REVA ENTERPRISE,ANKLESHWAR vs. INCOME TAX OFFICER, WARD 2(4), BHARUCH, BHARUCH

AO issued several notices u/s 142(1) of the Act and show cause notice requesting the assessee to furnish details regarding the nature and source of cash deposits and credit/debit entries in the bank account maintained by it during the year under consideration, however, assessee neither filed any return of income nor furnished any details. As the assessee did not give any reply, notice u/s 142(1) of the Act were issued to partners, Shri Zakirali H. Khan and Shri Mansoor Ahmed Choudhary as per the latest address of the partners available on records. However, both notices were returned unserved. Despite providing sufficient opportunities, assessee neither filed the return of income nor furnished any explanation regarding the nature of business and source of the credits made by him during the demonetization period or during the entire year. In view of the same, cash and credits made by the assessee in its Dena bank account amounting to Rs.82,92,950/- (15,63,000 + 30,61,000 + 36,68,950) remained unexplained and therefore, the entire amount of Rs.82,92,950/- was treated as assessee’s undisclosed and unexplained income for the AY 2017-18 u/s 69A of the Act.

Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) observed that the appellant failed to produce any documentary evidence with regard to the plea that all the alleged transactions were made by other partner, Shri Mansoor Ahmad under the new proprietorship. Appellant also failed to furnish with documentary evidence as to whether the return of income was filed by Shri Mansoor Ahmad in the capacity of sole proprietorship and if filed, whether income from these transactions were disclosed in the same. The CIT(A) further observed that to start a sole proprietorship, a person must have a PAN card, license under hops and Establishment Act, new current bank account in the name of the business, GST number/VAT number. If the partnership firm ceased to exist then instead of conversion of bank account, the other partner should have opened his bank account. Besides, the appellant also failed to produce the documents of new proprietorship, i.e., GST/VAT number, license under Shops and Establishment Act, etc. In view of the same, the CIT(A) held that all the transactions were made by the appellant and therefore, the AO had rightly made the addition of Rs.82,92,950/-. Accordingly, the addition made by the AO was sustained by the CIT(A). Regarding the plea of the appellant that the AO had erred in taxing the addition by taking the rate @ 77.25% instead of 35.54% by attracting , 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises provisions of section 115BBE of the Act instead of normal tax rate, the CIT(A) held that in view of the amendment in section 115BBE of the Act and judicial pronouncement, the AO had rightly applied the amended rate of taxation as per provisions of section 115BBE of the Act.

Aggrieved by the order of CIT(A), assessee filed present appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee has submitted a paper book containing copy of partnership deed of M/s Reva Enterprise, dissolution deed of partnership firm, statement of Dena bank account, certificate by the Bank of Baroda that Mr. Mansoor Ahmad Chaudhary was an authorized signatory of bank account, submissions to AO and CIT(A). He submitted that assessee was a firm which came into existence with effect from 24.11.2011 by executing partnership deed. This firm was dissolved on 31.03.2015 by executing the dissolution deed in writing on 17.04.2015 which was notarized on 30.07.2015. The assessee firm had two partners, Shri Zakirali H. Khan and Shri Mansoor Ahmad, each having 50% share of profit/loss. But after dissolution of the firm, Shri Mansoor Ahmad continued the business of the partnership firm as proprietor. The ld. AR also submitted that the partnership firm was ultimately succeeded by one of the partners, Shri Mansoor Ahmad as a proprietorship firm after 30.07.2015 and the deposits in the alleged bank account was made after the dissolution of firm and Shri Zakirali H. Khan was not the part of the partnership firm during the period , 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises of alleged transactions. It was also submitted that the alleged transaction in Dena bank account no. 086811023892 were related to Mr. Mansoor Ahmad. In support of this contention, the appellant furnished the copy of certificate issued by the Bank of Baroda certifying that Mr. Mansoor Ahmad Chaudhary was the authorized signatory of the account from 22.08.2015 and the firm was dissolved on 22.08.2015. The ld. AR submitted that assessment proceedings in the case of dissolved/non-existent partnership firm is void and therefore, liable to be quashed. Reliance in this regard is placed upon the decision of Gujarat High Court in the cases of Nathalal Hemabhai Patel vs. ITO, [2024] 301 Taxman 302 (Guj) and AMC Corporation Vs. ITO [2025] 173 taxmann.com 137 (Guj).

On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the revenue relied upon the order of the lower authorities and requested to uphold the order of CIT(A). He submitted that the appellant failed to substantiate the nature and source of the cash and other credit entries. Both AO and CIT(A) have passed speaking order, which have not been effectively rebutted by the ld. AR.

We have heard both the parties and perused the materials available on record. We have also deliberated on the decisions relied upon by ld. AR. The core issue is addition of Rs.82,92,950/- by the AO u/s 69A of the Act, treating the same as unexplained money. It is an undisputed fact that the assessee did not file its , 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises return of income for AY 2017–18. Despite repeated notices issued under section 142(1) of the Act as well as summons and show cause notices, the assessee failed to furnish any explanation or supporting documents regarding the nature and source of cash deposits and other credits appearing in the Dena Bank account no.086811023892. Even the partners of the firm did not respond to the notices and no books of account, bills, vouchers or supporting material were produced before the AO. In such circumstances, the AO was left with no alternative but to complete the assessment on a best judgment basis u/s 144 r.w.s. 143(3) of the Act. The AO collected information from the bank and found that the assessee had deposited cash of Rs.15,63,000/- during the demonetization period, Rs.30,61,000/- during the rest of the year and also received other credits of Rs.36,68,950/-, totaling Rs.82,92,950/-. Since no explanation or evidence was furnished by the assessee regarding the source of these deposits and credits, the AO rightly invoked section 69A of the Act treating the same as unexplained money. 10.1 Before the CIT(A) and the Tribunal, the ld. AR contended that the assessee firm, M/s Reva Enterprise, was dissolved on 31.03.2015 and the business was thereafter continued by one of the partners, Shri Mansoor Ahmad, as a sole proprietor. It was argued that the deposits in the Dena Bank account during AY 2017–18 pertained to the business of Shri Mansoor Ahmad in his individual capacity and not of the so-called dissolved partnership firm. However, on perusal , 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises of the records, we find that this claim is not substantiated by any cogent or verifiable documentary evidence. Even before the CIT(A), no corroborative evidence such as closure of the partnership bank account or opening of a fresh bank account by the alleged successor proprietor has been furnished. The assessee also failed to file documentary evidence such as GST registration, Shops and Establishment license, PAN or ITR of the alleged sole proprietorship firm of Shri Mansoor Ahmad for AY 2017–18 to demonstrate that income from these deposits was duly offered to tax in his individual return. The mere certificate from Bank of Baroda indicating that Shri Mansoor Ahmad was an authorized signatory from 22.08.2015 does not conclusively establish that the business was exclusively carried on by him in a proprietary capacity or that the bank account was no longer that of the partnership firm. The bank account can be operated by any of the partners or by an authorized signatory. This does not mean that the firm solely belonged to the authorized signatory. 10.2 Besides, no evidence of transfer or succession u/s 188/189 of the Act have been furnished. Further, even assuming that the business was succeeded by one of the partners, the same is governed by section 188 of the Act. However, there is no evidence of such succession having been intimated to the Department, nor any closure of books or transfer of assets or liabilities from the firm to the individual proprietor. The absence of such evidences and the continued operation of the , 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises same bank account in the name of the firm clearly indicate that the firm continued to exist for all practical purposes and remained the owner of the said bank account. Therefore, the contention that the firm was non-existent during the relevant previous year is not tenable. The reliance placed by the assessee on the decisions of Nathalal Hemabhai Patel v. ITO [2024] 301 Taxman 302 (Guj) and AMC Corporation v. ITO [2025] 173 taxmann.com 137 (Guj) is misplaced. In those cases, there was conclusive evidence on record that the entity had ceased to exist and the assessment was made on a nonexistent person despite intimation to the Department. In the present case, no such factual matrix exists. The dissolution has not been accepted or recorded by the Department, no formal communication for closure of PAN or business entity has been made. Hence, decision relied upon is clearly distinguishable on facts. 10.3 In light of the above discussion, we find that the assessee has failed to discharge the onus cast upon u/s 69A of the Act to explain the nature and source of the cash and credit entries in its bank account. We, therefore, find no reason to differ with the findings with the findings of the CIT(A), which were confirmed. Accordingly, ground Nos.1 and 4 are dismissed.

In the grounds Nos.2 and 3, issue of application of section 115BBE of the Act and rate of taxation has been raised. The assessee has challenged the action of the AO and CIT(A) in applying the provisions of section 115BBE of the Act and taxing 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises the income u/s 69A @77.25% instead of 35.54% under the pre-amendment law. The provisions of section 115BBE of the Act were enacted on 15.12.2016 and hence cannot be applied for the year under consideration. We find that the Division Bench of this Tribunal in cases of Samir Shantilal Mehta vs. ACIT, in Arjunsinh Harisinih Thakor vs. ITO, in ITA No. 245/SRT/2021, Jitendra Nemichand Gupta vs. ITO, in ITA No. 211/SRT/2021 and Sanjaybhai Mansukhbhai Patel vs. DCIT, in ITA No. 869/SRT/2023; the Indore Bench in DCIT vs. Punjab Retail Pvt. Ltd., in ITA No.677/Ind/2019 and the Jabalpur Bench in ACIT vs. Sandesh Kumar Jain, in ITA No.41/Jab/2020 held that applicability of amended provision of Section 115BBE of the Act is not retrospective. The Hon'ble Madras High Court in case of S.M.I.L.E. Micro Finance Ltd. vs. ACIT, 479 ITR 172 (Mad.) has held that amendment to section 115BBE increasing rate of tax on income referred to in section 68 from 30% to 60% with w.e.f. 01.04.2017 is not applicable to transactions prior to 01.04.2017. Hence, the enhanced rate is not applicable for AY 2017-18. Respectfully following the above decisions, the AO is directed to tax the addition at normal rate of tax and applicable surcharges and cess. Accordingly, this ground is allowed.

In the result, the appeal of the assessee is partly allowed. (AY.2017-18):

Aggrieved by the penalty order, assessee filed appeal before the CIT(A). The CIT(A) observed that the AO had rightly levied penalty u/s 271AAC(1) of the Act as the addition was made u/s 69A r.w.s. 115BBE of the Act in the regular assessment and the same was confirmed by the CIT(A). Accordingly, the CIT(A) sustained the penalty of Rs.4,97,5577/- levied u/s 271AAC(1) of the Act.

In this regard, it may be noted that the penalty u/s 271AAC(1) of the Act is mandatory in respect of income determined u/s 68 to 69D of the Act, where tax is 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises levied u/s 115BBE of the Act. Since the addition u/s 69A of the Act has been upheld and tax thereon has been validly levied u/s 115BBE of the Act, the penalty u/s 271AAC(1) of the Act is consequential and leviable. However, since assessee has been allowed relief against taxing the addition at higher rate u/s 115BBE of the Act as per discussion made in para 11 above and we have directed the AO to apply tax at the normal rate including surcharge and cess, the penalty u/s 271AAC(1) of the Act is required to be recomputed accordingly. The AO is directed accordingly and the ground is partly allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.

Aggrieved by the penalty order, assessee filed appeal before the CIT(A). During appellate proceedings, the assessee submitted that the assessee firm was dissolved on 31.03.2015 by executing the dissolution deed in writing on 17.04.2015 which was duly notarized on 30.07.2015. Thus, during the year under consideration, the firm was not into existence. Therefore, the firm is not required to file return of income as it was dissolved and not having any income. The CIT(A) after perusing the materials on record noted that the quantum addition made by the AO of Rs.82,92,950/- u/s 69A of the Act has already been confirmed by the CIT(A), therefore, the appellant was under legal obligation to file the return of income for the year under consideration. Hence, the CIT(A) confirmed the penalty levied u/s 271F of the Act and dismissed the appeal of the assessee.

We find that section 271F of the Act mandates imposition of penalty where an assessee, who is required to furnish a return of income u/s 139(1) of the Act, fails to do so before the end of the relevant assessment year. The legislative intent behind the provision is to ensure timely compliance and to penalize non-filing of returns, where taxable income exists. In the present case, there is no dispute that the assessee did not file its return of income within the prescribed time or even , 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises thereafter. Besides, an addition of Rs.82,92,950/- has been made u/s 69A of the Act and has been sustained by us. Thus, the assessee was found to have taxable income for the relevant assessment year. The assessee’s non-compliance with notices during the assessment and penalty proceedings further indicates lack of bonafide or reasonable cause. In view of the above discussion, we hold that the authorities below have correctly levied and upheld the penalty u/s 271F. We find no infirmity in the order of the CIT(A), which we confirm warranting interference. Accordingly, the appeal of the assessee is dismissed.

In the result,