Case Citation: Javadsha Hasmukhray Varaiya v. ITO | Mumbai ITAT | Decided on September 26, 2026
Executive Summary:
The Mumbai Income Tax Appellate Tribunal (ITAT) has reaffirmed that the mere execution of a property agreement does not establish that the entire consideration value was invested during that specific financial year.
The Tribunal ruled that addition under the Income Tax Act must be predicated on the actual payment trail rather than the aggregate value stated in the agreement.
Background & Lower Authorities’ Findings:
a) The Assessment: During the relevant assessment year, the Assessing Officer (AO) noted that a property agreement was executed for a total consideration of Rs 47.81 lakh. Due to non-compliance and a lack of proper representation from the assessee, the AO treated the entire agreement value as an unexplained investment and added it to the assessee’s income.
b) First Appeal: The Commissioner of Income Tax (Appeals) [CIT(A)] subsequently dismissed the assessee’s appeal ex-parte, sustaining the addition made by the AO.
Arguments & Evidence Before the ITAT Before the ITAT, the assessee produced the definitive bank and payment trail, establishing that:
a) 19.53 lakh was the only amount actually disbursed during the financial year under assessment.
b) 28.28 lakh (the remaining balance) was systematically paid in subsequent financial years.
c) Furthermore, the assessee contended that the source of the initial Rs 19.53 lakh was funded independently by his wife from her own resources.
ITAT Judgment & Ruling:
The Tribunal accepted the factual payment trail and ordered the following:
a) Deletion of Balance Addition: The ITAT deleted the addition of Rs 28.28 lakh, clarifying that an agreement value cannot be deemed as an investment made in a year prior to its actual disbursement.
b) Remand for Source Verification: The remaining addition of Rs 19.53 lakh was set aside and remanded back to the AO for the limited purpose of verifying the source of funds, specifically looking into the independent financial capacity of the assessee’s wife.
Key Legal Takeaway:
For the purpose of making additions regarding unexplained investments, the actual payment trail overrides the aggregate agreement value. Tax authorities cannot make a lump-sum addition of the entire contract value in a single assessment year if the payments span across multiple financial years.
Please consult your financial advisor and CA before making any decision