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Facts
The assessee firm's case was reopened due to cash deposits in its bank account and failure to file a return. The AO estimated profit at 8% on total credits and added Rs. 48,27,830/-. The assessee firm was originally a proprietorship which converted into a partnership firm after the proprietor's demise. Sales were recorded in the proprietorship's books, but deposits were made in the partnership's accounts.
Held
The Tribunal held that the cash deposits in the partnership firm's account were already accounted for as sales in the proprietorship concern's books, and taxes had already been paid on this income. Re-taxing the same income in the hands of the partnership firm would lead to double taxation.
Key Issues
Whether income already offered and taxed in the hands of the proprietorship concern can be taxed again in the hands of the partnership firm on a technicality, leading to double taxation.
Sections Cited
147, 144, 144B
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Income Tax Appellate Tribunal, MUMBAI “H(SMC
Before: SHRI VIKRAM SINGH YADAV & SHRI SANDEEP SINGH KARHAIL
Assessment Year : 2015-16 Bahri Auto Service, CIT(Appeals) Plot No. 2, National Faceless Appeal Centre Sion Trombay Road, vs. (NFAC), Chembur, Delhi-110001. Mumbai-400071. PAN : AAOFB2961P (Appellant) (Respondent) Assessee by : Shri Anil Bhasin Revenue by : Shri Pravin Salunkhe, Sr.DR Date of Hearing : 20-11-2025 Date of Pronouncement : 24-11-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 19-03-2025, pertaining to Assessment Year (AY) 2015-16.
Briefly the facts of the case are that case of the assessee firm was reopened basis information that the assessee-firm has made certain cash deposit in its bank account maintained with Bank of Baroda and fail to file its return of income for the impugned assessment year. Thereafter, after issuance of notice and calling for the necessary information and documentation, the assessment proceedings were completed u/s. 147 r.w.s. 144 r.w.s. 144B of the Income Tax Act, 1961 („the Act‟), vide order dt.
05-03-2024, wherein the AO has estimated net profit @ 8% of the total credits in the bank account and an amount of Rs. 48,27,830/- was brought to tax in the hands of the assessee-firm.
The assessee-firm thereafter carried the matter in appeal before the Ld.CIT(A), who has since decided the appeal so filed by the assessee and the relevant findings of the Ld.CIT(A) reads as under: “7.1. I have gone through the facts of the case and the submissions of the appellant. The firm M/s Bahri Auto Service was originally a proprietorship firm operated by Late Mr.Somraj H Bahri with PAN (AAAPB9701D) who had a dealership with Bharat Petroleum Corporation Limited (BPCL) and was filing the ROI in the status of individual regularly. Just within the start of New Financial Year ie. 2014-15, Mr. Somraj H Bahri expired on 21.04.14 and his legal heirs initiated succession of assets. As the said succession had lot of procedural aspects and was time consuming, two of the legal heirs have formed a partnership firm and obtained PAN (AAOFB2961P) in July 2014. Further, the partners have also opened a partnership bank account. During the financial year cash received on sale of petroleum product was deposited cumulatively in proprietor as well as partnership bank account for smooth functioning of business. Since, the BPCL dealership norms and approvals were under negotiation for migration into partnership firm, therefore whole purchase as well as sales were recorded in proprietor financial statement, however receipt from customers and payment to suppliers were made through the proprietor as well as partnership bank account concurrently. As the dealership norms with BPCL was still under negotiation, the dealership was continued in the name of proprietor. Since the purchase of petroleum product from BPCL is accounted in proprietorship firm, to follow a matching concept of accounting, the sales of petroleum product is also accounted in proprietorship firm. Further, the appellant has also submitted details of payment of VAT. 7.2) Further the appellant has also furnished the cash summary of all the accounts as under: 1) Bank of Baroda A/c No. 06690200000989 for the period 01.04.14 to 31.03.15 2) State Bank of India A/c No.31555116718 for the period 01.04.14 to 31.03.15 3) Cash on hand summary from 01.04.14 to 31.03.15 4) Cash deposits made in HDFC Bank 7.3) Thus, the appellant has conclusively proved that the cash deposits made in the partnership firm was already shown as sales in the hands of the proprietorship concern wherein the books of accounts were audited. The cash deposits were made in the above banks on account of selling petroleum products which was initially a proprietorship firm but subsequently on the death of the proprietor, the same proprietorship firm was converted into partnership firm. It is also pertinent to mention here that the AO has also agreed that the appellant has run petrol pump and as such all the cash credits deposited in various bank accounts are from sale proceeds on running petrol pump only but did not file the ROI in the capacity of partnership firm. 7.4) The Assessing Officer has held that the audited accounts and the ROI filed under proprietorship concern cannot be treated as valid. The family used the license of his father, as approvals and succession rules could not be completed during the FY, the legal heirs continued the business deposited the cash sales made withdrawals from both the partnership bank accounts and proprietorship bank accounts but has shown the entire income in the hands of the proprietorship concern The dealership norms with BPCL was still under negotiation, due to this the dealership is continued in the name of proprietor. The AO has not brought any discrepancies in the Audited report, accepted the sales, but has held that the return filed under the proprietorship concern was not valid. If that is so, then the payment of taxes made under the proprietorship concern needs to be refunded to the appellant. 7.5) Further, the AO has held that the assessee is having a dealership with Bharat Petroleum Corporation Ltd. and selling petroleum products in the name of M/s. Bahri Auto Service and no return of income was filed in the name of the firm for the year under consideration. That is to say he has not doubted the cash deposits which are on account of sale of petrol. Since the partnership firm did not file the ROI, the AO taxed the receipts @ 8%. That means the appellant suffered taxes on two occasions- one under the status of proprietorship (i.e. in the name of father) and the second in the hands of the firm, on account of estimation @ 8% of credits, which is not correct. 7.6) Secondly, the estimation of the AO @ 8% is also on a higher side in the petroleum industry. The profit in this industry would be around 1 to 2% but the AO has taxed it @ 8%% without appreciating the fact that the cash deposited in said partnership firm bank account was already accounted as sales in proprietorship status and which was audited. The AO has also believed that the cash deposits made in partnership accounts were out of sale of petrol but since the partnership firm did not possess license in its name, he estimated the addition on a higher side of 8%. which is excessive. The appellant has made deposits in its bank account because of petroleum sales and has furnished all bank accounts showing the cash sales and expenditure both pertaining to partnership as well as proprietorship. However, as the partnership firm had earned income but did not file the ROI, such income needs to be brought to tax.
7.7) In view of the above, the AO is directed to tax the credits @ 2% of cash credits since the appellant has proved that the deposits made were on account of sale of petroleum products only and not from any other source. Since the dealership norms with BPCL was still under negotiation, due to this the dealership was continued in the name of proprietor itself. However, the claim of the appellant that it did file the ROI under proprietorship status (shown under their father hands) would not absolve the liability in the hands of partnership firm since in the capacity of partnership firm it earned income but has not filed the ROI in the capacity of partnership firm. As the appellant is contesting that it has offered the income under higher bracket @ 30% (under proprietorship status ie. in the name of father), and that no income has escaped taxation, the appellant is free to claim the refund before the appropriate authority, separately. To conclude, the AO is directed to restrict the addition by estimating 2% of cash credits instead of 8% which is on a higher side in this petroleum industry business. Thus, the relevant grounds are partly allowed.”
Against the said order of the Ld.CIT(A), the assessee is in appeal before us.
During the course of hearing, the Ld.AR submitted that M/s. Bahri Auto Service was originally run as a sole proprietorship operated by Mr. Somraj H. Bahri and after his demise on 21-04-2014, the process for transfer of BPCL dealership and other related matters were under progress and as a result, the purchase of petroleum products as well as sale of petroleum products were recorded in the Books of Account of the sole proprietorship and the return of income was also filed in the name of the sole proprietorship. It was further submitted that during the year, the partnership firm was also formed wherein the wife of late Mr. Somraj H. Bahri and his daughter were the partners and bank accounts in Bank of Baroda were opened and cash receipt on sale of petroleum products was deposited in the said bank account along with bank account maintained with HDFC Bank and SBI in the name of Proprietorship concern. It was submitted that all the cash deposited in the bank account maintained in the name of partnership firm were shown as sales in the hands of the proprietorship concern and in respect of which the return was duly filed and taxed were also duly deposited. It was submitted that there is no dispute in this regard and the Ld.CIT(A) has clearly recorded the said findings and our reference was drawn to the findings of the Ld.CIT(A) at para 7.1 and 7.3 of the impugned order.
At the same time, it was submitted that the Ld.CIT(A) has erred in directing the AO to bring the tax, the cash so deposited in the bank account in the name of the partnership firm by estimating 2% of the cash credits in the bank account. It was submitted that where the Ld.CIT(A) has recorded a clear finding that the cash deposits made in the partnership firm was already shown as sales in the hands of the proprietorship concern and where the taxes have been duly paid while filing the return of income for the proprietorship concern, the said finding of the Ld.CIT(A) is self-contradictory and will lead to double taxation. It was submitted that where the taxes have already been deposited, the same income would be taxed twice once in the hands of the proprietorship and thereafter in the hands of the assessee-firm which is not justified. It was further submitted that even the taxes, which were paid while filing the return of income of the proprietorship concern, were paid from the bank account of the partnership firm and, therefore, there is no basis for paying the taxes twice and it was accordingly submitted that where the income has already suffered taxation in the hands of the proprietorship concern, there is no basis to bring the same income to tax again in the hands of the partnership firm. In this regard, it was submitted that in hands of the proprietorship concern, income of Rs. 17,00,051/- has been reported and on which taxes amounting to Rs. 2,71,982/- have been deposited by way of self-assessment besides TDS of Rs 89,236/-. It was submitted that the return of income so filed already stood accepted by the Revenue in terms of intimation dated 30-09-2015 and a copy of the intimation was also placed on record. It was submitted that no appeal has been filed against the said intimation and there is no refund claim which is intended/pending and the matter has attained already attained finality. It was submitted that said income so offered is anyway higher than the revised total income which is determined by the AO while giving effect to the order of the Ld.CIT(A), wherein the AO has determined the revised total income at Rs. 2,06,958/-, vide order dt. 29-09-2025. It was accordingly submitted that necessary relief may be provided to the AO by directing the deletion of addition of Rs. 2,06,958/-.
The Ld. DR has been heard, who has relied on the order passed by the Ld.CIT(A) and it was submitted that necessary relief has already been provided by the Ld.CIT(A).
We have heard the rival contentions and perused the material available on record. It is an admitted and undisputed position that M/s. Bahri Auto Service was originally run as a sole proprietorship operated by Mr. Somraj H. Bahri and after his demise on 21-04-2014, the process for transfer of BPCL dealership and other related matters were under progress and the dealership operations were continued in his name. It is also an admitted fact that besides existing bank accounts in name of proprietorship, post formation of partnership firm wherein the wife and daughter of the deceased were inducted as partners, new bank accounts were opened in the name of partnership firm and there were regular transactions in both set of bank accounts relating to running of petrol pump. As far as books of accounts are concerned, it is an accepted position that both the purchase of petroleum products as well as the sales of petroleum products were accounted for in books of proprietorship and not in the books of the partnership firm. The return of income was accordingly filed for proprietorship disclosing income of Rs. 17,00,051/- and on which taxes amounting to Rs. 3,61,218/- have been deposited. The return of income so filed on 30-09-2015 has since been processed u/s 143(1) vide intimation dated 12-11-2015 and the same has been accepted and the matter has thus attained finality. However, no return of income for the partnership firm was filed for the impugned assessment year.
In light of aforesaid admitted and undisputed position where the credits in the bank account so maintained with Bank of Baroda in the name of the partnership firm (which has formed the basis of reopening and consequent addition) already stood disclosed in the hands of the proprietorship and the return of income so filed and the taxes so paid in the name of proprietorship has been accepted by the Revenue and the matter has attained finality in absence of any challenge by either of the parties, there is no basis to bring the said transactions to tax again in the hands of the partnership firm on mere technicality that the return of income should have been filed in name of the partnership and not in name of proprietorship. In the result, the addition so sustained by the Ld.CIT(A) wherein he has estimated profits @ 2% of cash credits and which amounts to Rs 2,06,958/- as so determined by the AO is hereby directed to be deleted.
In the result, the appeal of the assessee is allowed.