Taxpayer Liable Only For Own Investment Share, Not Spouse's Contribution: Delhi High Court

The Delhi High Court on 17 April 2026 held that a taxpayer can only be required to explain his own share of investment and cannot be saddled with tax liability for the contribution of a co-owner, including a spouse, where joint ownership and independent sources of funds are evident.

A Division Bench of Justice Dinesh Mehta and Justice Vinod Kumar set aside the assessment order passed under Sections 143(3) read with 144B of the Income Tax Act, 1961, and remanded the matter for reconsideration, in a case where an addition of Rs. 2.85 crore had been made under Section 69C of the Income Tax Act. It held: 

“The Assessing Officer failed to make the rudimentary inquiry into the independent tax position of petitioner-assessee's wife (Mrs. Namrata Kanodia) despite having the relevant material before him, including her Permanent Account Number (PAN).....”

Puneet Kanodia, the petitioner, had jointly purchased a property with his wife, Mrs. Namrata Kanodia, with both contributing equally towards the investment. During the assessment proceedings, a notice dated 6 March 2026 was issued requiring a response by 11 March 2026.

The petitioner stated that he had sought an adjournment on the last date, albeit belatedly, and proceeded on the assumption that further opportunity would be granted. However, without considering any reply, the Assessing Officer passed the assessment order dated 20 March 2026.

In the impugned order, the Assessing Officer treated the entire investment in the jointly owned property as unexplained expenditure in the hands of the petitioner alone and made an addition of Rs. 2.85 crore under Section 69C, despite recording that the property was jointly owned.

The petitioner contended that both co-owners had contributed equally from independent sources, including financial arrangements supporting the wife's share, and that the addition wrongly ignored her independent capacity. The Revenue submitted that adequate opportunity had been granted during assessment proceedings and that the petitioner failed to respond within time, justifying completion of the assessment.

Upon consideration, the Court observed that there was no clear violation of principles of natural justice in terms of opportunity granted. It noted that while joint ownership was recorded, no meaningful inquiry was conducted into the wife's independent financial contribution, despite availability of relevant material including her PAN and tax records. It observed:

“The Assessing Officer proceeded on the erroneous premise that the entire source of investment was unexplained in the hands of the petitioner. Such an approach manifestly disregards the settled principle that an assessee can only be called upon to explain his own share of investment. The petitioner may be husband of the co-owner, a separate assessee cannot be fastened with the liability to account for the financial contribution of another individual and saddled with the tax liability.”

Crucially, the Court reiterated that a taxpayer cannot be compelled to explain investments made by another individual and that each assessee must be assessed only for their own contribution, irrespective of marital relationship.

Accordingly, the Bench set aside the assessment order and remanded the matter for fresh consideration. It clarified that the decision was rendered in the peculiar facts of the case and shall not be treated as a precedent.

For Petitioner: Sumit Lalchandani and Ananya Kapoor, Advocates 

For Respondent: Apoorv Agarwal, JSC, Siddharth Kumar, Himanshu Gaur and Gaurav Kumar Arya, Advocates