ITAT Bangalore Clarifies Tax Treatment of Joint Property Investments and Bank-funded Payments

1. Background of the Dispute

The Bangalore Bench of the Income Tax Appellate Tribunal in Tanveer Ahmed Siddiqui Vs ITO (ITAT Bangalore) examined whether the entire value of a jointly owned immovable property could be assessed as unexplained investment in the hands of a single co-owner under Section 69 of the Income Tax Act 1961, despite that co-owner disclosing only a 50% share in his books of account.

The appeal related to assessment year 2016–17, where reassessment proceedings were initiated based on information about cash transactions and a property purchase. The order of the CIT(A) (NFAC, Delhi) sustaining the addition was challenged before the Tribunal.

The controversy centered on:

  • A property purchased jointly by Tanveer Ahmed Siddiqui and his wife Zeeshan Naji.
  • The assessee’s books reflecting only his 50% share as a fixed asset.
  • The Assessing Officer (AO) adding the entire amount of ₹75,42,374 as unexplained investment under Section 69.
  • The payments having been routed through bank accounts, including accounts of the assessee’s proprietary concern.

The ITAT examined the registered sale deed, balance sheet and bank statements—especially Federal Bank entries—before issuing a conditional direction to the AO.

2. Reassessment Proceedings and Initial Findings

2.1 Reopening of Assessment under Section 147

The assessee, an individual, had not originally filed a return of income for the relevant year. Based on information available with the department, the AO noticed:

  • Cash deposits aggregating ₹5,232,300,
  • Cash withdrawals totalling ₹1,803,300 from a current account, and
  • A purchase of immovable property recorded at ₹3,350,000.

This prompted the issuance of notice under Section 148 on **28 March 2023`. In response, the assessee filed a nil return on 20 April 2023.

Subsequently:

  • Notice under Section 143(2) was issued, seeking details of cash transactions and the property purchase.
  • The assessee initially did not comply, following which notice under Section 142(1) was served.
  • In reply dated 18 November 2023, the assessee stated that he was engaged in a roofing-sheet business carried on as a proprietary concern, reporting:
    • Turnover of ₹2,57,56,600, and
    • Income of ₹1,048,247.

He also produced:

  • Tax audit report,
  • Bank statements of the business, and
  • An explanation of the cash deposits and withdrawals.

2.2 Explanation of Business and Property Transactions

The assessee explained before the AO that:

  • He ran a roofing-sheet business as proprietor of Karnataka Roofing.
  • Most sales were made in cash and such cash receipts were regularly deposited in the bank accounts.
  • Withdrawals were mainly for household needs, and part of the funds was transferred to a sister concern’s bank account.

Regarding immovable property:

  • The assessee stated that a residential property had been jointly purchased with his wife for ₹30,50,000 on 27 April 2016.
  • A copy of the purchase deed was filed.
  • He contended that this transaction related to a later year and was not connected to the assessment year 2016–17 under consideration.

The case, however, ultimately turned on a different property transaction examined through the registered sale deed and the Federal Bank records.

3. Property Investment and the Core Addition under Section 69

3.1 AO’s View: Entire Consideration Added in Assessee’s Hands

On verification, the AO observed that:

  • The assessee had deposited cash of ₹5,232,300 and withdrawn ₹1,803,300, which were broadly supported by the books (ledger, purchase register, tax invoices and balance sheet).
  • The assessee acknowledged purchase of an immovable property for ₹3,050,000, claiming that it pertained to assessment year 2017–18.

However, the AO further found that:

  • A property had been jointly acquired by the assessee and his wife for a total consideration of ₹7,542,374.
  • In the assessee’s balance sheet, only ₹3,771,187 was reflected under fixed assets as the Bangalore property, corresponding to his claimed 50% share.

On query, the assessee reiterated:

  • The property was co-owned with his wife;
  • He had disclosed only his half share in the balance sheet; and
  • The balance was attributable to his wife as co-owner.

Despite these submissions, the AO concluded that:

  • The assessee had effectively arranged or provided the consideration for the entire property, and
  • The complete amount of ₹7,542,374 represented unexplained investment in his hands.

Accordingly, the AO:

  • Invoked Section 69, and
  • Assessed the assessee’s total income at ₹7,542,374 in the reassessment order dated 9 March 2024 passed under Section 147 read with Section 144B.

3.2 Appeal before CIT(A) and Sustenance of Addition

The assessee carried the matter to the CIT(A) (NFAC), contending that: