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Facts
The assessee, Reva Enterprises, failed to file its return of income for AY 2017-18. Investigations revealed unexplained cash deposits of Rs. 82,92,950/- in its bank account during the demonetization period and throughout the year. Despite notices and summons, the assessee failed to provide explanations or supporting documents.
Held
The Tribunal held that the assessee failed to discharge the onus under Section 69A to explain the nature and source of cash credits. The contention that the firm was dissolved and the transactions pertained to a sole proprietorship was not substantiated with cogent evidence. The appeals concerning the addition and penalties were examined.
Key Issues
Whether the addition of Rs. 82,92,950/- as unexplained income under Section 69A was justified, and whether the imposition of penalties under Section 271AAC(1) and 271F was correct, considering the assessee's failure to file returns and provide explanations.
Sections Cited
69A, 115BBE, 271AAC(1), 271F, 139, 142(1), 144, 131(1)(d), 133(6), 188, 189
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Before: MS. SUCHITRA RAGHUNATH KAMBLE & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: These appeals by the assessee emanate from the separate orders passed under section 250 of the Income-tax Act, 1961 (in short, 'the Act’) by the Commissioner of Income-tax (Appeals), NAFAC, Delhi [in short, ‘the CIT(A)’] for the assessment year (AY) 2017-18. With the consent of both the parties, all appeals were clubbed, heard together and are decided by a common order for brevity and convenience.
ITA Nos.259, 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises 2. Grounds of appeal raised by the assessee in for AY 2017-18, are as under: “(1) On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of AO in making an addition of Rs.82,92,950/- u/s.69A of the Act on account of alleged undisclosed and unexplained income. (2) On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of the AO in taxing the total business receipts by taking the rate @77.25% by attracting section 115BBE instead of estimation of profits at normal tax rate. (3) On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of the AO in taxing the income u/s.115BBE @ 77.25% in a retroactive manner by applying the duly substituted section 115BBE inserted retrospectively instead of taxing at it 35.54% as per the old provision of section 115BBE. (4) It is, therefore, prayed that above addition made by AO and confirmed by the Ld. CIT(A) may please be deleted. (5) Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
The grounds of appeal raised by assessee in (AY 2017-18) are as under: “(1) On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of the AO in levying penalty of Rs.4,97,577/- u/s. 271AAC(1) of the I.T. Act. (2) It is therefore, prayed that the above penalty levied by the AO and confirmed by CIT(A) may please be deleted. (3) Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
ITA Nos.259, 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises 4. The grounds of appeal raised by assessee in (AY 2017-18) are as under: “(1) On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of the AO in levying penalty of Rs.5,000/- u/s.271F of the I.T. Act. (2) It is, therefore, prayed that above penalty levied by the AO and confirmed by CITA) may please be deleted. (3) Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
(AY2017-18): 5. Brief facts of the case are that the assessee did not file the return of income for the AY 2017-18. Information was received by the ADIT (Inv.), Bharuch that amount of Rs.15,63,000/- was deposited in cash during the demonetization period by the assessee. The ADIT(Inv), Bharuch issued a commission u/s 131(1)(d) of the Act to the ITO, Ward 2(4), Bharuch for the purpose of examination/verification and inquiry of the cash transactions by the assessee. Summons was also issued to the assessee by the ADIT (Inv), Bharuch to attend the office of ITO, Ward – 2(4), Bharuch along with certain details and necessary supporting evidences to substantiate cash deposits during the demonetization period. However, assessee neither attended nor submitted any submission in response to the summons. Therefore, AO called for necessary information from the Dena Bank where cash deposits were made, by issuing notice u/s 133(6) of the Act. Dena Bank provided the necessary details, viz., copies of pay-in-slip, copy of bank statement, KYC, etc., 3 , 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises of a/c No.086811023892 bearing to the assessee. On examination of these details, it was revealed that there were cash deposits during the demonetization period in old notes amounting to Rs.15,63,000/-, cash deposits during the entire year excluding the demonetization period were Rs.30,61,000/- and other credits by way of clearing and transfer were Rs.38,68,950/-.
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.
, 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises Accordingly, the assessment order u/s 144 r.w.s. 143(3) of the Act was passed by the AO on 28.11.2019 determining total income of the assessee at Rs.82,92,950/-.
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):
, 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises 13. This appeal is against the levy of penalty u/s 271AAC(1) of the Act by the AO vide order dated 22.12.2021. Penalty proceedings u/s 271AAC(1) of the Act were initiated by the AO since addition of Rs.82,92,950/- was made u/s 69A of the Act and taxed u/s 115BBE of the Act. During penalty proceedings, the assessee was given sufficient opportunities of being heard vide notices/show cause notices; however, there was no compliance to any of them. It was, therefore, observed that the assessee has nothing to say on the issue of addition made in its case and also on the penalty initiated subsequently. Also, the appellant had failed to explain the source of cash deposits and amount credited in its bank account. Therefore, it was established that appellant committed a default which was liable for penalty u/s 271AAC(1) of the Act. Accordingly, penalty order u/s 271AAC(1) of the Act imposing penalty of Rs.4,97,577/- (@10% of tax calculated u/s.115BBE) was passed on 22.12.2021.
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.
(AY.2017-18): 17. This appeal is against the levy of penalty u/s 271F of the Act by the AO vide order dated 10.07.2021. Penalty proceedings u/s 271F of the Act were initiated by the AO as the total income of the assessee was above the limit specified for filing of the return of income u/s 139 of the Act and the assessee was required to file return of income for the year under consideration within due date specified, however, no return of income had been filed by the assessee in this case. During penalty proceedings, the assessee was given sufficient opportunities of being heard vide notices/show cause notices; however, there was no compliance to any of them. It was, therefore, observed that assessee has nothing to say regarding its failure to file the return of income u/s 139 of the Act. Therefore, it was clearly , 380 & 414/SRT/2024/AY 2017-18 Reva Enterprises established that appellant committed a default which was liable for penalty u/s 271F of the Act. Accordingly, penalty order u/s 271F of the Act imposing penalty of Rs.5,000/- was passed on 10.07.2021.
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, is partly allowed,