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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & MS. SUCHITRA RAGHUNATH KAMBLE
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER
The above four appeals have been filed by the assessee against separate orders passed by the ld.Commissioner of Income (Appeal), National Faceless Appeal Centre (NFAC), Delhi under section 250(6) of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the above four assessment years.
It was common ground that the issue involved in all these appeals was the same, and therefore, all the appeals were taken up together for hearing, and adjudicated accordingly by this consolidated order.
, 986, 987 and 999/Ahd/2023 2 3. At the outset itself, the ld.counsel for the assessee contended that the present appeals arose from the order of the ld.CIT(A) passed in appeals filed against the orders passed on the assessee in re- assessment proceedings under section 147 of the Act. The ld.counsel for the assessee contended that the reasons for reopening the case of all the four years of the assessee was identical, being that, the assessee had allegedly taken accommodation entries from the concerns Orange Tradex P. Ltd. (“OTPL” for short) and Krish Enterprise (“KE” for short). The amounts pertaining to the same being different in all the years. The AO being in possession of this information, had accordingly, reopened the case of the assessee and made addition of the same to the income of the assessee.
Solitary contention of the ld.counsel for the assessee before us was that it was repeatedly pointed out both to the AO and the ld.CIT(A) that the assessee, a partnership firm was not in existence in the impugned year, and it had dissolved much earlier, and its business had been taken over by one of the partners, who was running it as a proprietary concern; the partner being, Bharat Chaturbhai Patel (“BCP” for short); that all these transactions were accounted for in the business of the proprietor and since the assessee firm was not in existence, there is no question of making any assessment, and for that matter, any addition in the name of the assessee firm. His contention was that all evidences in this regard of viz. original partnership deed, subsequent dissolution deed were filed to the authority below; that ITR and balance sheet of the proprietor of JP Marketing, Shri “BCP” had also been filed evidencing the fact that the JP Marketing was being run in a proprietary firm in the impugned years, and the assessee firm of the same name was no longer in existence and was not carrying out any transaction. The ld.counsel for the assessee contended before us that several grounds had been raised, but effective ground of appeal raising the above grievance, which were raised in ground no.3.1 to 3.3 as under:
“3.1 The NFAC has grievously erred in law and or on facts in holding that M/s J P Marketing (firm) had not ceased to exist on and from 24.11.2010 and it had not become a proprietary concern of Shri Bharat C. Patel, so that the impugned transactions with M/s Orange Tradex Pvt. Ltd. of Rs. 20,93,76,722/- were made by the partnership firm. 3.2 That in the facts and circumstances of the case as well as in law, the NFAC ought not to have held that M/s J P Marketing (firm) had not ceased to exist on and from 24.11.2010 and it had not become a proprietary concern of Shri Bharat C. Patel, so that the impugned transactions with M/s Orange Tradex Pvt. Ltd. of Rs. 20,93,76,722/- were made by the partnership firm. 3.3 That in the facts and circumstances of the case and in law, the NFAC ought not to have upheld the addition of Rs.20,93,76,722/-.The NFAC has failed to appreciate that the impugned transactions were duly, recorded in the proprietary concern of M/s J P Marketing owned and run by Shri Bharat C 'Patel, which has been wrongly rejected by 'NFAC on the impugned addition. Thus, there was gross violation of the principles of natural justice.”
During the course of hearing, in support of the contention that the assessee had repeatedly pointed out to the authorities below that the assessee firm was no longer in existence during the impugned year,our attention was drawn to the assessment order passed for Asst.Year 2014-15 contending that identical arguments were made in other years also. Our attention was drawn specifically to para 4.2 of the order containing the above contentions of the assessee. Our attention was further drawn to the copy of the partnership deed, and the copy of the dissolution deed of the partnership filed during the assessment proceedings placed before us at PB Page no.5 to 10 and 11 to 13 respectively. Similarly, from the order of the ld.CIT(A) also it was pointed out that identical arguments had been made by the assessee before him also. The ld.counsel for the assessee further drew our attention to acknowledgment of return of income for the impugned years of the proprietor Shri “BCP”, placed at PB Page No.56. His computation of income placed at PB page no.60 to 62. His acknowledgment of return of income placed at PB Page No.63; his tax , 986, 987 and 999/Ahd/2023 4 audit report with audited P&L and balance sheet of JP Marketing are placed at PB Page No.64 to 83.
Referring to the above, he pointed out that the above documents sufficiently demonstrated the fact of JP Marketing carrying on business in proprietary firm by the proprietor Shri “BCP”. Our attention was further drawn to the notice issued during the assessment proceedings of Shri B.C. Patel placed at PB Page No.84 to 87. Reply filed by the “BCP” and the assessment order passed in the name of Shri BCP, acknowledging the fact of Shri B.C. Patel, running his business as a proprietor in the name of JP Marketing. The assessment order was placed before us at PB page no.90 to 91.
Referring to the above documents, the ld.counsel for the assessee contended that it was sufficiently demonstrated to the Revenue authorities that the assessee firm was no longer in existence in the impugned years i.e. Asst.Year 2014-15 to 2016-17 having been dissolved way back on 24.11.2010 and continuing thereafter in the same name in proprietary firm by proprietor Shri “BCP”. He therefore contended that the impugned re-assessment orders passed in the name of the firm needed to be quashed, since the firm was not even existence in the impugned years. The ld.counsel of the assessee pointed out that neither the AO nor the ld.CIT(A) disputed the fact of dissolution of the firm in the year 2010, but they still went on to hold the firm to exist merely because the alleged proprietary firm continued with PAN of the partnership firm; that since the PAN of the partnership firm had not been surrendered, therefore, it was held by the Revenue authorities that the partnership was still in existence.
He also drew our attention to the finding of the AO, referring to the provisions of section 176(3) of the Act, and section 189 of the Act, for his finding that the partnership firm still continued to exist. The , 986, 987 and 999/Ahd/2023 5 contention of the ld.counsel for the assessee was that the provision of law relied upon by the AO were not relevant for the purpose of establishing the fact of existence of the partnership firm and had been incorrectly interpreted by the AO. Our attention was drawn to para 4.5 of the assessment order as under:
The ld.DR, however, relied on the finding of the authorities below.
We have considered contentions of both the parties, and we find merit in the contentions of the ld.counsel for the assessee that the assessee had sufficiently demonstrated to the Revenue authorities that the assessee partnership firm was dissolved and not in existence in the impugned assessment years. As rightly pointed by the ld.counsel for the assessee, even the Revenue does not dispute the fact of the assessee-firm being dissolved by virtue of dissolution deed dated 24.11.2010.
Having noted so, we find that the authorities below have held the assessee-firm to have been in existence in the impugned year for absolutely flimsy and irrelevant reasons. One of the reasons given by the Revenue authorities for holding that the assessee firm continued to exist was that the PAN of the partnership firm was not surrendered on dissolution. This we find, is no reason for holding that the assesse- firm continued to exist. The dissolution deed signed by the partners of the existing firm is the only primary evidences for proving the fact that the firm no longer exist. Surrender of the PAN or otherwise is thereafter a mere procedural requirement, which does not impinge at all on the facts of existence or otherwise of the firm. The AO, we have noted has also referred to the provision of section 176 of the Act, noting that as per the said provisions, the assesse has to give notice to the AO about its discontinuance by dissolution of the entity and in the present case no such notice was given by the assessee therefore . as per the AO,the assessee firm cannot be treated to have been dissolved. The provisions of section 176 of the Act were considered by us. The same are reproduced hereunder:
(1) Notwithstanding anything contained in section-4, where any business or profession is discontinued in any assessment year, the income of the period from the expiry of the previous year for the assessment year up to the date of such discontinuance may, at the discretion of the Income-tax Officer, be charged to tax in that assessment year. (2) The total income of each completed previous year or part of any previous year included in such period shall be chargeable to tax at the rate or rates in force in that assessment year, and separate assessments shall be made in respect of each such completed previous year or part of any previous year. (3) Any person discontinuing any business or profession shall give to the Income-tax Officer notice of such discontinuance within fifteen days thereof. 12. We noted that the extant provision of section 176 of the Act are for the purpose of facilitating the computation of income, in case where the business are discontinued during any assessment year. The section provides for manner of computing income in the case of discontinued business as to in which assessment year ,the income of the part of the year for which the business was in existence, has to be taxed, and the rates at which it is to be taxed. The impugned section requires, therefore, notice to be given to the AO of the discontinuation of the business. This section, we have noted, does not mandate any notice of discontinuation of business to be given to the AO for the purpose of validating the dissolution or discontinuation of the business in the eyes of the law. Therefore, reliance on the provisions of section 176 of the Act by the AO for holding the assessee’s business cannot be treated to have dissolved in the absence of any notice given to the AO, is, we hold, incorrect. The AO, has also noted/ referred to section 189 of the Act, and has held that the said section provides that, where any business carried out by a firm is discontinued or the firm is dissolved, the AO shall make an assessment of the total income of the firm, as if, no such discontinuation or dissolution has taken place.
The provisions of section 189 are reproduced hereunder:
(1) Where any business or profession carried on by a firm has been disconti- nued or where a firm is dissolved, the Assessing Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions relating to the levy of a penalty or any other sum chargeable under any provision of this Act, shall apply, so far as may be, to such assessment. (2) Without prejudice to the generality of the foregoing sub-section, if the Assessing Officer or the Commissioner (Appeals) in the course of any proceeding under this Act in respect of any such firm as is referred to in that sub-section is satisfied that the firm was guilty of any of the acts specified in Chapter XXI, he may impose or direct the imposition of a penalty in accordance with the provisions of that Chapter. (3) Every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum. Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.] (4) Where such discontinuance or dissolution takes place after any proceedings in respect of an assessment year have commenced, the proceedings may be continued against the person referred to in sub-section (3) from the stage at which the proceedings stood at the time of such discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply accordingly. (5) Nothing in this section shall affect the provisions of sub-section (6) of section 159.
The provisions of section are only for facilitating the assessment of income of discontinued/dissolved firms in the year of discontinuation/dissolution. The assessment of the discontinued firm happens after the dissolution of the firm, and at the time of , 986, 987 and 999/Ahd/2023 10 assessment, the firm is no longer in existence, but the provisions of section 189 provide that in such cases for facilitating assessment, it will be treated as if the firm continues to exist. Thus, the provision of section 189 facilitates assessment of assessment year in which firms are dissolved and not subsequent years. The impugned section also does not help the case of the Revenue in any way for assessing the income of the assessee’s firm before us for years, which admittedly are subsequent to dissolution of the firm.
In view of the above, we hold that the assessee-firm not existing in the impugned years, the assessment framed on it, is null and void. The assessment order passed is, therefore, directed to be quashed, and all the appeals of the assessee are allowed.
In the result, all the appeals of the assessee are allowed.
Order pronounced in the Court on 10th January, 2025 at Ahmedabad.