Loading judgment…
Facts
The revenue filed an appeal against the order of the CIT(A) who deleted additions made by the Assessing Officer. The Assessing Officer had made additions related to unexplained cash deposits, withdrawals, investments, and interest income for AY 2017-18, which were based on information regarding two firms (M/s. Kanji Ambabhai Cotton Industries and M/s. Kanji Ambabhai & Co.) with the same partners and profit-sharing ratio.
Held
The CIT(A) deleted the additions made by the Assessing Officer, holding that the case was identical to AY 2013-14 where similar proceedings were dropped. The CIT(A) found that the additions amounted to double addition and that the transactions of M/s. Kanji Ambabhai Cotton Industries were already incorporated in the consolidated accounts of M/s. Kanji Ambabhai & Co., hence no loss to revenue. The Tribunal upheld the CIT(A)'s order, agreeing that there was no escapement of income or loss to the revenue.
Key Issues
Whether the additions made by the Assessing Officer for unexplained cash deposits, withdrawals, investments, and interest income are sustainable when the transactions were already reflected in the consolidated accounts of a related firm with common partners, and if such consolidation amounts to double taxation or escapement of income.
Sections Cited
69A, 69B, 250, 147, 144B, 148, 143(2), 142(1), 2(31)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
आदेश/ORDER Per, Dr. A. L. Saini, AM: Captioned appeal filed by the revenue, is directed against the order passed by the National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals) [in short ‘Ld.CIT(A)’], dated 10.03.2025 under section 250 of the Income Tax Act, 1961 (in short, ‘the Act’), which in turn arises, out of an assessment order passed by the assessing officer under section 147 read with section 144B of the Act on 30.03.2022.
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries
The grounds of appeal raised by the revenue are as follows:
“1. The Ld. CIT(A) has erred in law and facts in deleting the addition made by the Assessing officer u/s. 69A of the I.T. Act, 1961 of Rs. 41,10,751/- on account of unexplained cash deposits. 2. The Ld. CIT(A) has erred in law and facts in deleting the addition made by the Assessing officer u/s 69A of the I.T. Act, 1961 of Rs. 4,24,66,232/-on account of unexplained cash withdrawals. 3. The Ld. CIT(A) has erred in law and facts in deleting the addition made by the Assessing officer u/s. 69A of the 1.T. Act, 1961 of Rs. 8,45,00,000/- on account of unexplained investments in time deposits. 4. The Ld. CIT(A) has erred in law and facts in deleting the addition made by the Assessing officer u/s 69B of the I.T. Act, 1961 of Rs. 2,53,58,000/- on account of unexplained investments in mutual funds. 5.. The Ld. CIT(A) has erred in law and facts in deleting the addition made by the Assessing officer u/s. 69A of the 1.T. Act, 1961 of Rs. 1,42,03,419/- on account of unsecured loans treated as unexplained money. 6. The Ld. CIT(A) has erred in law and facts in deleting the addition made by the Assessing officer of interest income of Rs. 7,879/- under the head income from other sources. 7. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the assessing officer be restored to the above extent. 8. The findings of the assessing officer and the addition made by the assessing officer may be upheld in toto. 9.. The assessee craves leave to add, amend, alter or withdraw any or more grounds of appeal at the time of hearing of appeal.”
The facts of the case which can be stated quite shortly are as follows: The assessee is engaged in the business of running a cotton ginning factory at Manavadar of Junagadh District. The information has been received by the assessing officer, in the assessee`s case that during the year under
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries consideration, the assessee had undertaken certain financial transactions. Therefore, assessee`s case was reopened on the basis of information. Accordingly, notice u/s148 of the I.T. Act was issued to the assessee on 30.03.2021, which was duly served upon the assessee, requiring the assessee to file the return of income within 30 days of receipt of the said notice. In response to the notice u/s.148 of the Act, the assessee filed return of income on 19-05-2021 declaring total income at Rs.1,74,130/-. Subsequently, the notice u/s. 143(2) was issued on 17-11-2021. Accordingly, notice u/s 142(1) of the I.T. Act, 1961 dated 24-12-2021, fixing the hearing on 07-01-2022 was issued. The assessee was requested to furnish the details of business activity, computation of total income and also requested to explain the reasons for maintaining two PAN Numbers, that is, Kanji Ambabhai & Co. (PAN: AACFK2391J) & Kanji Ambhabhai Cotton Industries (PAN:AAIFK1676L).
In reply to the notice, the assessee has submitted that M/s. Kanji Ambabhai & Company and M/s. Kanji Ambabhai Cotton Industries are both the firms with the same set of partners and same sharing proportion. Since inception of Kanji Ambabhai Cotton Industries, a single return in the name of PAN of Kanji Ambabhai& Company including profit of M/s. Kanji Ambabhai Cotton Industries are filed and due tax on both the income is paid. The assessee, further stated that the re-assessment proceedings of assessment year (A.Υ.) 2013-14, was dropped for this reason.
However, the assessing officer noticed that there was information available with the department that the following transactions have been
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries carried out by the assessee during the relevant year, viz: (a) Cash deposits in current account of Rs. 41,10,751/-, (b) Cash withdrawals from current account of Rs. 4,24,66,232/-, (c) Purchase of time deposits (other than a time deposit made through renewal of another time deposit) of Rs. 8,45,00,000/- and (d) Other interest u/s 194A of Rs. 7,879/-. The case was reopened by issue of notice u/s 148 dated 30.03.2021. During the course of hearing of the case it was submitted that M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) and M/s Kanji Ambabhai & Co (PAN: AACFK2391J) are two separate firms with the same set of partners; M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) has been projected as a separate entity only to obtain textile modernization subsidy from the Ministry of Textiles as the said subsidy was not admissible to the already existing M/s Kanji Ambabhai & Co (PAN: AACFK2391J). It was also contended that though the major portion of business has been done in the name of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L), the results of such business has been consolidated in the hands of M/s Kanji Ambabhai & Co (PAN: AACFK2391J) and return of income for the assessment year (AY) 2017-18 has also been filed in the name of the said company; no return of income has been filed in the name of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) for the assessment year (AY) 2017-18. Further, it was stated that similar issues, as in the case of the present assessment cropped up in the assessment year (AY) 2013-14 when the proceedings were reopened and subsequently dropped. The assessing officer observed that with two distinct PANs, M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) and M/s Kanji Ambabhai & Co (PAN: AACFK2391J) are two separate firms in the eyes of law. The Ministry of Textiles, in awarding
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries the subsidy, recognized in M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) as the recipient. The assessment order u/s 143(3)/147 dated 30.03.2022 in the case of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) was finally framed based on the details uploaded against the firm from the bank regarding cash deposits, cash withdrawals and time deposits made with the bank during Financial Year (FY) 2016-17. The following additions were made by the assessing officer, viz: (a) Unexplained money u/s 69A of Rs. 41,10,751/-, (b) Unexplained money u/s 69A of Rs. 4,24,66,232/-, (c) Unexplained u/s 69A of Rs. 8,45,00,000/-, (d) Interest income of Rs. 7,879/-, (e) Unexplained investment u/s 69B of Rs. 2,53,58,000/-, and (f) Unexplained money u/s 69A of Rs. 1,42,03,419/-.
Aggrieved by the above additions, made by the assessing officer, the assessee carried the matter in appeal before the CIT(A) who has deleted the addition made by the assessing officer. The ld.CIT(A) observed that on identical facts and circumstances, for assessment year 2013–14, when proceedings u/s 147 were initiated, on the same issue, under consideration, however, they were dropped by the assessing officer. On merit, the ld.CIT(A) observed that the additions made by the assessing officer cannot sustained, since the additions tantamount to double addition, as the assessing officer has simply relied and reproduced the information available with him and despite the facts that the entire set of books of accounts were produced before him, the assessing officer has not identified any omission or escapement of income. It has been demonstrated that all the transactions done in the name of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) has been duly incorporated in the consolidated accounts in
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries the name of M/s Kanji Ambabhai & Co. (AACFK2391J) and there is no loss of Revenue to the income tax department. As such, even if the assessee, that is, M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) is considered as a separate firm, the additions made cannot sustain, as having been declared in the consolidated accounts of M/s Kanji Ambabhai & Co. (AACFK2391J). Therefore, ld.CIT(A) deleted the addition.
Aggrieved by the order of ld. CIT(A), the revenue is in appeal before us. 8. Learned CIT-D.R. for the revenue, argued that these are two partnership firms, having separate partnership deed and separate bank account, therefore, they should be assessed as a separate legal entity and therefore profit of these two partnership firms should not be clubbed for the purpose of taxation. Sub-section 31 of section 2 of the Income Tax Act, 1961, recognizes a partnership- firm, as a separate legal entity, therefore, both the partnership- firms, should have filed return of income separately and pay the income tax separately. No doubt, in both the partnership firms, the partners are common and same, and they are sharing the profit and losses equally, despite of this fact, since that the partnership- firm, which is having separate PAN number should be considered a separate legal entity and a separate person, under the Income Tax Act. Therefore, these partnership firms should offer the income tax separately, and they should not consolidate the profit to compute the tax liability. Therefore, learned CIT-DR contended that order passed by the assessing officer may be upheld.
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries 9. On the other hand, Shri Samir Jani, Learned Counsel for the assessee submitted that assessee is an entity holding two PAN and assessed as one unit. The reason for two different PAN is that prior to assessment year (A.Y.) 2017-18, the assessee approached Ministry of Textile for subsidy under Modernization Scheme of Textile policy. It was informed that they should not be an existing entity and holding a different PAN to prove separate entity, in order to eligible for subsidy. Accordingly, the assessee with the same set of partners and same set of shareholding obtained a fresh PAN for the assessee and applied and was granted subsidy from Textile Ministry. The same is also evident from the accounts of the assessee. Fault, if any, lies with PAN authority for granting dual PAN. The Bank account was also opened on the basis of the so allotted PAN. The assessee and M/s. Kanji Ambabhai & Company both maintain separate and regular books of accounts and the accounts are duly audited and profits at the end of the year is transferred to Profit & Loss account of M/s. Kanji Ambabhai & Company. The Capital, Funds and Unsecured Loans of M/s Kanji Ambabhai & Company were being used by the assessee. The Separate audit reports for M/s. Kanji Ambabhai & Company and the assessee are separately done and then profit is merged. Remuneration to Partners eligibility is made as one unit. Judicial precedents also lays down that when partners and there share is same, the income requires clubbing and assessed as a single unit. At the utmost it could be termed as Special Purpose Vehicle (SPV) and a single assessment is required. It is this wrong notion/conclusion which has led the whole reassessment procedure since the Bank has filed all the information through Specified Financial Transactions (SFT) under the PAN of the assessee. The assessing officer has also accepted the fact that there was no
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries business in the accounts of M/s. Kanji Ambabhai & Company. The entire business is only in the accounts of the assessee. Therefore, learned Counsel relied on the submissions made by the assessee, during the appellate proceedings and submitted that the order passed by the learned CIT(A) may be upheld.
Without prejudice, ld.Counsel stated that the entire reassessment proceedings are based on information reported by Banks. The first issue taken up by assessing officer was of Cash Deposit in Bank accounts. The cash deposits in the bank account is not Rs.41,410,751/- but the correct figure is that of Rs.40,45,000/-. The same is evident from the Bank Statement attached with submission, dated 29.03.2022 wherein cash deposits have been highlighted in yellow colour and the total of the same comes to Rs.40,45,000/-. The second issue with regards to cash withdrawals from bank account. Here also the statistics reported by the assessing officer are erroneous to the extent that the correct figure for cash withdrawal should be Rs.82,85,000/- instead of Rs.4,24,66,232/-. Therefore, most of the figures taken by the assessing officer contain typographical error. Besides, there is separate books of accounts for each partnership firm, each partnership firm got separate audit report, however, at the end to offer the income tax, the net profit of both the partnership firms have been clubbed and paid the taxes thereon, hence there should not be any loss to the revenue, therefore order passed by the learned CIT(A) may be upheld.
In rejoinder, Learned CIT-D.R. for the revenue, reiterated the entire facts as mentioned in the assessment order, and submitted that both the
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries partnership firms are separate legal person, hence income tax should be paid separately and therefore net profit of both the partnership-firm should not be clubbed for taxation purposes.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. At the outset, we note that findings of the assessing officer to the effect that no audit report has been prepared in the name of M/s Kanji Ambabhai Cotton Industries (AAIFK1676L), is factually incorrect. The separate audits were undertaken for both the firms, that is, M/s Kanji Ambabhai Cotton Industries (AAIFK1676L), and M/s Kanji Ambabhai & Co. (AACFK2391J), in fact, separate books of accounts were maintained for both the partnership -firms, therefore, concept of separate legal entity, and separate legal person, have been maintained by both the partnership firms. Hence, the provisions of sub-section 31 of section 2 of the Income Tax Act, 1961, which recognizes a partnership- firm, as a separate legal entity, have been maintained. However, in both the partnership -firms, as noted above, since, there were similar partners, having similar profit sharing ratio, having similar remuneration, hence, for the purpose of convenience, at the end of the financial year, combined their net profit of both the partnership firm to offer for tax. Therefore, having prepared separate books of accounts for both the partnership firm, separately, at the end of the year, the partners have also decided to prepare consolidated balance sheet and profit and loss account of both the partnership firms, and the concept of consolidated financial statements are recognized. Hence, for the purpose of convenience, at the end of the financial year, the books of accounts of both the partnership firms
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries have been consolidated, which is not prohibited in the income tax Act, since there is a separate books of accounts for both the partnership firm, however, for the purpose of convenience, if the partners decided, at the year and, to prepare consolidated profit and loss account which would not mean that both the partnership firms are not a separate legal person. The provisions of sub- section 31 of section 2 of the Income Tax Act, 1961, which recognizes a partnership- firm, as a separate legal entity, have been followed by the assessee- under consideration, however, at the year end, just to transfer the revenue and profit of one partnership -firm in the books of other partnership firm, where profit sharing ratio and remuneration of partners are same, and same persons are partners in both the partnership firms and then offer the tax on consolidated profit and that does not mean that there is escapement of income from tax, under the Income Tax Act, 1961. This has been done by the assessee for the purpose of convenience. The provisions of sub-section 31 of section 2 of the Income Tax Act, 1961, which recognizes a partnership- firm, as a separate legal entity, have been followed by the assessee under consideration. At the year end, just to transfer the revenue and profit of one partnership firm in the books of other partnership firm, and then offer the tax on consolidated profit, does not mean that there is escapement of income from tax.
If two genuine partnership firms (each a separate assessee under the Income-tax Act) truly transfer entries between their books merely to consolidate and pay tax on the combined profit, that by itself will not necessarily amount to “escapement of income. Section 2(31) of the Income- tax Act treats a firm as a “person” for the purposes of the Act , that is, a firm
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries is a recognized unit of assessment. But a partnership firm is not a corporately separate legal person. Under Indian partnership law a firm is a compendious name for the partners. It is not a corporate juristic person in the same sense as a company. A firm is not a legal entity distinct from partners, in real sense, while recognising the commercial relaxations that allow firms to sue/be sued and to be assessed for tax. A partnership firm is a separate unit of assessment even though not a “person” in the corporate sense; therefore amounts may legitimately be assessed in the hands of the firm and/or the partners depending on the true nature of the transactions. If both firms are genuine commercial concerns, profit-sharing ratios and partners’ remuneration truly are the same, and the entries between firms were bona fide and tax has been offered on the consolidated profit, then there is no escapement of income.
We find that both the partnership firms, claimed to be one and profit & loss account for both the firms are prepared separately. Audited profit & loss account for both the firms are separately prepared. Such audit reports can also be found from portal. However, at the year end, they prepared consolidated profit and loss account and offer the tax on consolidated profit, and that does not mean that both the trusts did not follow the concept of separate person. The payment of income tax on the consolidated profit also does not indicate that both the firms are paying less income tax as compared to the payment of tax that would have been paid by these firms separately, individually, as the tax rate is same in both partnership firms and profit sharing ratio of the partners is also equal in both the partnership firms. Hence, there is no tax evasion. Therefore, we find from the audited accounts
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries of M/s Kanji Ambabhai & Co. (AACFK2391J) that all the transactions, which were done in the name of M/s Kanji Ambabhai Cotton Industries (AAIFK1676L) has been duly incorporated in consolidated profit and loss account and hence there is no loss of Revenue to the Income Tax Department.
We note that following documents and evidences were submitted by the assessee, before the lower authorities: (i) Cash Book highlighting cash deposited and withdrawn from Bank accounts. (paper book page-27 to 43) (ii) Bank Statements highlighting cash deposited and withdrawn. (paper book page-44 to 136) (iii) Ledger copy of PGVCL, Interest income recorded in books. (paper book page-137) (iv) Ledger Copy, ITR-V, Bank Statements for unsecured loans. (paper book page-138 to 152 & 158 to 163) (v) ITR-5, Computation of Income & Audit Report of Kanji Ambabhai & Co. (PAN-AACFK2391J) (paper book page-167 to 216 & 229 to 243) (vi) Copy of Audit Report for Kanji Ambabhai Cotton Industries (AAIFK1676L) (paper book page-224 to 228) (vii) Copy of investment Ledger. (paper book page-247 to 250) (viii) Copy of VAT returns. (paper book page-435 to 438) (ix) Reassessment order for A.Y.2013-14 in the case of assessee (AAIFK1676L) paper book page-445 & 446).
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries (x) Partnership deed of the assessee (AAIFK1676L). (paper book page-447 to 451)."
It is evident from the above documents and evidences that before the lower authorities, the assessee submitted each and every document as noted above and evidence to explain the genuineness of the consolidated profit and loss account made by the assessee to offer the tax. We note that assessing officer has not refuted or discredited these above evidences and documents. The assessing officer does not mention why he is not accepting these evidences. On the contrary, the assessing officer has just brushed aside these evidences without even a word on why they are not acceptable. It is a well settled Law that when an assessee has all the possible evidence in support of its claim, they cannot be brushed aside based on surmises.
Therefore, we find that the ld. CIT(A) has considered the above documents and evidences in the right perspective and deleted the addition made by the assessing officer. The ld.CIT(A) noticed in the light of the above facts, documents and evidences that a perusal of the assessment order shows that the assessing officer has started from the returned income (vide return filed in response to notice u/s148 of the Act) of Rs.1,74,130/-, which is the income declared by M/s Kanji Ambabhai & Co (PAN: AACFK2391J) for the AY 2017-18. This has been specially mentioned by the assessee in the submission dated 06.03.2025 as follows: "As evident from the audited Profit and Loss account of M/s Kanji Ambabhai Cotton Industries (AIFK1676L) the sales figures are Rs.27,37,71,785/- whereas the Purchases are Rs.23,92,38,496/- and the Gross Profit after Direct Expenses is Rs.16,45,120/-whereas the Net Profit is Rs.5,63,790/-(As per PDF-2). Ongoing through the audited Profit & Loss account of Kanji Ambabhai & CO. (AACFK2391J) PDF-1 it could be noticed that there are no sales and the only
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries credit Entry found is transfer of profit from M/s. Kanji Ambabhai Cotton industries (AAIFK1676L) amounting to Rs.5,63,790/-The Net Profit therein, after claiming expenses of Rs.3,99,709/- is reported at Rs. 1,64,081/-. Ongoing through the Computation of Income for A.Y.2017-18 of Kanji Ambabhai & Co. (AACFK2391J) PDF-11 it can be noticed it starts with the Net Profit starts with Rs.1,64,081/- and after considering disallowable and allowance of depreciation and Chapter-VIA deductions the Net Taxable Income is computed at Rs.1,74,130/- and due tax thereon is paid."
Therefore, ld.CIT(A) noticed that the assessing officer has started from the book results of M/s Kanji Ambabhai & Co. (AACFK2391J) and made the additions on the basis of the information available in respect of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L). While all these transactions were explained with reference to the books of accounts of M/s Kanji Ambabhai & Co. (AACFK2391J) at the assessment stage, additions were made in the hands of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L), holding it as a firm distinct and separate from M/s Kanji Ambabhai & Co. (AACFK2391J). Such a double addition based on same facts and figures is erroneous because it was within the knowledge of the assessing officer that the transactions have been reflected by way of consolidation of accounts in the hands of M/s Kanji Ambabhai & Co. (AACFK2391J). However, the assessing officer was under an apparent compulsion since PANs of the two firms were different and details of transactions were uploaded in the systems in the name of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L), for which no return of income was filed. This entire episode is the result of using two PANs for the same entity for the purpose of availing government subsidy. The ld.CIT(A) also noticed that the assessee in regard to assessment year (AY) 2013-14
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries when proceedings u/s 147 were initiated and dropped in the case of the assessee on identical facts and circumstances. Therefore, ld.CIT(A) held that the additions made by the assessing officer cannot sustain, since the additions tantamount to double addition. The assessing officer has simply relied and reproduced the information available with him and despite the facts that the entire set of books of accounts were produced before him, the assessing officer has not identified any omission or escapement of income. Therefore, ld. CIT(A) observed that all the transactions done in the name of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) has been duly incorporated in the consolidated accounts in the name of M/s Kanji Ambabhai & Co. (AACFK2391J) and there is no loss of Revenue to the income tax department. As such, even if the assessee, i.e. M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) is considered as a separate firm, the additions made cannot sustain, as profit having been declared in the consolidated accounts of M/s Kanji Ambabhai & Co. (AACFK2391J). Therefore, based on these facts and circumstances of the case, the learned CIT(A) deleted the addition.
We note that how to do the business, how to take the benefit of government subsidy and the commercial expediency of a businessman's decision to incur, an expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. Such decisions in the very nature of things have to be taken from a business point of view and have to be respected by the authorities no matter that it may appear to the latter that the expenditure incurred was unnecessary or avoidable. Why the assessee took the separate PAN number, the factual background behind this, is that M/s.
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries Kanji Ambabhai & Company is a partnership firm duly incorporated and regularly assessed to tax for more than fifty years. Prior to financial year (F.Y.) 2011-12, since it was desirous of obtaining benefits of "Modernization benefits under Textile Policy" it explored the procedure and found that only new units were eligible for such benefits. Since old units were not eligible for benefits, it applied for the benefit scheme under the name of Kanji Ambabhai Cotton Industries at the same location. It was required to possess electricity connection in the name of Kanji Ambabhai Cotton Industries and State Electricity Board required a PAN in the name of applicant, it obtained a PAN in the name of Kanji Ambabhai Cotton Industries. The partnership deed of Kanji Ambabhai & Company authorized to open a branch or a separate business in the name of partnership firm or any other name, it applied and started a modernized business in the name of Kanji Ambabhai Cotton Industries. Resultantly, the entire business of Kanji Ambabhai & Company was diverted to Kanji Ambabhai Cotton Industries. Separate accounts, in the name of Kanji Ambabhai Cotton Industries was maintained and were duly audited after transferring the profits to the accounts of Kanji Ambabhai & Company and getting its accounts also audited. Such both audit reports of both partnership firms have been duly submitted to department within the statutory rime limit. Return of income for all the previous years, and till date are being filed based on such accounts after including the profits of both the firms and duly assessed accordingly under scrutiny assessment. Both the partnership firms, are maintaining separate books of accounts, both partnership firms, got the books, audited separately, therefore, provision of section 2(31) of the Income-tax Act, which treats a firm as a “person” for the purposes of the Act , that is, a firm
I.T.A Nos. 345/Rjt/2025 A.Y. 2017-18 M/s. Kanji Ambabhai Cotton Industries is a recognized unit of assessment, have been maintained and respected by the assessee, however, for the purpose of convenience, at the year end, a consolidated profit and loss account was prepared where profit of both the partnership firms gets accumulated and on such consolidated profit, the assessee made the payment of taxes. We also note that the similar issue has been arisen in assessment year (A.Y.) 2013-14 wherein the reassessment proceedings were dropped. Hence, we find that considering the above facts and circumstances of the case, there is no escapement of income and no loss to the revenue.
On a careful reading of the order of ld.CIT(A) and the findings thereon, we do not find any valid reason to interfere with the decision and findings of the ld.CIT(A) in holding that there is no escapement of income and no loss to the revenue. Hence, we sustain the order of the ld.CIT(A) and reject the grounds raised by the revenue.
In the result, appeal filed by the revenue, is dismissed.
Order pronounced in the open court on 15-12-2025
Sd/- Sd/- (DINESH MOHAN SINHA) (A. L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot Dated: 15/12/2025 Dkp Outsourcing Sr.P.S