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Facts
An appeal was filed by the assessee against the order of the CIT(A) for Assessment Year 2017-18. The assessee was a partnership firm which converted to a sole proprietorship upon the death of a partner. A significant cash deposit was made into the firm's bank account during the demonetization period.
Held
The Tribunal noted that the original assessment order was ex-parte. The assessee argued that the partnership firm had dissolved and its PAN should not be used. However, the Tribunal observed that the PAN continued to be used for business transactions, and the surviving partner had not adequately explained the source of the large cash deposits.
Key Issues
Whether the ex-parte assessment order is valid when the partnership firm's PAN was continued to be used after dissolution, and if the surviving partner is liable for unexplained cash deposits.
Sections Cited
253, 144(1)(b), 246A, 142(1), 189(1), 69, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, CHANDIGARH
Before: SHRI VIKRAM SINGH YADAV & SHRI PARESH M. JOSHI,
Tribunal. The assessee is aggrieved by the order bearing No. ITBA/NFAC/S/250/2022-23/1042942025(1) dated 04.05.2022 passed by ld. CIT(A) under Section 250 of the Act. The relevant assessment year is 2017-18 and the ITA 547/CHD/2022 A.Y. 2017-18 2 corresponding previous year period is from 01.04.2016 to 31.03.2017.
2. Factual Matrix 2.1 On perusal of the record, it is noticed that there is a delay of 8 days in filing the appeal before the Tribunal. The assessee has filed an application praying for condonation of delay of 8 days in filing the application. Shri Satish Kumar Nanda, son of the deceased has filed an affidavit in support of the application. After considering the application and the affidavit, the delay of 8 days in filing the application before this Tribunal is condoned as there is sufficient cause. Appeal taken up for hearing.
2.2 The return of income for the assessment year 2017-18 was not filed by the assessee as one of the partners out of two of the firm called M/s Nanda Filling Station having PAN No. AAJFN2253R namely late Shri Krishan Chand Nanda had expired. Shri Satish Kumar Nanda son of late Shri Krishan Chand Nanda was ITA 547/CHD/2022 A.Y. 2017-18 3 surviving partner. The assessee was a partnership firm with father and son being two partners. That upon the death of the partner, the status of the firm was converted into Sole Proprietorship firm. However, this fact was brought to the notice of the Bankers of the firm – State Bank of Patiala/SBI by the surviving partner/ son Satish Kumar Nanda. The Account No. 65151910059 in the SBOP/SBI remained the same even after the death of father/partner.
2.3 That on basis of information about deposit of Rs.1,24,20,000/- in this account, the ld. AO completed the assessment proceedings under Section 144(1)(b) of the Act and has made addition of Rs.1,24,20,000/- to the income of the firm.
2.4 No notice(s) as mentioned in the assessment order dated 01.12.2019 was/were ever delivered to the firm or to the surviving partner. The Assessing Officer completed the assessment proceedings ex-parte under Section 144(1)(b) of the Act.
ITA 547/CHD/2022 A.Y. 2017-18 4 2.5 That the assessee being aggrieved by the assessment order dated 01.12.2019 preferred first appeal before ld. CIT(A) under Section 246A of the Act and by impugned order, the ld. CIT(A) has dismissed the appeal.
2.6 That the assessee being aggrieved by the impugned order has filed the present appeal and has raised following grounds of appeal before us which are as under :
1. That the impugned order of the Ld. CIT (Appeals) in Appeal No. CIT(A) Patiala 10004/200-21 and order of ITO Ward-Sirhind is bad in law and against the facts of the case and have been passed without application of judicious mind and without appreciating the material on record.
2. That the Ld. CIT(A) erred in upholding the order of A.O. making addition of Rs. 1,24,20,000/- on account of alleged unexplained cash deposits in bank account No. 65151910059 with State Bank of India allegedly linked with PAN AAJFN2253R of the Partnership Firm which was dissolved upon the death of one of the two partners on 05.11.2013 and has failed to see that no return of income was filed against PAN AAJFN2253R of the Firm after AY 2013-14.
3. That the ld. CIT(A) and AO failed to verify that the bank account No.65151910059 with State Bank of India is actually linked with PAN AHZPK8303 of sole surviving business income from Nanda Filling Station. 4. That-Ld. AO and CIT(Appeals) failed to appreciate the law that assessment cannot be linked for the same cash deposits to two different PANs. 5. That the impugned order of the Ld. CIT (Appeals) and order of ITO Ward- Sirhind is liable to be set aside on consideration of the Grounds of Appeal
3. Record of Hearing 3.1 The hearing in the matter took place before this Tribunal on 21.01.2025 when the ld. AR and ld. DR were ITA 547/CHD/2022 A.Y. 2017-18 5 heard at length in respect of their respective submissions. The ld. AR in sum and substance has contended that after the death of one of the two partners on 05.11.2013 the partnership firm stood dissolved and since then the bank account No. 65151910059 in SBOP/SBI is not linked with PAN No. AAJFN2253R which was PAN of erstwhile partnership firm and is linked with PAN No. AHZPK8303L linked to Bank Account No.65151910059. All cash transactions during the period of demonetization from 09.11.2016 to 31.12.2016 have been recorded in this bank account and all transactions with M/s Indian Oil Corporation (IOC)
Sangrur for purchase of petroleum products etc. and payment to IOC were routed through this bank account.
It was contended that a written submission before CIT(A), Death Certificate of father/partner evidencing death on 05.11.2013, bank certificate dated 22.03.2022 evidencing that M/s Nanda Filling Station A/c No. 65151910059 is now being operated by Satish Kumar Nanda in capacity as Sole Proprietor (Proprietorship) dated 26.12.2017 as per bank’s record, a letter dated
ITA 547/CHD/2022 A.Y. 2017-18 6 26.12.2017 to jurisdictional AO evidencing surrender of PAN No. AAJFN2253R of the firm (a partnership) was w.e.f. Nov.,2013; copy of ITR for assessment year 2014- 15 in name of Satish Kumar were filed. It was contended that after the death of one of the partners on 05.11.2013 the partnership firm stood dissolved and since then, Bank Account No. 65151910059 in SBOP/SBI is not linked with PAN No. AAJFN2253 (PAN of erstwhile Partnership Firm) and is linked with PAN No.
AHZPK8303L (PAN of surviving partner). No ITR of the firm has been filed since assessment year 2014-15 onwards and that Satish Kumar, surviving partner/son has been filing ITRs since assessment year 2014-15 in his individual capacity as sole proprietor of Nanda Filling Station under his own PAN No. AHZPK8303L which is linked to Bank Account No. 65151910059. That all cash transactions during the period of demonetization from 09.11.2016 to 31.12.2016 have been recorded in this bank account and that all the transactions with M/s Indian Oil Corporation, Sangrur for purchases of petroleum products etc. and payments to IOC were ITA 547/CHD/2022 A.Y. 2017-18 7 routed through this bank account. That in order to substantiate these submissions, the assessee prays to place on record of Tribunal following documents as and by way of “additional documents/evidence” :
ITR for AY 2014-15 with PAN AHZPK8303L linked to Bank Account No. 6515 1910 059.
ITR for AY 2015-16 with PAN AHZPK8303L linked to Bank Account No. 6515 1910 059.
ITR for AY 2016-17 with PAN AHZPK8303L linked to Bank Account No. 6515 1910 059. 4. Statement of Account of SBI No. 6515 1910 059 Sirhind Mandi from 08.11.2016 to 31.12.2016. Statement of Account of M/S IOC Ltd., Sangrur from 08.11.2016 to 31.12.2016. 5. The assessee has made application for filing of additional evidence dated 21.08.2024 in this regard.
3.2 The ld. DR has gone by the impugned order of CIT(A) and has interalia stated that in view of the fact that partnership firm originally was consisting of two partners [ father and son duo] and after death of one of the partner [father] on 05.11.2013, the said firm became Sole Proprietorship firm of surviving partner [son] liability if any of taxes is now the responsibility of surviving partner who incidentally happens to be son.
ITA 547/CHD/2022 A.Y. 2017-18 8 Hence, in so far as revenue is considered, it would not make any difference.
3.3 In rejoinder, the ld. AR submitted that these fresh material were crucial to determine the tax liability, if any of the assessee as transactions of M/s Nanda Filling Stations are recorded in bank statement of SBI which bears PA N number of assessee [son] since 2014-15 and necessary material in support thereof are now placed on record. Assessment cannot be linked to for same cash transactions to two different PANs. Further the surviving partner has not concealed the transactions of deposit of Rs.1,24,20,000/- and has shown the same in his books of account and filed return of income for relevant year and in respect thereof no findings are given by CIT(A).
The firm is not in existence since 05.11.2013 and hence the firm filed no return of income after dissolution of partnership firm. That no notice under Section 142(1) of the Act was received by the firm or surviving partner.
The Department of Income Tax failed to verify that firm’s PAN No. AAJFN2253R after the death of partner [father]
ITA 547/CHD/2022 A.Y. 2017-18 9 was not linked with any bank account. They did not verify that bank statement of SBI is linked to son [surviving partner] PAN No. AHZPK8303L of sole proprietor Satish Kumar.
Observations,Findings & Conclusions 4.1 We now have to decide the legality, validity and proprietary of the impugned order basis records of the case.
4.2 We observe that the original assessment order dated 01.12.2019 is an ex-parte order and that the same is under Section 144 of the Act. In first appeal, this original assessment order dated 01.12.2019 was challenged primarily on ground of violation of the principles of natural justice. In addition, it was contended that by a letter dated 26.12.2017 addressed to Department, that partnership firm and its PAN number does not survive as one of the partner is no more since 05.11.2013 and hence the firm has not filed the return of income. The ld. CIT(A) in the impugned order has ITA 547/CHD/2022 A.Y. 2017-18 10 observed that there are huge cash deposits to the extent of Rs.14,17,64,000/- during pre and post demonetization period during the Financial Year 2016-17 [A.Y. 2017-18].
It is also found that during the demonetization period between 09.11.2016 to 31.12.2016 a huge sum of Rs.1,24,20,000/- had been deposited in assessee's bank account. The information was received by the ld. AO and accordingly notices were issued by the ld. AO to PAN in which aforesaid cash deposits have been made. The assessee has not brought on record that due procedure has been followed with the Assistant. Registrar of Firms and the erstwhile firm has been brought to a closure by following all the necessary formalities for such closure to be completed. The assessee has submitted that it had filed a letter before ld. AO on 26.12.2017 requesting AO surrendering the PAN of the partnership firm. This submission of the assessee is post cash deposit and demonetization period. The CIT(A) held that surviving partners of the firm and the legal representative of the partner who since deceased are jointly and severally liable to answer the huge deposits in bank account of ITA 547/CHD/2022 A.Y. 2017-18 11 firm made before the aforesaid letter was even filed. In impugned order, CIT(A) has even held as under :-
7.2 The appellant submitted that it had filed a letter before the AO on 26.12.2017 requesting the AO to surrender the PAN of the partnership firm. It is pointed out this submission of the appellant has been made subsequent to the aforesaid cash deposits. Hence, surviving partners of the firm and the legal representative of the partner who has deceased is jointly and severally liable to answer the huge deposits in this bank account, made before the aforesaid letter was even filed. The appellant has not brought on record as to the actual date on which this PAN is delinked from the bank account subsequently. It is possible even as on this order is passed, the erstwhile partnership PAN is continued to be in use to carry out huge financial transactions. While the appellant submits that it had withdrawn the PAN by writing letter to the AO surrendering the aforesaid partnership firm's PAN only in letter and spirit but it has not surrendered the same PAN. It is actually found to be using the partnership firm's PAN even as on during this relevant financial year.
4.3 We notice that in para 7.3, the ld. CIT(A) has held as under :
“7.3 As mentioned in the earlier para, cash deposit to the extent of Rs.14,97,64,000/- has been made in the FY 2016-17. Except but for the submission made by the appellant that the notice has been issued to a wrong PAN, [which was actually the correct PAN linked to the bank in which huge cash has been deposited, it's found that the appellant has not explained the actual sources for this cash deposits, as to where the same have been accounted in the individual hands of the partner in whose name the said sole proprietorship has been stated to be running.”
4.4 The ld. CIT(A) has observed in para 7.4 as follows:
“7.4 The demonetization was a huge exercise that the Indian society has undertaken with the aim to bring the unaccounted black money into tax net. In such a huge effort taken by the Indian society, the appellant is found to have had made a huge cash deposit to the extent of Rs. 1,24,20,000/- and the same had been deposited into the said bank account linked to this PAN. No details has been submitted during the appellate proceedings to substantiate that the said
ITA 547/CHD/2022 A.Y. 2017-18 12 cash so deposited stands fully explained as an accounted income. This being the case, the appellant's lame excuse that the notices have been issued to a wrong PAN is found to be not acceptable. Therefore, it is hereby held that the AO has issued notice to a valid PAN, in which huge cash deposits has been made and the surviving partner of the erstwhile firm, also being the son and legal heir of the deceased partner of the erstwhile partnership firm, who has been legally using this FAN of the firm to transact the said business, needs to take the responsibilities for the transaction done in the bank account using the PAN of the partnership firm.”
4.5 We observe that ld. CIT(A) has also observed as under :
“7.5 The true Intention of Section 189(1) is also relied upon and it is hereby held that even if the partnership firm is stated to be dissolved, it is hereby held that the AO has correctly issued the notice to the firm, which is survived by the partner, who is also the legal representative of the deceased partner of the firm and the assessment of the total income of the firm has been quantified as per Section 189(1) as if no such dissolution of the firm had taken place. Thus, the grounds of the appellant challenging the jurisdiction to issue notice for the PAN of the partnership firm, which continues to be in use, is hereby dismissed.
7.6 The appellant has not explained as to why the partnership PAN has not been stopped from being used and why it is being continued to be used. Having continued to use the PAN for the business, the responsibility is cast upon the user of the PAN to explain that the said cash deposits as to have been undertaken as per law. This onus cannot be cast away having used the PAN by stating that this does not belong to the user of the PAN. If this submission is accepted anyone can use someone else’s PAN and still can shrug away the responsibility that are associated with use of such PAN. Legally such a submission cannot be accepted to legally sanctify, one person from use of one PAN for more than 5 to6years and still get away with the consequences of such use PAN for a long time. Having used the PAN, the consequence of use of such PAN automatically gets bestowed upon on the user such PAN. The AO cannot be faulted upon for the use of PAN by someone, for the AO has received the details of the PAN correctly, which has led to the accurate person who is carrying out the transaction. 7.7 As no further explanation has been given about the sources of the cash deposits into the bank account, the surviving partner and the legal heir of the deceased partner (erstwhile partnership firm father, being deceased and son) is hereby found to have not fulfilled the responsibility cast upon, to explain the sources of the cash of Rs. 1,24,20,000/-deposited in-the partnership firm's PAN during this demonetization period. Its pointed out that over and above these deposits of Rs. 1.24 Crores; this PAN has been used to deposit Rs. 14.97 Crores in FY 2016-17 alone. Under the circumstances, the AO has only taxed the sources
ITA 547/CHD/2022 A.Y. 2017-18 13 of cash deposits made during the demonetization period; Thus having not explained the sources for these cash deposits made, during the Demonetization period, the assessment is upheld fully, where the AO has assessed the cash deposits so deposited u/s 69 r.w.s. 115BBE.
4.6 Basis above observations and finding of ld. CIT(A) the assessee has now contended before us in sum and substance that after the death of father [deceased partner] the son Satish Kumar Nanda [surviving partner] has accounted in his return of income, post death on 05.11.2013 all income of the erstwhile partnership firm after death of father [deceased Partner] (page 4 of written submissions) and now has filed additional evidence application dated 21.08.2024 [Paper Book page 1 to 29 ] in support thereof which should be taken into consideration by this Tribunal. In the circumstances, we therefore, set aside the impugned order and direct ld. CIT(A) to take aforesaid application alongwith its accompaniment as an application under Section 46A of the Act and Rules. If the same are found admissible after due process, the same be taken into consideration and thereafter after giving assessee an opportunity
ITA 547/CHD/2022 A.Y. 2017-18 14 [surviving partner] a fresh order on denovo basis be passed.
ORDER 5.1 In the premises, we set aside the impugned order as and by way of remand to CIT(A) on denovo basis for passing a fresh order.