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Facts
The assessee-firm, Sri Venkateswara Oil Distributors, appealed against the order passed by the CIT(A) which confirmed the Assessing Officer's (AO) order under section 144. The AO had treated cash deposits of Rs. 7,74,65,100/- in the firm's bank account as its business receipts and made an addition of Rs. 27,11,278/-. The assessee-firm contended that it was dissolved on 01.02.2014 and its business was taken over by a proprietor, Shri Kota Nagaiah, but the PAN in the bank account was not updated.
Held
The Tribunal noted that the assessee-firm was indeed dissolved and its business taken over by Shri Kota Nagaiah. The cash deposits in the bank account were made during the period when Shri Kota Nagaiah was operating the business as a sole proprietor. However, the Tribunal also observed that neither the AO nor the CIT(A) had factually verified this claim. Therefore, the matter was restored to the file of the AO for fresh adjudication.
Key Issues
Whether the cash deposits made in the bank account, after the dissolution of the assessee-firm and its business takeover by a proprietor, should be treated as the business receipts of the dissolved firm.
Sections Cited
144, 142(1), 133(6)
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Income Tax Appellate Tribunal, VISAKHAPATNAM “SMC” BENCH, VISAKHAPATNAM
Before: SHRI RAVISH SOOD, HON’BLE
आदेश /O R D E R
PER RAVISH SOOD, JM:
The present appeal filed by the assessee-firm is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 30.10.2024, which in turn arises from the order passed by the Assessing Officer (for short “A.O”) under section 144 of the Income-Tax Act, 1961 (for short,
I.T.A.No.444/VIZ/2025 Sri Venkateswara Oil Distributors “the Act”), dated 29.12.2019 for the Assessment Year 2017-18. The assessee-firm has assailed the impugned order on the following grounds of appeal:
“1. That the order passed by the Honorable CIT (Appeals) u/s 250 on 30/10/2024 confirming the order passed by the learned Assessing Officer u/s 144 on 29/12/2019 is bad in law and bad on facts.
2. That having regard to the facts and circumstances of the case, the learned Assessing Officer has failed to appreciate that the appellant did in fact filed detailed information to the questioner from which it can be seen that cash deposits were accounted for in the books of proprietor. Hence, once an income has already been offered for taxation, the same cannot be taxed again and the impugned assessment order so passed has led to double taxation, hence the Honorable CIT (Appeals) is not justified in upholding such illegal action of the learned Assessing Officer 3. That, having regard to the facts and circumstances of the case, the learned assessing officer has erred on facts and in law making an addition of Rs. 2711728/- on estimate basis under the head business income on account of cash deposited in the bank. The learned assessing officer erred on facts and in law by not appreciating the fact that the cash so deposited has already been incorporated while offering income by the proprietor in his individual capacity and all these cash deposits in bank were duly recorded in his audited books of accounts under PAN CVUPK4737R hence the Honorable CIT (Appeals) is not justified in upholding such a illegal action of learned assessing officer.
4. The Appellant relies on the case law of Goutam Medicose, Dhar vs ITO, Dhãr ITAT, Indore order dated 21/02/2025 as the facts of the appellant's case squally false with the facts in the above mentioned case.
5. Alternative plea: - Without prejudices to the above arguments, considering that the original order was passed u/s 144 of the IT Act., The appellant prays to restore the file to the jurisdictional assessing officer to verify the deposits made in bank with the audited books of accounts of the proprietor by name Kota Nagaiah assessed in PAN CVUPK4737R.”
Succinctly stated, the A.O based on the information that the assessee-firm as per the ITS data available with the Department had during the demonetization period i.e., 09.11.2016 to 30.12.2017 made substantial cash transactions/deposits in its bank accounts to the tune of Rs.91,90,845/-, but had not filed its return of income for the Page. No 2
I.T.A.No.444/VIZ/2025 Sri Venkateswara Oil Distributors subject year, issued notice under section 142(1) of the Act dated 23.11.2017, wherein it was called upon to file its return of income for the year under consideration on or before 23.12.2017. However, the assessee-firm failed to file its return of income in compliance to the aforesaid notice.
Thereafter, a system generated show-cause notice (for short, “SCN") in ITBA portal dated 23.12.2017 was issued to the assessee-firm, wherein it was called upon to furnish information regarding the source of the aforementioned cash deposits made during the period relevant to A.Y. 2017-18. Also, a notice dated 16.10.2019 was issued to the assessee-firm manually on 28.10.2019.
Ostensibly, as the assessee-firm had failed to comply with the aforementioned SCN's dated 23.09.2019 and 16.10.2019, therefore, a final opportunity letter dated 09.11.2019 was issued, wherein it was called upon to furnish its explanation for not filing its return of income for the subject year.
In the meantime, the AO, based on the information gathered from the ITBA portal, observed that the assessee-firm had, during the year under consideration, made cash deposits of Rs. 7,74,65,100/- in its bank account No. 11579482063 held with State Bank of India, Krosur Branch in the name of M/s. Sri Venkateswara Oil Distributors. The AO, based on the aforesaid information obtained the bank statements of the assessee-firm for the subject year from the bank under section 133(6) of the Act, which, confirmed the aforesaid factual position regarding the cash deposits made in the above- mentioned bank account.
Page. No 3
I.T.A.No.444/VIZ/2025 Sri Venkateswara Oil Distributors 6. The A.O taking cognizance of the fact that the assessee-firm had failed to comply with the notices issued under section 142(1) of the Act, and had also not filed its return of income for the subject year, thus based on the information available in the ITBA portal proceeded to frame the assessment to the best of his judgment under section 144 of the Act.
As is discernible from the record, it transpires that the assessee-firm in the course of the assessment proceedings had furnished certain e-submissions, wherein it was stated that, as the partnership firm was dissolved on 01.02.2014, therefore, for the said reason, it had, subsequent to its dissolution, not filed the returns of income. However, the AO did not find favor with the aforesaid explanation of the assessee firm for the reason that the assessee firm had not applied for cancellation of its Permanent Account Number (for short, “PAN”). Apart from that, the A.O observed that the assessee firm had failed to substantiate based on supporting documentary evidence that it had discontinued its business of running a petrol bunk, and the same during the subject year was being run by some other persons/entities with M/s. Indian Oil Corporation. Accordingly, the AO, based on his aforesaid observations, held the entire amount of cash deposits of Rs. 7,74,65,100/- as the business receipts of the assessee firm for the year under consideration on which he determined its income on an estimated basis @3.5%, i.e., at Rs.27,11,278/-.
Aggrieved, the assessee firm assailed the assessment order before the CIT(A) but without success.
Page. No 4
I.T.A.No.444/VIZ/2025 Sri Venkateswara Oil Distributors 9. The assessee-firm, being aggrieved with the order passed by the CIT(A), has carried the matter in appeal before the Tribunal.
I have heard the Learned Authorized Representatives of both parties and perused the orders of the authorities below, as well as considered the material available on record.
Shri P. Srinavasa Prasad, Learned Authorized Representative (for short “Ld.AR”) for the assessee firm, at the threshold of hearing of the appeal, submitted that both the lower authorities had grossly erred in law and the facts of the case in treating the cash deposits of Rs.7,74,65,100/- made in the bank account No. 11579482063 with State Bank of India, Krosur Branch as the business receipts of the assessee-firm. Elaborating on his contention, the Ld.AR submitted that it is an admitted fact that the assessee-firm was dissolved vide deed of dissolution dated 01.02.2014, Page Nos. 2 to 4 of assessee’s paper book (APB). The Ld.AR submitted that pursuant to the aforesaid dissolution of the assessee-firm, its wholesale and retail business of sale of petroleum, diesel and lubricants of IOCL, which was earlier carried in the name of style of M/s. Sri Venkateswara Oil Distributors was taken over as a going concern by one of the erstwhile partners, viz. Shri Kota Nagaiah, S/o. Venkaiah resident of Pulipadu, Guntur District, who had, thereafter, continued the said business under the same name and style. The Ld.AR submitted that the AO in the body of the assessment order had duly taken cognizance of the fact that it was brought to his notice that the assessee-firm was dissolved on 01.02.2014, and, thereafter, its business was taken over and continued by one of the erstwhile partners as a sole proprietor. Elaborating further on his contention,
Page. No 5
I.T.A.No.444/VIZ/2025 Sri Venkateswara Oil Distributors the Ld.AR submitted that though the assets/liabilities of the assessee-firm (since dissolved) were taken over by Shri Kota Nagaiah (supra), as a proprietor of M/s. Sri Venkateswara Oil Distributors w.e.f. 01.02.2014, but inadvertently the PAN of the assessee-firm with State Bank of India, Krosur Branch was omitted to be substituted by that of the proprietor viz., Shri Kota Nagaiah (supra). The Ld. AR submitted that as the subject bank account No. 11579482063 held with State Bank of India, Krosur Branch, in the name of M/s. Sri Venkateswara Oil Distributors was, during the period relevant to A.Y. 2017-18, held by Shri Kota Nagaiah, proprietor of M/s. Sri Venkateswara Oil Distributors, therefore, there was no justification for the AO to have held the cash deposits made in the said bank account as the business receipts of the assessee-firm (since dissolved) and make the impugned addition of the estimated profit on the said amount in its hands. The Ld. AR in his attempt to buttress his claim that the subject bank account No. 11579482063 during the subject year was held by Shri Kota Nagaiah, proprietor of M/s. Sri Venkateswara Oil Distributors had drawn our attention to the copy of the subject bank account statement, wherein it was mentioned that the aforementioned concern was the proprietary concern of Shri Kota Nagaiah, Page No. 20 of APB. Apart from that, Ld.AR had referred to the copy of the ledger account off the subject bank account No. 11579482063 as was appearing in the books of accounts of Shri Kota Nagaiah, proprietor of M/s. Sri Venkateswara Oil Distributors during the year under consideration, Page nos. 13 to 19 of APB. The Ld.AR on being specifically queried as to whether the fact of the dissolution of the assessee-firm and taking over of its business as a going concern by Shri Kota Nagaiah as a sole-proprietor was brought to the notice of the A.O in the course of the assessment proceedings, had drawn our
Page. No 6
I.T.A.No.444/VIZ/2025 Sri Venkateswara Oil Distributors attention to a letter dated Nil that was filed pursuant to a notice dated 13.09.2019 with the ITO, Ward 1(1), Guntur, wherein at S.No. 1 said fact was brought to the notice of the AO and a copy of the “dissolution deed” of the assessee firm was also filed before him, Page No. 7-8 of APB. The Ld.AR based on the aforesaid facts submitted that as the authorities below had wrongly made the impugned addition in the hands of the assessee-firm, therefore, the same, in all fairness be vacated.
Per contra, Shri K. Prasad, Learned Senior Departmental representative (for short “Ld. DR”), relied upon the orders of the authorities below. The Ld. DR submitted that as the assessee-firm had failed to substantiate its aforesaid claim before the authorities below based on irrefutable documentary evidence, therefore, they had rightly made/sustained the impugned addition in its hands.
I have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below, and considered the material available on record.
Admittedly, it is a matter of fact discernible from the record that the assessee- firm was dissolved vide a “dissolution deed” dated 01.02.2014, wherein its business of running a petrol bunk was thereafter taken over and continued by one of its erstwhile partners viz., Shri Kota Nagaiah, as a sole proprietor. I find that the fact that Shri Kota Nagaiah (supra), during the year under consideration, was holding the subject bank account No. 11579482063 as a proprietor of M/s. Sri Venkateswara Oil Distributors can safely be gathered on a perusal of the statement of the said bank account as had been filed before us, Page No. 20 of APB. Apart from that, I find that the fact that Shri Kota
Page. No 7
I.T.A.No.444/VIZ/2025 Sri Venkateswara Oil Distributors Nagaiah (supra) was carrying on the business of M/s. Sri Venkateswara Oil Distributors as proprietor, can also be gathered on perusal of the copy of the ledger account of the said bank account as appearing in his “books of accounts” for the subject year, Page Nos. 13 to 19 of APB. In fact, I find that the assessee-firm in the course of the proceedings before the A.O had vide its letter dated Nil that was filed in the course of the assessment proceedings pursuant to the notice dated 30.07.2019 received from the AO, had placed on record a copy of the “dissolution deed” and had also brought to his notice the fact that Shri Kota Nagaiah (PAN: CVUPK4737R) i.e., one of the erstwhile partner had subsequent to the dissolution of the firm w.e.f 01.02.2014 taken over and continued the business of running the petrol bunk as a sole-proprietor under the same name and style of M/s. Sri Venkateswara Oil Distributors.
I find that it is the claim of the assessee-firm that the genesis of the entire controversy leading to the impugned treatment of the cash deposits of Rs. 7,74,65,100/- as its business receipts, can safely be traced in the omission of not carrying out any amendment/substitution of the PAN with the State Bank of India, Krosur Branch. It is stated by the Ld. AR that it was for the aforesaid omission in not substituting/amending the PAN in the bank account that had resulted to factual wrong reporting by the bank, wherein it had, based on the PAN of the assessee firm as was available on its record, reported the said cash transactions in its case.
Be that as it may, I am of the view that though the aforesaid facts projected before me by the assessee-firm instills confidence regarding its claim that the subject cash deposits of Rs. 7,74,65,100/- belonged to Shri Kota Nagaiah, proprietor of M/s. Sri
Page. No 8
I.T.A.No.444/VIZ/2025 Sri Venkateswara Oil Distributors Venkateswara Oil Distributors, who had taken over the business of the assessee-firm after its dissolution w.e.f. 01.02.2014, and thus, there was no justification for the AO to have held the subject cash deposits as the business receipts of the assessee-firm, but, at the same time, I cannot remain oblivious of the fact that neither of the authorities below had factually verified the said claim of the assessee-firm. In my view, the matter in all fairness and interest of justice requires to be restored to the file of the AO with a direction to re-adjudicate the case after taking cognizance of the aforesaid claim of the assessee-firm. Needless to say, the A.O shall, in the course of the set-aside proceedings, afford a reasonable opportunity of being heard to the assessee firm, which shall remain at liberty to substantiate its claim based on fresh documentary evidence, if any. I, thus, in terms of my deliberations, set aside the matter to the file of the AO for fresh adjudication.
Resultantly, the appeal filed by the assessee-firm is allowed for statistical purposes in terms of my aforesaid observations.
Order pronounced in the open court on 16th February, 2026.