY 2013-14) and MOU entered on the same day, was ignored. Free Consent between the parties, Lawful consideration (Cash or Cheque) and Lawful Object are the important ingredients of any contract.
iii. The MOU entered on 15th March, 2014, is a valid contract under section 10 of the Indian Contract Act, 1872. Section 10 of the Indian Contract Act, 1872 states-“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
5. CBDT Circular Misapplied:
I. CIT(A) rejected reference to CBDT Instruction No. 1/2022 without considering the principle that the provision is applicable only to pre-A.Y. 2015-16 transactions, and cannot override actual facts of part payment and possession.
Legal Arguments:
• Section 2(47)(v) clearly states that transfer includes allowing possession in part performance; hence, agreement date should be considered.
• CIT(A) applied Section 56(2)(vii)(b) mechanically without weighing documentary evidence or possession.
• Judicial precedents clearly support considering the transaction from MOU date for income determination.
Prayer in Ground 2:
• Delete the addition of Rs. 14,60,000 under Section 56(2)(vii)(b).
GROUND NO.3
Improper reliance on remand report
1. The CIT(A) heavily relied on the AO’s remand report, which merely reiterated the assessment order.
2. The report did not critically examine evidence, nor address the appellant’s legal arguments and judicial precedents.
3. Relying on a remand report without independent evaluation violates principles ofnatural justice and appellate authority’s obligation to apply mind.
GROUND NO. 4
Violation ofPrinciples of Natural Justice
1. The appellant was not given adequate opportunity for:
i. Submission of additional documentary evidence;
ii. Independent verification by CIT(A) of facts;
iii. Consideration of property valuation and part performance evidence.
2. CIT(A) confirmed additions without considering appellant’s substantive defense, rendering the order arbitrary and unjust.
GROUND NO. 5
General
The appellant craves leave to add, alter, amend, or withdraw any ground at the time of hearing
PRAYER
In view of the above facts, circumstances, and legal provisions, the appellant respectfully prays that the Hon’ble Tribunal may be pleased to:
1. Delete the addition of Rs. 3,20,499/- under Section 69,
2. Delete the addition of Rs. 14,60,000/- under Section 56(2)(vii)(b);
3. It is therefore evident that the learned CIT(A) has passed the order without understanding the complete facts of the case. In the interest of natural justice, the matter deserves to be set aside and restored to the file of the CIT(A) for reassessing the case and for passing a fresh order after correctly appreciating the facts and examining the issue in its proper perspective.
Supporting Annexures:
1. Copy of loan confirmation letter and bank statement (for Sec 69).
2. Copy of MOU dated March 2014 and payment receipt. 3. Registered Sale Deed dated December 2014.
4. CBDT Instruction 1/2022.
5. Supreme Court rulings. Sunjeev Lul, Durgu Prusud More, Kishinchund Chelluram.
6. Valuation report or proposal for Departmental valuer (for property condition).
2. Ground No. 1 raised by the assessee relates to challenging the order of the Ld. CIT(A) in upholding the additions made under Section 69 of the Income Tax Act on account of unexplained investment.
3. We have heard the counsel for both the parties and perused the material available on record, the judgments cited before us, the orders passed by the Revenue Authorities and the written submissions filed by the assessee. From the records, we notice that the AO had made an addition on account of a loan of Rs. 3,20,499/- received by the assessee from her sister, treating the same as unexplained investment under Section 69 of the Act.
4. In this regard, during the course of assessment proceedings, the assessee submitted that the loan received from her sister, Rachna Singh, was a genuine transaction. In support of her contention, the assessee furnished a copy of the PAN card of Rachna Singh, a loan confirmation letter from Rachna Singh, and a copy of the bank statement of the assessee reflecting receipt of the said amount through proper banking channels.
5. However, the AO, ignoring the documents furnished by the assessee, made the addition under Section 69 of the Income Tax Act by observing that the assessee had not submitted any confirmation regarding receipt of the loan. Whereas, all the requisite documents were already available before the AO, and the AO could not point out any defect or discrepancy in the documents furnished by the assessee.
6. Therefore, considering the totality of the facts and circumstances, as discussed by us above, and considering the documents furnished by the assessee, we delete the addition made by the AO and affirmed by the CIT(A) under Section 69 of the Income Tax Act on account of unexplained investment. Consequently, this ground raised by the assessee stands allowed.
7. Ground No. 2 raised by the assessee relates to challenging the order of the Ld. CIT(A) in confirming the addition of Rs. 14,60,000/- made by the AO under Section 56(2)(vii)(b) of the Income Tax Act.
8. In this regard, we have heard the counsel for both the parties, perused the material available on record, the judgments cited before us, and the orders passed by the Revenue Authorities.
9. From the record, we notice that the AO had made an addition under the aforesaid provision of the Income Tax Act on the ground that the property was purchased by the assessee at a value lower than its stamp duty value. Whereas, the assessee contended that a Memorandum of Understanding (MOU) was executed in March 2014, pursuant to which a part payment of Rs. 1,50,000/- was made, and the final sale deed was executed in December 2014. It was submitted that substantial rights in the property and part performance in respect of the transaction had taken place in March 2014 itself.
10. As per the assessee, the property was in a dilapidated condition and, therefore, the same was sold at a distress price, as substantial expenditure was required to be incurred to make the property habitable.
11. Whereas, the Ld. CIT(A), while relying upon the order of the AO, confirmed the said addition by holding that the assessee had failed to produce the requisite documents, including proof of payment through banking channels, which, according to the Ld. CIT(A), invalidated the assessee’s claim.
12. It was further submitted that Section 56(2)(vii)(b) of the Income Tax Act requires the relevant payment to be made through banking channels. However, according to the assessee, the MOU and the transfer of possession clearly establish a valid right in personam in favour of the assessee, as recognised by the Hon’ble Supreme Court in the case of Sanjeev Lal v. CIT, [2014]  365 ITR 389 (SC) (SC).
13. It was submitted that the Ld. CIT(A) disregarded the MOU, ignored the principles of part performance under Section 53A of the Transfer of Property Act, and failed to consider the factual position of the case.
It was further submitted that the Ld. CIT(A) failed to consider the provisions of Section 2(47)(ii) of the Income Tax Act and the ratio laid down by the Hon’ble Supreme Court in the case of Sanjeev Lal(supra) wherein the Hon’ble Supreme Court held that by executing an agreement to sell in respect of an immovable property, a right in personam is created in favour of the transferee/vendee.
14. However, the said judgment, according to the assessee, was duly submitted before the Ld. CIT(A), but the same was not properly considered. The Ld. CIT(A), while referring to Section 56(2)(vii)(b), observed that the initial payment of Rs. 1,50,000/- was made in cash. Apart from this, the applicability of Section 2(47)(ii) was also not properly considered, particularly since the issue relates to the creation/accrual of a right in the property and not merely to the mode of payment.
15. It was also pointed out that the Ld. CIT(A), in Para 8.3 of his order, observed that the assessee had purchased two apartments worth Rs. 65,00,000/- and Rs. 79,60,000/-, respectively, totalling Rs. 1,44,60,000/-. In this regard, it was submitted that the aforesaid observation of the Ld. CIT(A) is factually incorrect and does not correctly reflect the facts of the present case.
16. Be that as it may, without entering into the merits of the case, we find that the Ld. CIT(A) has not correctly appreciated the factual position and the relevant documents pertaining to the transaction. Therefore, we are of the considered view that the matter requires to be restored to the file of the Ld. CIT(A) for fresh adjudication.
17. The Ld. CIT(A) is directed to examine the MOU/agreement executed in March 2014, the terms and conditions contained therein, the date and mode of payment of the amount of Rs. 1,50,000/-, the evidence regarding delivery/transfer of possession, and the other documents relevant to establishing part performance of the agreement. The Ld. CIT(A) shall also examine the applicability of the provisions of Section 56(2)(vii)(b), Section 2(47) and Section 53A of the Transfer of Property Act, as applicable to the facts of the case, and consider the judgment of the Hon’ble Supreme Court in Sanjeev Lal(supra), after giving due opportunity of being heard to the assessee.
18. The Ld. CIT(A) shall also verify the factual observation regarding the alleged purchase of two apartments aggregating to Rs. 1,44,60,000/- and record a clear finding on the correct factual position. The issue shall thereafter be decided afresh in accordance with law.
19. Accordingly, Ground No. 2 raised by the assessee is allowed for statistical purposes.
20. Ground Nos. 3 and 4 raised by the assessee relate to the grievance regarding the reliance placed by the Ld. CIT(A) upon the remand report of the AO and the alleged failure to provide adequate opportunity for proper consideration and verification of the documentary evidence, factual submissions and legal contentions raised by the assessee.
21. We have considered the submissions of both the parties and perused the material available on record. As discussed by us while adjudicating Ground No. 2, we find that the factual position relating to the MOU dated 15.03.2014, the part payment of Rs. 1,50,000/-, the possession/part performance, the condition and valuation of the property and the applicability of the relevant provisions of law requires fresh examination. Therefore, the matter has been restored to the file of the Ld. CIT(A) for fresh adjudication.
22. In view of the above, we direct the Ld. CIT(A), while deciding the matter afresh, to independently examine the entire material available on record and not merely rely upon the observations contained in the remand report. The Ld. CIT(A) shall consider all the documents and submissions furnished by the assessee, including the MOU, evidence relating to payment and possession, valuation-related material and the judicial precedents relied upon by the assessee. The assessee shall also be afforded reasonable and effective opportunity of being heard and, wherever considered necessary, the relevant facts may be independently verified.
23. Accordingly, in view of the matter being restored for fresh adjudication and the above directions, the grievances raised in Ground Nos. 3 and 4 are treated as consequential and are allowed for statistical purposes.
24. In the result, the appeal of the assessee is partly allowed and partly allowed for statistical purposes.