Tax officials regarded a Rs 54 lakh cash deposit into a property dealer’s personal bank account as unexplained income. The businessman challenged their order and the Income Tax Appellate Tribunal (ITAT), Delhi, deleted the addition after finding that the money was collected from property buyers and subsequently passed on to the sellers.
The case highlights a distinction for property intermediaries, having possession of money is not necessarily the same as owning it. But when large sums enter a personal account, the intermediary must be able to prove whose money it was, why it was received and where it went.
According to an expert, the central issue is “ownership and evidence”.
“A cash deposit into an intermediary’s personal bank account is not automatically his income, but if the intermediary cannot satisfactorily establish that he was only holding the money for another person, the department can treat him as the owner of the money,” Shanker said.
Why did the tax department treat Rs 54 lakh as income?
The case relates to FY12. Information received by the tax department flagged the cash deposits in the property dealer’s bank account. The dealer did not respond to several notices, following which the assessing officer added Rs 54 lakh to his income.
The dealer later argued that he was working as an intermediary for property transactions. He collected cash from prospective buyers, deposited it into his bank account and then transferred the money to property sellers for registration of sale deeds.
The evidence included bank statements, affidavits from sellers and buyers, and copies of sale deeds.
The ITAT Delhi accepted this explanation and held that the money was received from buyers and subsequently transferred to sellers. It consequently deleted the addition made by the assessing officer.
He said the important question in such cases is not merely who deposited the cash, but who owned it and whether that ownership can be established.
“If a property intermediary deposits Rs 50 lakh into his personal account and cannot establish that it was received from a particular buyer or seller for a specific transaction, the department may regard him as the owner of the money,” he said.
What documents can protect a property intermediary?
Simply telling the tax department that the money was received on someone else’s behalf may not be enough.
He said an intermediary should maintain a “clear trail” covering the payer, intermediary and ultimate recipient. This should ideally include a written authority or agreement, the identity and PAN of the buyer or seller, details of the property transaction, receipts for the cash received, ledger or cash-book entries and evidence of onward payment.
“Bank statements should also demonstrate the movement of the funds. The stronger the trail linking the payer → intermediary → ultimate recipient, the stronger the case that the money was not the intermediary’s income,” he said.
A Supreme Court advocate, said documents linking the cash to a specific buyer or seller are critical.
“If he can’t produce documents linking the cash to a specific buyer or seller such as no agreement, no receipt, no traceable onward transfer, then the law presumes it’s his own unexplained income under Section 69A,” he said.
He added that a signed agreement, receipts for money received and paid onward, and a clean bank trail showing that the money moved through the account rather than remaining there would strengthen the intermediary’s case.
Proving ownership does not remove every tax risk
This is where property intermediaries need to be particularly careful. Showing that the cash was not their income does not necessarily mean that receiving the cash itself was compliant.
Another tax expert said there are three separate risks: an unexplained-money addition, penalties for accepting certain cash payments and scrutiny triggered by large cash deposits reported through the tax information system.
Under the Income Tax Act, 2025, Jain said, the provisions relating to unexplained assets apply where the taxpayer is found to be the owner of the money.
But a separate issue can arise where cash is accepted in violation of statutory limits. “Proving ownership defeats the income addition. It does nothing here,” he said.
He gave the example of an intermediary receiving Rs 15 lakh in cash on behalf of a buyer. Even if the intermediary subsequently proves that the money belonged to the buyer, the separate consequences of accepting the cash can still arise.
What should property dealers do today?
The experts advise against using a personal savings account as a transit account for property-related cash.
He suggested a practical structure: use a separate current account for legitimate brokerage activity, execute an agreement before receiving money, record amounts received on behalf of the principal as a liability, transfer the money within a short and explainable period, and obtain an acknowledgement from the recipient.
The safer approach, however, is for the buyer to pay the seller directly through banking channels.
For example, if a dealer is brokering a Rs 60 lakh property sale for a 1 per cent commission, Jain said the buyer should ideally transfer the money directly to the seller. The dealer should separately invoice his Rs 60,000 commission.
The lesson from the Rs 54 lakh case is therefore not that large cash deposits are automatically safe. Rather, the ITAT ruling shows why ownership, documentation and the money trail can determine whether a bank deposit becomes taxable income.
As he put it, once cash enters a personal bank account, “the burden of explaining why it is there, whose money it is and where it went becomes critical”.
