ITAT Bangalore Quashes Full Addition on Flat Purchase: Ad Hoc 1/5th Estimate Struck Down, BBMP Demolition Notice Validates Lower Stamp Duty Value

Case Reference

Shadaksharaswamy Doddagangavadi Veeraiah Vs ITO (ITAT Bangalore)

Background and Facts of the Case

A Karnataka Police Head Constable found himself at the centre of a reassessment dispute after purchasing a residential flat for ₹42 lakh, against which the stamp duty value stood at ₹55.81 lakh — creating a differential of ₹13.81 lakh that the Assessing Officer sought to tax as unexplained investment.

The case travelled through multiple levels of adjudication before reaching the Income Tax Appellate Tribunal, Bangalore. At the heart of the controversy were two core issues:

  1. Whether the addition made towards alleged unexplained investment in the flat purchase was sustainable
  2. Whether the difference between the actual purchase price and the stamp duty value could be brought to tax under the applicable provision

The Bangalore ITAT ultimately deleted the entire addition, offering significant relief to the assessee while also flagging procedural lapses by the Assessing Officer.

Issue 1: Alleged Unexplained Investment — Sources Duly Explained

The Assessee's Explanation of Sources

The assessee placed on record a comprehensive explanation of the funding sources for the ₹42 lakh flat purchase. These included:

  • Payments through banking channels — a substantial portion of the investment was routed through traceable bank transactions
  • Housing loan — a formal housing loan had been availed and formed part of the purchase consideration
  • Agricultural income — a sum of ₹2 lakh was stated to have been drawn from agricultural income generated from family-owned agricultural land measuring over 20 acres
  • Wife's income — the assessee's wife, employed as a school teacher and also engaged in private tutoring, had disclosed taxable income in her own income tax return

CIT(A)'s Approach: Arbitrary Estimation

Despite these explanations, the Commissioner of Income Tax (Appeals) sustained one-fifth (1/5th) of the alleged unexplained investment — amounting to ₹5.70 lakh — purely on an estimate basis. No specific finding was recorded as to which source was inadequately proved or which portion of the investment remained unexplained. The estimation appeared to be an ad hoc exercise without any factual or legal foundation.

ITAT's Ruling on Unexplained Investment

The Tribunal was categorical in its disapproval of the CIT(A)'s approach. It held that sustaining ₹5.70 lakh under Section 69 of the Income Tax Act, 1961 on a purely ad hoc and estimate basis, without identifying any specific deficiency in the assessee's explanation, was arbitrary and legally unsustainable.

The ITAT took note of the following undisputed facts: