SAUGAAT,AMBALA CANTT vs. ITO, WARD 4, AMBALA CANTT. (ASSESSMENT UNIT), AMBALA CANTT

It is noticed that there is a delay of 61 days on the part of the Assessee in filing of this petition by the Assessee and the Assessee has submitted and affidavit explaining the delay and it was submitted that the delay on account of the mishandling done by Shri Sanjay Laul, CA who has not handed over the document in time to the Assessee. The Affidavit of the Assessee reads as under: -

The ld. DR objected to the same.

We have considered the explanation given by the Assessee and detailed reasons furnished in the affidavit. We are inclined to condone the delay and accordingly the delay is condoned and the appeal is being heard on merit.

The present appeal was filed by the assessee, M/s SAUGAAT, against the reassessment order dated 24.03.2023 passed under section 147 of the Income-tax Act for AY 2018-19, wherein a demand of ₹2,26,44,140/- was raised. The assessment was framed ex-parte since the assessee had not filed any return of income for the year and also did not respond to several statutory notices issued during the reassessment proceedings. As recorded by the AO, the assessee had undertaken substantial financial transactions during the year, including cash deposits of ₹1,34,83,500, cash withdrawals of ₹43,68,000, interest income of ₹1,63,023, and a payment to a contractor of ₹45,000. Based on Form 26AS, SFT information, and bank statements obtained directly from HDFC Bank u/s 133(6), the AO concluded that income chargeable to tax had escaped assessment, thereby justifying reopening u/s 148. Multiple notices u/s 142(1) and show-cause notices were issued, but the assessee did not submit any explanation regarding these transactions.

In view of these facts, the CIT(A) held that the appeal was barred by section 249(4)(b) and therefore not admissible at all. Since the statutory condition for admission of appeal was not satisfied, the CIT(A) concluded that the appeal was infructuous and accordingly dismissed it at the threshold without examining the merits of the additions.

The ld. AR had submitted that the order for the previous year before the Ld. CIT(A) is pending adjudication and no proceedings have been initiated in that matter. The Ld. AR, had submitted an application under Rule 29 of the ITAT Rules for admission of additional evidence which is to the following effect: “3. That the assessee had duly handed over all primary documents to the Chartered Accountant Sh. Sanjay Laul during the assessment stage, including:

The Ld. AR, submitted that the partnership firm of the Assessee was dissolved in December 2015 and thereafter, the business was continued by Shri Hemant Batra alone and the amount has been deposited in the bank account of the Assessee was already factored in while the filing of return of income Shri Hemant Batra as of the proprietor of SAUGAAT.

The ld. AR had submitted that as per the provision of section 176 of the I.T. Act, in case the business ceases to exist or is dissolved, then it is the duty of the Assessee to inform the AO about the closure of the business. The Ld. AR, had submitted that the business of the Assessee has not been closed instead it as continued by Shri Hemant Batra as a sole surviving partner of Assessee (partnership firm) and, therefore, the provision of section 176 (3) is not applicable.

Per contra, the Ld. DR objected to admission of additional evidences. He has drawn our attention to page 4 of the assessment order where the Assessee had submitted the reply on 10.9.2022 and has only submitted only following four documents; 1) Assessment order for 2017-18 2) Form 35 3) Dissolution deed of the firm and 4) Demand noted for AY 2017-18

It was submitted that the Assessee has not filed the return of income u/s 139(1) of the Income Tax Act, 1961 (in short 'the Act') despite these huge financial transactions reproduced as under:

It was submitted that despite the above, the Assessee has neither filed the return of income originally nor in response to the notice u/s 148 of the Act nor he has filed any document at the appellate stage or assessment stage, therefore, the said documents now sought to be filed by the Assessee cannot be admitted. Further, it was submitted that as many as seven opportunities were granted by the Assessing Officer to the Assessee, however, the Assessee failed to filed the required documents before the AO. Similarly, the Assessee had also failed to deposit the advance taxes and other deposits as a pre-condition to file the appeal before the Ld. CIT(A) and the Ld. CIT(A) has rightly dismissed the appeal of the Assessee.

We have heard the rival contentions of the parties and perused the material available on record. The documents sought to be produced before us as additional evidence have already been reproduced in para 3 of the application (and para 10 of this order). It is an admitted fact that Shri Hemant Batra represented the Assessee before the lower authorities and even Form No. 36 was filed before us by Shri Hemant Batra in the capacity of a partner of SAUGAAT. At this stage, the petitioner seeks to take a complete somersault by contending that Shri Hemant Batra was actually the proprietor of SAUGAAT for A.Ys. 2017-18 and 2018-19; and to support this new plea, the Assessee has filed certain ledger extracts, VAT and CST returns of Shri Hemant Batra.

In our considered view, once it is the consistent position of both sides that the Assessee had never informed any statutory authority regarding the alleged dissolution of the partnership firm, and further when only a solitary dissolution deed was produced to substantiate the claim of dissolution, we find no justification to accept the reasoning of the Assessee that the bank deposits do not pertain to it. Significantly, the Assessee never intimated the alleged dissolution either to the bank, or to the Income-tax Department, or to the Assessing Officer. Even Form No. 36 filed before the Tribunal continues to be signed by Shri Hemant Batra in the capacity of partner of SAUGAAT. These circumstances clearly belie the stand now taken. Moreover, the Assessee has not demonstrated that the documents now tendered were not available at the time of assessment proceedings or before the first appellate authority, nor has it shown that these documents could not have been produced earlier despite due diligence. In fact, as per the very case of the Assessee, Shri Hemant Batra was the signatory and the person looking after the affairs of both the Assessee-firm as well as the alleged proprietorship concern; therefore, the plea of “non-availability” or “inability to produce” the documents at an earlier stage cannot be accepted. The essential requirements of Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, have not been satisfied. Importantly, the application is unsupported by any affidavit and does not contain any averment demonstrating incapacity, lack of possession, or inability despite due diligence to furnish such documents before the lower authorities.

Besides the above, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that the assessee had neither paid the advance tax as mandated under section 249(4)(b) of the Income-tax Act, 1961, nor filed any application seeking exemption from this statutory precondition. For ready reference, section 249(4)(b) reads as under: “(4) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal,— (b) where no such tax has been paid, the assessee has applied for exemption from the requirement of clause (a) and the Commissioner (Appeals) is satisfied that there was good and sufficient reason for not paying such tax.”

A bare perusal of the above provision makes it evident that the Ld. CIT(A) is empowered to relax the requirement of advance tax payment, but only when (i) the assessee files an application seeking exemption; and (ii) demonstrates “good and sufficient reason” for non- payment. In the present case, as rightly observed by the Ld. CIT(A), no such application was filed by the assessee as contemplated under the proviso to section 249(4)(b).

In the absence of a requisite application and in the absence of any explanation for non-payment of advance tax, the Ld. CIT(A), in our considered view, was fully justified in dismissing the appeal at the threshold. We find no infirmity in this action.

Turning to the submissions made in Form-35, the assessee in the Statement of Facts under Column 11 stated that the assessee-firm was dissolved on 09.12.2015 and the return for A.Y. 2015-16 was filed accordingly. It was further claimed that the business for subsequent years was continued as a sole proprietorship of one of the erstwhile partners, Shri Hemant Batra, who allegedly continued the firm’s bank account and PAN “by mistake”.

Except for producing the Dissolution Deed dated 09.12.2015, no other supporting documentation was enclosed with Form-35. Even before us, no additional evidence has been furnished to substantiate the aforesaid claims.

In our considered view, the explanation advanced by the assessee does not inspire confidence. The assessee-firm admittedly undertook substantial financial transactions during the relevant previous year, namely: cash deposits of ₹1,34,83,500/-, cash withdrawals of ₹43,68,000/-, interest income of ₹1,63,023/-, and payment to a contractor of ₹45,000/-.

On the face of such sizable transactions, the claim that the assessee-firm stood dissolved and that business thereafter continued as a proprietorship concern under the same PAN and the same bank account cannot be accepted. If indeed the firm had ceased to exist, it was incumbent upon the assessee to inform the bank as well as the Assessing Officer. Admittedly, no such intimation was ever given.

On a closer examination, the Dissolution Deed itself suffers from several infirmities that cast serious doubt on its authenticity and evidentiary value:  The deed is neither stamped nor notarised/attested by any Oath Commissioner or Notary Public.  Clause 6 of the deed merely states that the trade name “SAUGAAT” may continue to be used; however, it contains no reference to continuation of business under the same PAN, the same bank account, or the same premises.  Clause 10 mandates that the continuing partner shall notify the dissolution to the Registrar of Firms within the prescribed time.

During the course of hearing, the Ld. AR argued that no such intimation to the Registrar was required. This contention is entirely contrary to the explicit language of the deed itself ( clause 10 of the deed) . The assessee has also failed to produce any evidence to show that the dissolution was ever communicated to the Registrar of Firms or the Assessing Officer, as required under section 176(3) of the Act.

In our considered opinion, such an unregistered, unstamped, unattested and inherently unverifiable document cannot be relied upon, particularly when the assessee seeks to rely on it to alter taxability of substantial financial transactions. The document appears wholly self-serving and cannot, in the absence of corroborating evidence, be accepted for the purpose of shifting tax liability.

It is trite law that income must be taxed in the right hands. In the present case: 1. The PAN continues to stand in the name of the assessee-firm; 2. The bank account is in the name of the assessee-firm; 3. All deposits and withdrawals were made from that very account; 4. No change of authorised signatory, no bank intimation, and no statutory intimation were ever made; and 5. No contemporaneous evidence exists to show that the alleged dissolution was acted upon.

In these circumstances, merely relying on an unsubstantiated dissolution deed cannot absolve the assessee-firm from tax liability on the transactions recorded in its bank account.

In view of the above discussions, we do not find any merits in the case of the assessee, and therefore, the appeal of the assessee is liable to be dismissed. In the result, appeal of the Assessee is dismissed. Order Pronounced in the open Court on 20.11.2025.