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Facts
The assessee, a partnership firm, had cash deposits in its bank account during demonetization. The AO initiated assessment proceedings under section 144 for AY 2017-18, treating unexplained credits as income. The assessee argued that the partnership had ceased to exist and the business was taken over by an individual proprietor, whose income was already disclosed.
Held
The Tribunal held that while the notice under section 142(1) was not served correctly, the assessment itself was not rendered invalid. However, it was found that the matter was not properly considered by lower authorities due to non-compliance. Therefore, the case was restored to the AO for proper verification of facts.
Key Issues
Whether the assessment framed in the name of a defunct partnership firm, where transactions were allegedly disclosed by the successor proprietor, is valid. Whether non-compliance by the assessee invalidates the assessment proceedings.
Sections Cited
250, 144, 142(1), 139(1), 69A, 115BBE, 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
A.Y. 2017-18 Super Packagers, vs. The Income Tax Officer, 80/72, Latouch Road, Ganga Oil Ward-1(3)(4), Kanpur 208001 Mill Compound, Kanpur-208001 PAN:ABTFS2620L (Appellant) (Respondent) Assessee by: Sh. Rakesh Garg, Adv Revenue by: Sh. Puneet Kumar, CIT DR Date of hearing: 15.07.2025 Date of pronouncement: 31.07.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: [ This is an appeal filed by the assessee against the order of the ld. CIT(A), NFAC passed under section 250 of the Income Tax Act, 1961, dated 10.12.2024, dismissing the appeal of the assessee against the assessment order passed by the ld. AO under section 144 on 25.11.2019. The grounds of appeal are as under:-
1. Learned CIT(A) has erred in law and on facts of the case in passing the impugned order dated 10/12/2024 ex-parte and without deciding the Appeal on merits.
2. Learned AO has erred in law and on facts of the case while passing the impugned order dated 25/11/2019 & Learned CIT(A) has upheld because the assessment in the present case has been carried out in respect of a non-existent entity and is thus void-ab-initio.
3. Because, the present case being of dual PAN No. ABTFS2620L one relating to partnership firm (which ceased to exist from 01/04/2011) and the other relating to the individual person (PAN AAQPJ2279Q), transaction taken place in the bank with respect to the PAN of the Partnership firm having all been disclosed and assessed in the return filed under PAN AAQPJ2279Q. There has been no escapement of income, the addition of Rs.93,90,793/- made be deleted.
Super Packagers A.Y. 2017-18 4. Because the addition of Rs.93,90,793/- made by the AO and upheld by the CIT(A) has resulted with double addition, once in the hand of individual proprietor and again in the hands of the partnership firm, the addition made be deleted.”
The facts of the case are that it came to the knowledge of the Department that the assessee had deposited a total of Rs. 13,44,000/- in cash in its bank A/c No.00600500022591 at Bank of Baroda during the demonetization period but had not filed its income tax return for the assessment year 2017-18. Therefore, a notice under section 142(1) was issued to the assessee, for filing of such return but the same was not complied with the. As such ld. AO noted that there was no explanation available regarding the nature and source of cash deposited in the bank account and in the absence of any return being filed by the assessee, the ld. AO decided to adopt the process of best judgment assessment as contained in section 144 of the I.T. Act, 1961. In the course of his assessment order, the ld. AO records that he issued as many as five notices to the assessee under section 142(1) and 144, but the assessee did not respond to any of these notices. Since the assessee did not make any response, the ld. AO observed that total number of credit entries in the bank account other than cash amounted to Rs.80,46,793/- and all these were unexplained. Therefore, adding back this amount to the amount of cash deposited, he made an addition of Rs.93,90,793/- to the income of the assessee under section 69A and brought the same to tax under section 115BBE.
Aggrieved with this assessment order, the assessee went in appeal before the ld. CIT(A), NFAC. Before the ld. CIT(A), NFAC, it was submitted that the assessee was a partnership firm bearing PAN No. ABTFS2620L which ceased its business on 31.03.2011. Subsequently, the business was carried on as a proprietorship from 1.04.2011 on the individual PAN AAQPJ2279Q. The ld. AO had issued a notice under section 142(1) to the PAN of the partnership firm as the bank account still contained the PAN of the partnership firm. When the assessee did not file a return under section 139(1), as it had no assessable income, the ld. AO first issued a notice under section 2 Super Packagers A.Y. 2017-18 142(1) and thereafter framed the assessment in a best judgment manner against the assessee firm, although these transactions had been considered in the relevant assessment year against the individual PAN of the proprietor Mohd Javed, who bore PAN No. AAQPJ2279Q. It was, therefore, submitted that merely because the PAN number in the said bank account continued to remain that of the assessee, did not mean that the credits were assessable in the hands of the assessee. The ld. CIT(A) records that he issued four notices to the assessee firm to submit further documentary evidences and submissions in support of the aforesaid grounds of appeal
but no response was received. From the same, the ld. CIT(A) concluded that the assessee was not interested in filing any details during the appeal proceedings and therefore, he did not deem it necessary to grant further opportunities to the assessee. Relying upon the cases of B.N. Bhattarcharjee and Anr (118) ITR 461 (SC), and M/s Chemipol Vs Union of India in Excise Appeal No.62 of 2009 (Bombay High Court), the ld. CIT(A) held that no Tribunal was supposed to continue a proceeding when the party who has moved it has not appeared nor cared to remain present. He, thereafter, proceeded to note that the burden of proof was on the assessee to prove that the amount of Rs.93,90,793/- credited to its bank account, did not represent its income and since the assessee had remained uncompliant, there was no reason to interfere with the order of the ld. AO. Accordingly, he dismissed the appeal.
4. Aggrieved with the said dismissal of his appeal, the assessee has come before us. Sh. Rakesh Garg, Advocate (hereinafter referred to as the ‘ld. AR’) argued the matter and submitted that in the first instance, the notice under section 142(1) was served beyond time as per the CBDT Instruction No.225/363/2017/ITA-2 dated 15.11.2017. The notice was issued on 9.03.2018 which is beyond the date as fixed by the CBDT. The ld. AR submitted that the ld. AO was duty bound to follow the instructions as issued by the CBDT and by failing to follow these instructions, the proceedings became illegal and liable to be dismissed. Moving on to the merits of the case, Sh. Rakesh Garg, Super Packagers A.Y. 2017-18 Advocate, submitted that the partnership firm had become a proprietary concern of Mohd Javed in the financial year 2010-11. No questions had been raised by the ld. AO in any of the preceding years or the subsequent years. The returns for the A.Ys. 2018- 19 and 2019-20 were already on record when the impugned assessment was being framed and all the transactions disputed by the ld. AO were already disclosed in the audited accounts, balance-sheet and profit & loss account of the proprietor, as filed in his return. Therefore, the mere fact that the PAN in the said bank account continued to remain that of the proprietary firm, did not mean that the credits represented the income of the partnership firm. In support of his arguments, the ld. AR invited our attention to the partnership deed, retirement deed, both of which were contained in the paper book submitted by him. He also invited our attention to a copy of the letter issued by the District Industries Centre of the Government of Uttar Pradesh dated 1.01.2010 and correspondences exchanged with the General Manager, District Industries Centre, Kanpur where the said Mohd Javed had been listed as proprietor of M/s Super Packagers. The ld. AR invited our attention to page 13 of his paper book which contained the copy of the income tax return filed by Mohd Javed for the assessment year 2017-18 on 22.11.2017. It was submitted that since all the transactions stood reflected in the audited balance-sheet of Mohd Javed, which was also contained in his paper book, there was no reason to assess this income in the hands of the assessee firm. Accordingly, the ld. AR prayed that the assessment, which was bad in law should be quashed or in the alternative, the matter should be restored to the file of the ld. AO so that the assessee could submit the evidence to show that the credits in the bank account did not represent its income and stood disclosed to the Department by Mohd Javed.
5. On the other hand, Sh. Punit Kumar, CIT DR (hereinafter referred to as ‘ld. CIT DR’) submitted that it was the responsibility of the assessee to demonstrate that the credits in the said bank account did not represent its income and the assessee had Super Packagers A.Y. 2017-18 failed to do so during proceedings before the lower authorities. However, he had no objection to the matter being sent back for an examination of the facts of the case so that the correct amount of income could be brought to tax in the correct hands.
6. We have duly considered the facts and circumstances of the case. It appears that the facts of the case were not brought on record before the ld. AO because the notices were sent to the email ID of the erstwhile firm which had already ceased to exist. It also appears that the non-compliance before the ld. CIT(A) was occasioned by this. Whatever be the reason for non-compliance, it is fairly clear that the reason that the assessee did not or could not furnish any response to the notices issued by the lower authorities, was because it was no longer in existence on the date of issue of such notice and the reason that the Department had issued those notices was because it was the PAN of the assessee firm which stood mapped to the said bank account rather than the PAN of Mohd Javed, who had taken over the firm as a proprietor w.e.f. assessment year 2011-12. We are not in agreement with the ld. AR that the failure to serve the notice under section 142(1) before 31st December, 2017, renders the assessment invalid in law. The letter issued by the CBDT is simply a communication laying down an SOP for issuance of notices under section 142(1) in cases related to substantial cash deposit during the demonetization period. It does not and cannot amend the timelines provided within the Act. The timelines stated there are mainly for insuring prompt action in cases where information has been gathered under operation Clean Money. That notice under section 142(1) should not be equated with a notice under section 142(1) asking the assessee to file a return of income, in a case where the assessee has not done so. Therefore, the said instruction will not have application to the facts of the assessee’s case and accordingly the challenge to the validity of the assessment on this ground is dismissed. However, with regard to the submission made by the assessee that the credits in the stated bank account do not represent its income because the assessee firm had ceased to exist w.e.f. assessment year 2011-12 and being taken over