Joint Property Purchase Cannot Be Fully Assessed in One Co-Owner's Hands: ITAT Bangalore Directs Bank Entry Verification Before Deletion of Section 69 Addition
Overview of the Dispute
A reassessment proceeding for assessment year 2016–17 culminated in a significant ruling by the Income Tax Appellate Tribunal (ITAT), Bangalore, in the matter of Tanveer Ahmed Siddiqui Vs ITO (ITAT Bangalore). The central controversy revolved around whether the entire purchase consideration of a jointly owned property could be treated as an unexplained investment in the hands of one co-owner, ignoring both the registered sale deed and balance sheet disclosures that clearly reflected only a 50% ownership interest.
The Tribunal, after examining the documentary record — comprising the registered sale deed, balance sheet, and Federal Bank account statements — concluded that the addition of the full property value in the assessee's hands was unjustified. However, rather than ordering an outright deletion, the ITAT adopted a calibrated approach by directing the Assessing Officer (AO) to verify the specific bank entries identified in the proceedings and, upon satisfaction, delete the addition accordingly.
Background: How the Reassessment Was Initiated
The AO reopened the assessee's case for assessment year 2016–17 after receiving information pointing to certain financial transactions — specifically, cash deposits, cash withdrawals from a current account, and a property purchase. A notice under Section 148 of the Income-tax Act, 1961 was issued on 28 March 2023.
In response, the assessee filed a nil return on 20 April 2023. A subsequent notice under Section 143(2) sought transaction-level details, to which the assessee did not respond initially. A further notice under Section 142(1) was then issued, prompting a reply dated 18 November 2023.
In that reply, the assessee explained that:
- His sole income source was a roofing-sheet business operated as proprietor of Karnataka Roofing
- Business turnover was ₹2,57,56,600, with declared income of ₹10,48,247
- Cash sales were the norm, with proceeds deposited into the bank account
- Cash withdrawals were attributable to household expenses and transfers to a sister concern
- A residential property had been purchased jointly with his wife, and the transaction pertained to assessment year 2017–18, not assessment year 2016–17
The Assessment: Why the AO Added the Full Property Value
The AO accepted the assessee's explanation regarding cash deposits and withdrawals, which were duly supported by ledger accounts, purchase register, tax invoices, and balance sheets. However, the property transaction attracted adverse scrutiny.
Although the assessee recorded only ₹37,71,187 — representing his 50% share — as a fixed asset in his balance sheet, the AO noted that the assessee himself had stated that he provided the consideration for the property. On this basis, the AO treated the entire consideration of ₹75,42,374 as an unexplained investment and brought it to tax under Section 69 of the Income-tax Act, 1961.
A reassessment order dated 9 March 2024 was passed under Section 147 read with Section 144B of the Act, assessing the total income at ₹75,42,374.
Grounds Raised Before the Tribunal
Before the ITAT, the assessee raised several grounds, the most substantive of which were: