DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, RAJKOT, RAJKOT vs. SOMNATH DEVELOPERS, RAJKOT

The Grounds of appeal raised by the Revenue are as follows: “1.Whether on the facts and circumstances of law, the Ld.CIT(A) has erred in deleting the addition made on account of unexplained investment of Rs. 14,09,84,585/-u/s 69B of the Act.

The Ld.CIT(A) has erred on facts and in law that the firm came into existence vide notarized partnership deed dated 06.01.2018 and the payments mentioned in the seized documents pertained to period before the firm's coming into existence and, hence, transactions cannot be held to have been made by a non-existent entity whereas the Ld. CIT(A) has himself, in the same appeal order, upheld the sanctity of the seized document and has not interfered with the findings of the assessing officer that the documents contained the details of cash payments as well as cheque payments.

On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in considering the additional evidence produced by the assessee assessee during the appellate proceedings and allowing the assessee's appeal on the basis of the same, without giving a reasonable opportunity to the assessing officer to produce to any evidence or document or any witness in rebuttal of the additional evidence produced by the assessee, despite the provisions of Rule 46A(3) of the I.T. Rules.

The Revenue craves leave to add/alter/amend and/or substitute any or all of the grounds of appeal.”

The relevant material facts, as culled out from the material on record, are as follows. Search operation u/s. 132 was carried out at the premises of the assessee on 26.09.2018, whereas as part of "Operation Star Alliance" several entities and their related concerns who are engaged in the business of Builder and Financing activities. During the course of search, books of accounts/documents were found and seized containing information which relates to the assessee.Thereafter, assessee filed the return of income, on 26.11.2019, showing therein income of Rs. NIL. A notice u/s 143(2) of the Act was issued on 21.11.2020 which was served upon the assessee. A detailed questionnaire was issued on 21.11.2020 along with notices issued u/s 142(1) of the Act. Satisfaction note for initiating proceedings u/s 153C of the I.T. Act was supplied to assessee on dated 08.02.2021. In response to the above notice/questionnaire, the assessee has submitted his reply on 18.02.2021, before the assessing officer.

In view of the above facts the assessing officer had issued show cause notice dater 08.02.2021 and requested to the assessee to explain why the addition of Rs. 14,09,84,585/- document price of (Total deal of Rs. 16,89,84,585- document price Rs.2,80,00,000) should not be added to the total income on account of unexplained investment u/s.69B of the Act. In response to the said show cause notice, the assessee had filed reply, which was perused by the assessing officer but not accepted due to reason mentioned in the assessment order. Therefore, the assessing officer had made addition of Rs.14,09,84,585/- on account of unexplained investment u/s.69B of the Act while passing the assessment order u/s 143(3) of the Act dated 09.06.2021. It is also important to mention here that the assessee had taken a plea in its submission in response to show cause notice that the paper was found from the residence of Shri Gunvant Bhadani not pertaining to them, hence, the notice issue u/s.153C of the Act in the case of assessee was therefore bad in law and invalid. The contention of the assessee was not accepted by the assessing officer as he held that the incriminating documents in the form of loose papers found and seized from residential premises of Shri Gunvantrai Bhadani during the search proceedings, who was already covered u/s.153A of the Act. Therefore, the assessing officer had made addition of Rs.14,09,84,585/- on account of unexplained investment u/s.69B of the Act.

Aggrieved by the order of the learned CIT(A), the assessee carried the matter in appeal before the learned CIT(A) who has deleted the addition. The ld CIT(A)

Aggrieved by the order of the learned CIT (A), the revenue is in appeal before this Tribunal.

The ld DR for the revenue, also stated that out of total cash payment of Rs. 14,09,84,585/-, only the payment of Rs. 5,62,00,000/- are dated before the existence of partnership- firm hence, the addition to the extent of Rs. 8,47,84,585/- ought to have survived, in the hands of the partnership -firm.

The learned DR are also argued that it may be possible that there may be oral partnership agreement before 6.01.2018, therefore, these transactions pertain to partnership- firm, and assessing officer, has rightly made the addition in the hands of the partnership firm.

On the other hand, Shri Rajendra Singhal, Ld. Counsel for the assessee submitted that during assessment proceedings, the assessee submitted PAN number and partnership deed of the assessee farm to demonstrate that assessee- firm came into existence on 06.01.2018. The assessee submitted written submission before the assessing officer along with documentary evidences. The Ld. Counsel submitted a letter before the Bench, which was submitted before the assessing officer during assessment proceedings which contains the details of partnership deed and the PAN number of partnership- firm and partnership deed. Hence, assessee has not submitted any additional evidence before the Ld. CIT(A).

The Ld. Counsel also argued on merit, that partnership- firm came into existence on 06.01. 2018 and the assessee (partnership firm) is registered with Sub-Registrar. The, all transactions found in this seized material, during the search were prior to 06.01. 2018, that is, before the partnership- firm came into existence, therefore no addition should be made in the hands of the partnership- firm in respect of documents which were found before 06.01.2018, as the (AY : 2019-20) DCIT vs. Somnath Devlopers partnership- firm was not in existence. The ld.Counsel also stated that the addition to the extent of Rs. 8,47,84,585/-, was also belong to the date before 06.01.2018, hence, no addition can be made in the hands of the partnership -firm.Therefore, learned CIT(A) has rightly deleted the addition, hence learned Counsel defended, the order passed by the learned CIT (A).

The Ld. Counsel also argued on merit, that there were no oral partnership agreement before 06.01. 2018, among the partners.

The Ld. Counsel also argued on merit, that all payments were made by cheque and nobody has stated about the any kind of cash payment. The documents of the assessee was found in the possession of the Ambrish Mehta and Mr. Ambrish Mehta was neither seller of the land nor purchaser and nor he is witness in the deed. Therefore, such document cannot be relied on by the assessing officer. The Ld. Counsel also submitted that assessee-firm is not the owner of the land. Hence, no addition should be made in the hands of the assessee -firm.

The Ld. Counsel for the assessee also submitted that Department has reopened assessment u/s. 147/148 of the Act, in the case of individual partners on the same subject matter. Therefore, in the assessee’s case under consideration no addition should be made. Income tax can be recovered by the department on the same transaction either from the partners or from the partnership- firm, and in this case, the reassessment proceedings were already initiated against the partners on the basis of same seized materials. Therefore, when, reassessment proceedings were already initiated in the hands of the partners, then no addition should be made in the hands of the assessee -firm.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld (AY : 2019-20) DCIT vs. Somnath Devlopers CIT(A) and other materials brought on record. First, we shall deal with the arguments advanced by the Learned DR for the Revenue, to the effect that assessee (partnership- firm) did not produce PAN number and the information that the partnership- firm came into existence on 6.01.2018, before the assessing officer. Therefore, assessee submitted, these additional evidences before learned CIT(A) first time. We note that assessee, during the assessment proceedings, submitted the detailed reply before the assessing officer, the relevant part of the reply is reproduced below: “2. The details of detailed note on business activities carried out during the year and name and residential address of all the partners with PAN are as under: The assessee firm is a Partnership firm came into existence on 06.01.2018 and engaged in development of Real estate project and to construct and develop a Residential scheme.

The details of return of income filed against notice u/s 153C, it is to submit that no notice u/s 153C issued for A.Y. 2019-20, hence, the required details is not applicable. No any assessment order has been passed.

We are furnishing the details of assessment order if any (alongwith the copy of the order in the following format:

The details for A.Y. 2019-20, the details of income (alongwith heads of income) which will be accepted/disclosed in the search year, in this regard, we have to clarify that we have not required to accepted/disclosed the income in the search year as no any search proceedings carried out in our premises…………”

Therefore, we note that assessee submitted, before the assessing officer, the PAN number and the information and, the partnership deed stating that the partnership- firm came into existence on 6.01.2018, therefore, we note that there were no additional evidences produced by the assessee before the learned CIT(A), hence, we reject the arguments advanced by the learned DR for the revenue.

We note that assessee- firm, M/s. Somnath Developers was registered on 06.01.2018 and as per the said seized paper, all the on-money pertain to the period before the existing of the partnership- firm M/s. Somnath Developers. The assessee has furnished the copy of partnership deed before assessing officer, as well as before ld.CIT(A). Since, the payment of on-money in cash (which was denied by the assessee) was made before the date of existence of the assessee- firm M/s. Somnath Developers, therefore, the addition made by the assessing officer is totally unjustified and bad in law. We have noted from the perusal of the partnership- deed that the assessee- firm came into existence on 06.01.2018. The copy of relevant page of partnership deed is reproduced for better understanding.

The ld.CIT(A) observed from the PAN details of the assessee- firm that the Date of Birth (DOB)/Date of incorporation (DOI) of the assessee -firm is 06.01.2018. The copy of the PAN details of partnership- firm is also reproduced for ready reference:-

The ld CIT(A) also noted that details of payment mentioned on the said seized page no. 47 of Annexure A-2, are as under:-

On the identical facts, the ld.CIT(A) relied on the decision of the Hon'ble High Court of Delhi in the case of Principal Commissioner of Income-tax-6 vs. Nokia Solutions & Network India (P.) Ltd. [2018] 90 taxmann.com 369 (Delhi) dated 06.02.2018, wherein the Hon'ble High Court held that where assessment was framed on non-existent entity and thus, primary jurisdiction did not exist. The head note of the said decision is as under:- "Section 143 of the Income-tax Act, 1961 Assessment (General) Whether where assessment was framed on non-existent entity and thus, primary jurisdiction did not exist, no question of law arose for consideration - Held, yes [Para 6) [In favour of assessee]"

It is also a settled principle of law that correct income should be taxable in the hands of correct person and in the correct assessment year. The answer becomes clear from section 4 of the income tax Act, read with section 2(31) of the Act. It, in no uncertain terms, specifies that the tax shall be charged on the total income of every person. Further, the term 'Person' has been defined in clause 31 of section 2, of the Act, to include seven categories of persons, all of which are independent and distinct from each other. A literal interpretation of the above provisions leads to the conclusion that only a right person as per the Act, is liable to pay tax on his income and no option is available to tax income in the hands of the person other than the one in whose hands it is taxable. The Hon'ble Supreme Court in case of ITO vs. Ch. Atchaiah [TS-5044-SC-1995-O], has held that the assessing officer must tax the right person alone. Therefore, in the assessee’s case under consideration, from the perusal of the partnership- deed, PAN number, and other details, we note that the assessee- firm came into existence on 06.01.2018, whereas transactions mentioned in the seized paper do not pertain to the period on or after 06.01.2018, ( all the transactions in the seized paper, are before the (AY : 2019-20) DCIT vs. Somnath Devlopers date of 06.01.2018 ) hence, partnership firm, is not liable to pay any tax on such transactions.

We also note that ld.Counsel for the assessee stated that on the same subject matter, the assessment of individual partners, have been reopened u/s.147/148 of the Act. Therefore, the Department cannot collect the tax on the same subject matter from two assessee, that is, from partnership- firm, under consideration and from individual partners. As we have already noted that transactions mentioned in the seized paper, do not pertain to assessee – firm, under consideration and since the re-assessment proceedings had already been initiated in the case of individual partners u/s.147 / 148 of the Act, therefore, no addition should be made in the hands of the assessee-firm.

In the wake of above delineation, we see no error in the conclusion drawn by the CIT(A) in this regard. The CIT(A) in our view, has rightly deleted the addition in the hands of the partnership- firm. We, thus, decline to interfere with the conclusion so drawn by the CIT(A) whose order is under challenge by the revenue, and therefore dismiss the grounds raised by the revenue.

In the result, appeal filed by the revenue, is dismissed. Order is pronounced in the open court on 01/04/2026.