Man sells Delhi property, shifts to Australia; tax dept adds Rs 40 lakh as unexplained cash credit, but he wins in ITAT Delhi

Dec 02, 2025

Synopsis
The Income Tax Appellate Tribunal in Delhi has made waves with its recent ruling. Taxpayers can now benefit from capital gains tax exemptions when they sell Indian property to invest in international real estate, as long as the overseas investment was completed before the 2015-16 Assessment Year. This decision, which reversed denied claims for Mr.

On November 12, 2025, the Income Tax Appellate Tribunal (ITAT), Delhi, ruled that taxpayers can claim Section 54 capital gains tax exemption on the sale of an Indian residential property even if the profit gained from the sale was used to buy a foreign property, as long as the investment was made before the Assessment Year (AY) 2015-16. The judgement was delivered in the case of Mr. Verma, a 70-year-old retired government bank employee.

A closer look at the case reveals the following timeline. In October 2013, Verma sold a residential flat in Delhi for Rs 70 lakh; he had had originally purchased it in August 2004.

After indexation, the transaction resulted in a long-term capital gain of Rs 54.35 lakh. A few months later, in March 2014, Verma bought a new residential property in Australia for AUD 550,000. By then, he had already moved to Australia—in November 2013—to live with his sons following his retirement.

However, the tax officer observed that Mr. Verma had been preparing for a permanent move to Australia, noting that he had sold several household items and other possessions during the pertinent assessment year.

The tax officer pointed out that some cash belonging to Mr. Verma’s wife and one son was also deposited into Mr. Verma’s bank account for consolidation of funds. In total, Rs 40 lakh (40,51,000) was deposited into Mr. Verma’s bank account, the official said.

In December 2016, the income tax officer sent him a tax notice and completed his assessment of Mr. Verma’s income. In the assessment proceedings, the income tax assessing officer (AO) concluded the assessment under section 144 of the Income Tax Act, 1961, making the following additions:

Disallowance of Rs 54,35,000 under Section 54, as the AO did not have any details of purchase of new property; and
Addition of Rs 40,51,000 under Section 68 r.w. Section 115BBE, alleging the amount to be unexplained cash credit.

Summary of the judgement
Chartered Accountant (Dr.) Suresh Surana said to ET Wealth Online: In the given case (ITA No.2417/Del/2025), the assessee, an elderly individual who had retired from the Indian Overseas Bank, sold his residential property in Delhi in October 2013 and invested the capital gains in March 2014 towards the purchase of a new residential house in Australia, where he had shifted to live with his family.

During assessment, the Assessing Officer completed the proceedings ex parte under Section 144 and made two additions:

(i)denial of exemption under Section 54 on the ground that the new property was situated outside India, and

(ii)addition under Section 68 read with Section 115BBE in respect of cash deposits made in the assessee’s bank account.

The CIT(A) sustained both additions, treating the amendment to Section 54 (requiring the new property to be located in India) as clarificatory, and also held that the assessee had not satisfactorily explained the source of deposits.

According to Surana the Tribunal ruled in favour of the taxpayer for two principal reasons.

Firstly, with respect to Section 54, the ITAT held that the CIT(A) erred in treating the amendment as clarificatory. The Bench relied on CBDT Circular No. 01/2015 and the Karnataka High Court ruling in Vinay Mishra, both of which confirm that the amendment is prospective and applies only from AY 2015-16.

Since the assessee purchased the new property abroad prior to the amendment, the pre-amended Section 54 which imposed no geographical restriction was applicable. Therefore, the tax exemption could not be denied.

Surana says: "Secondly, on the Section 68 issue, the Tribunal accepted the assessee’s argument that no business was carried on during the relevant year and, importantly, that the deposits in the bank account did not constitute credits in the books of accounts, which is a statutory precondition for invoking Section 68."

According to Surana the Tribunal relied on the Supreme Court’s judgment in Baladin Ram and the Delhi High Court’s ruling in Ms. Mayawati, both of which hold that a bank passbook does not qualify as “books of account” of the assessee. Since no other books were maintained, Section 68 could not be invoked merely on the basis of bank deposits. Accordingly, the addition was held to be unsustainable.

Based on these findings, the Tribunal deleted both additions and allowed the taxpayer’s appeal in full.

On November 12, 2025, he won the case in ITAT Delhi. Mr. Verma’s authorised representative was Chartered Accountant Anshul Kumar.

ITAT Delhi says this about foreign properties and tax exemption

ITAT Delhi, in its judgement (ITA No.2417/Del/2025) dated November 12, 2025, said that at the outset it can be observed that assessment is completed under Section 144, though the notices were sent to the Indian address. Thus, there is justification to accept that Mr Verma could not appear in the assessment proceedings.

ITAT Delhi said that as far as the denial of benefit under Section 54 is concerned, they find that the CIT(A) has erred in holding that the amendment is clarificatory.

The CBDT circular No. 01/2015 dated January 21, 2015, has clearly provided that the amendment in Section 54 is effective from April 1, 2015, and will apply in relation to AY 2015-16 and subsequent assessment years.

ITAT Delhi said: “We are in agreement with the contention of AR (authorised representative of Mr Verma) that it is a well-settled position of law that an amendment can be considered declaratory and clarificatory only if the statute itself expressly and unequivocally states that it is a declaratory and clarificatory provision. If there is no such clear statement, the amendment is not merely a clarification but a substantive amendment, which shall apply prospectively.”Also read: Man sells unlisted start-up shares for Rs 52 crore; tax dept issues notice for undervaluation; he wins case in ITAT Delhi

The ITAT Delhi relied on certain case laws and said that where the property was purchased outside of India, prior to the amendment w.e.f. AY 2015-16, the assessee can claim the benefit of Section 54, and reliance can be placed on the decision of the High Court of Karnataka in Commissioner of Income Tax vs. Vinay Mishra reported in [2020] 121 taxmann.com 243 (Karnataka) and followed in The Commissioner of Income-tax v. Shri. Hosagrahar I.T.A. NO.601 OF 2019 order of March 5, 2021.

ITAT Delhi said: “Thus the denial of deduction under Section 54 of the Income Tax Act, 1961, cannot be sustained.”

ITAT Delhi said this about unexplained cash credit

ITAT Delhi said the addition of income under Section 68 was done for deposits in bank accounts.

Chartered Accountant Anshul Kumar, the authorised representative of Mr Verma, has submitted before ITAT Delhi that Mr Verma did not carry on any business during the relevant assessment year and that there was no “credit to the books of accounts”, which is a pre-condition to make an addition under Section 68, and thus, Section 68 cannot be pressed into service.

Chartered Accountant Anshul Kumar, the authorised representative of Mr Verma, relied on the decision in Baladin Ram Vs. CIT [1969] 7 ITR 427 to contend that the Hon’ble Supreme Court has held that a passbook of a bank cannot be considered the books of accounts of the assessee.

The Hon’ble jurisdictional High Court of Delhi in the case of CIT vs. Ms. Mayawati, reported in 338 ITR 563 [DEL], has also held that Section 68 cannot be invoked on cheques deposited in bank accounts, as the same cannot be treated as books of accounts, and it is not disputed that the assessee was not maintaining any other books of accounts.

Reliance is also placed for the same proposition in the case of Deepak Srivastava vs. ITO [I.T.A No.l328/Del/2024 dated December 18, 2024], where the co-ordinate bench has followed the decision in Ms Mayawati (supra).

ITAT Delhi judgement: “Thus we are inclined to sustain this argument. As both the issues are decided in favour of the assessee, the appeal is allowed. Additions are deleted. Order pronounced in the open court on 12.11.2025.”

[The Economic Times]