Here's a comprehensive guide on the real reasons behind tax notices issued after property purchases and the right steps to handle them.
Saloni Kumari | Nov 17, 2025 |
Planning to Buy a Property? Know Why You May Get an Income Tax Notice and How to Deal with It
Planning to purchase a property or land is a major financial decision to make. However, this decision sometimes attracts unexpected attention from the Income Tax Department. But it is not a thing to be worried about, as receiving a notice does not always mean you have always done something.
Individuals are not required to pay any direct tax while purchasing any land, but money used to purchase it must be earned legally and be taxed as income.
In a recent case, the Income Tax Appellate Tribunal (ITAT) Bangalore has given major relief to an Andhra Pradesh farmer by deleting a tax addition of Rs. 1.2 crore on his mango sales. Another case is from ITAT Mumbai, where the tribunal deleted the addition of Rs. 3.16 crore made by the Assessing Officer (AO) on a taxpayer named Niru Dhiren Shah because a WhatsApp chat is not sufficient evidence to prove the claim of unaccounted cash, especially without supporting documents or a proper investigation. These cases show that it is not compulsory that tax scrutiny started by the Income Tax Department always proves correct. Sometimes, even the tax department is punished by higher authorities for taking irrelevant actions.
In the case of Niru Dhiren Shah, Niru has sold a property. The sale price mentioned in the sale deed was Rs. 3.38 crore, but the Assessing Officer (AO) suspected that the actual market value was much higher, i.e., Rs. 6.55 crore, than that mentioned in the sale agreement. The AO treated this difference as unaccounted cash received by the taxpayer and made an addition of Rs. 3.16 crore to the assessee’s taxable income under Section 69A.
The AO took this decision, merely relying on a WhatsApp chat between the buyer’s son and his accountant. The chats included the property price and market rates. The Tribunal treated this unfairly, as the chats were not directly linked to the assessee.
According to a tax expert, the income tax department even issues notices when someone purchases property or land worth more than 30 lakh. This is because the Income Tax Department keeps an eye on high-value transactions. These transactions are automatically detected and reported to the tax department by registrars and banks.
Then if the system detects that you have, in actuality, made such a big transaction and have not filed your income tax return (ITR) for that financial year or if you have filed your return but it seems like the income declared is not sufficient or some income is hidden, then there are high chances you may receive a tax notice asking for clarification. However, if you are receiving a notice, it does not necessarily mean you have done something wrong; it is just a part of the tax department’s data-matching and verification process.
Don’t try to ignore the notice. Instead, whenever you receive any notice from the Income Tax Department, first read it thoroughly and try to understand the reason why you have received that notice. Here are some steps suggested by a tax expert on what to do next:
Log in to your account at the Income Tax Portal and cross-check all information related to the notice. Review your Form 26AS, AIS, bank statements, and property purchase documents to make sure the transactions mentioned in the notice match your own records. Because many times, some other person’s notice is sent to individuals who are not even linked to the case.
In the next step, collect all important documents like the sale agreement, stamp duty and registration receipts, bank/payment receipts, the seller’s PAN and KYC, and any valuation reports or loan sanction letters if applicable.
Make sure you are replying to the notice before the statutory deadline, because ignoring the notice can cost you much more, like leading to penalties or forced assessment. If the case is too convoluted, then it is better that you consult a Chartered Accountant.
Keep all the relevant documents ready and safe, as in such a case, the department can at any time ask for further clarification.
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