2025 (6) TMI 317 - AT - Income Tax

Unexplained investment in acquisition of property - assessee s contention that she did not make any investment but was only a joint owner with her husband who had made the entire investment from his own funds - HELD THAT - From the perusal of the return of income filed by the husband of assessee it is seen that he has claimed deduction u/s 54 of the Act against the capital gains earned on the sale of another property at Gurgaon and the entire gain was invested in acquisition of new property at Kolkata. This fact remained uncontroverted by the revenue. We concluded that no investment was made by the assessee in acquisition of the property and therefore no addition could be made in her hands. It is also a matter of fact that no action was taken by the revenue in the case of the husband of assessee who had made the entire investment and disclosed this transaction in his return of income filed for AY 2011-12. Addition was wrongly made in the hands of the assessee towards the acquisition of the said property where the assessee s name was included as co-owner only. Accordingly the addition is hereby deleted. The grounds of appeal by the assessee are allowed.

The core legal questions considered by the Tribunal in this appeal pertain primarily to the validity and propriety of the reassessment proceedings initiated under section 147 of the Income Tax Act, 1961, and the consequent addition of Rs. 70,46,028/- as unexplained investment in the acquisition of immovable property. Specifically, the issues are:

(i) Whether the reassessment proceedings under section 147 and notice under section 148 of the Act were validly initiated and served upon the assessee;

(ii) Whether the addition of Rs. 70,46,028/- on account of unexplained investment in the acquisition of immovable property was justified, especially considering the assessee's contention that she did not make any investment but was only a joint owner with her husband who had made the entire investment from his own funds;

(iii) Whether the assessee was provided adequate opportunity of being heard before the ex-parte completion of assessment under section 147 read with section 144 of the Act;

(iv) The evidentiary burden and proof required to establish the source of investment in joint ownership cases, and the treatment of the husband's disclosure and claim of deduction under section 54 of the Act in his return of income.

The first issue regarding the validity of reassessment and service of notice under section 148 was initially raised but later not pressed by the assessee during the hearing and was accordingly dismissed by the Tribunal.

Issues two and three, concerning the addition of Rs. 70,46,028/- as unexplained investment and the procedural fairness in assessment, were considered together due to their interrelated nature.

Regarding the legal framework, section 147 of the Income Tax Act empowers the Assessing Officer (AO) to reopen an assessment if there is reason to believe that income chargeable to tax has escaped assessment. Section 148 mandates issuance of notice to the assessee before reassessment. Section 54 provides exemption from capital gains tax if the capital gains are invested in specified residential properties within stipulated timeframes.

Precedents emphasize that reopening of assessment must be based on tangible material and proper service of notice is mandatory. Further, additions on account of unexplained investments require the AO to establish that the assessee made the investment and failed to prove the source of funds. Joint ownership of property requires careful scrutiny of the source of funds contributed by each owner.

The Tribunal noted that the AO had initiated reassessment proceedings based on information from the sub-registrar regarding the purchase of immovable property by the assessee for Rs. 70,46,028/-. The assessee had not filed any return of income or reply to notices, leading to ex-parte assessment and addition of the amount as unexplained investment.

The assessee contended that the property was purchased by her husband out of his own funds, and she was only a joint owner. The husband had sold a property in Gurgaon and invested the sale proceeds in the Kolkata property, claiming exemption under section 54 in his return of income, which was duly filed and accepted by the Department. The assessee placed on record the sale deed showing joint ownership and the husband's return of income evidencing the source of funds.

The Department argued that the assessee failed to provide bank statements or other documentary evidence to establish the husband's source of funds and that mere filing of the husband's return could not establish the investment. The Department maintained that the addition was justified due to the unexplained investment in the assessee's name.

The Tribunal examined the material on record, including the sale deed and the husband's return of income claiming deduction under section 54. It was observed that the husband had disclosed the transaction and claimed exemption, and no adverse action was taken against him by the Department. The Tribunal found the assessee's contention credible that she had not made any investment and was only a co-owner.

The Tribunal held that the addition of Rs. 70,46,028/- could not be sustained in the hands of the assessee since no investment was made by her. The fact that the husband had disclosed the transaction and claimed exemption under section 54 was uncontroverted. The Tribunal also noted the absence of any notice served upon the assessee prior to reassessment, though this issue was not pressed by the assessee.

The Tribunal concluded: "No investment was made by the assessee in acquisition of the property and therefore, no addition could be made in her hands. It is also a matter of fact that no action was taken by the revenue in the case of the husband of assessee who had made the entire investment and disclosed this transaction in his return of income filed for AY 2011-12."

Accordingly, the addition of Rs. 70,46,028/- was deleted, and the appeal was partly allowed.

Significant holdings and principles established include:

"The addition of Rs. 70,46,028/- was wrongly made in the hands of the assessee towards the acquisition of the said property where the assessee's name was included as co-owner only."

"Where the entire investment in the acquisition of property is made by one co-owner and disclosed in his return of income, no addition can be made in the hands of the other co-owner merely because her name appears in the property documents."

"The claim of deduction under section 54 of the Act by the husband in his return of income, accepted by the Department, is a material fact which negates the presumption of unexplained investment in the hands of the assessee."

"Failure to file return or reply to notices by the assessee does not justify making an addition where the source of investment is established in the hands of another person who is a co-owner."

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