ITO Ward-1 Bharatpur Vs Sanjay Mittal (ITAT Jaipur)
Individual’s PAN in Firm’s Bank Account Does Not Make Business Receipts His Income: ITAT
Introduction
The ITAT, Jaipur Bench, has upheld the deletion of an addition of ₹8,68,08,670 under Section 69A where the Assessing Officer treated a partnership firm’s bank receipts as unexplained money belonging to an individual partner.
The addition arose because the bank account continued to carry the individual’s PAN details, despite conversion of his proprietary business into a partnership firm. The Tribunal found that the firm’s return, audited financial statements and banking records supported the assessee’s explanation.
Dismissing the Revenue’s appeal, the Tribunal held that no contrary evidence had been produced to establish that the receipts belonged to the assessee in his individual capacity.
Facts of the Case
Sanjay Mittal carried on business under the name M/s. Udai Chand Mittal, operating a Hindustan Petroleum retail outlet as a proprietary concern up to Financial Year 2016-17.
From Financial Year 2017-18, two persons, Vishnu Kumar Mittal and Ajay Kumar Mittal, were admitted as partners. The business consequently operated as a partnership during that financial year.
However, disputes arose between the partners, and the firm was dissolved on 31 March 2018. The assessee resumed the business as a proprietary concern from 1 April 2018.
For Assessment Year 2018-19, the assessee filed his individual return on 21 September 2018, declaring total income of ₹11,15,450. His return was selected for scrutiny.
Why the Assessing Officer Made the Addition
During assessment, the Assessing Officer questioned receipts of ₹8,68,08,670 in the business bank account.
Although the assessee maintained that the transactions pertained to the partnership firm, the bank account continued to reflect his individual PAN. The Assessing Officer considered the explanation unproved and treated the entire receipts as income assessable in the individual’s hands.
The assessment proceeded on the view that the receipts had not been established as belonging to the partnership firm. Consequently, the officer made an addition under Section 69A as unexplained money.
The dispute therefore centred on whether the continued presence of the individual’s PAN in the bank records justified attributing all the business receipts to him.
Documentary Evidence Before the CIT(A)
The assessee challenged the addition before the CIT(A), National Faceless Appeal Centre.
The supporting material included the partnership deed, the firm’s income-tax return, trading and profit and loss accounts, balance sheet, audit report and cash book.
The CIT(A) found that these records established that the bank entries related to the partnership firm. The documents had neither been shown to be bogus or incorrect, nor had the Assessing Officer undertaken enquiries to disprove their genuineness.
The appellate authority also observed that the officer could have verified the position with the other partners before treating the receipts as the individual’s income.
Section 69A Could Not Be Applied on These Facts
The CIT(A) examined the conditions governing Section 69A, including ownership of the money, its absence from the relevant books and the lack of a satisfactory explanation regarding its nature and source.
On the facts, the disputed deposits were explained through the partnership firm’s business records and supporting documents.
The CIT(A) held that the bank account’s continued linkage with the individual’s PAN did not convert the firm’s receipts into his personal income. At most, the assessee could be faulted for not updating the PAN details attached to the account.
Accordingly, the appellate authority deleted the entire ₹8.68 crore addition.
It also observed, alternatively, that even if the receipts were attributed to the assessee’s business, the officer should have considered the profit element, rather than treating the whole receipts as income.
Tribunal’s Findings
Before the Tribunal, the Revenue sought restoration of the addition. The assessee relied on the documentary record supporting the partnership’s existence and ownership of the transactions.
The Tribunal noted that both the individual and the partnership firm had filed their respective returns on 21 September 2018. The firm had declared total income of ₹4,11,551, supported by an audited balance sheet.
The Tribunal found that the CIT(A) had examined the firm’s return, audited balance sheet, cash book and bank passbook before deleting the addition.
Crucially, the Revenue could not produce any contrary documents showing that the bank receipts belonged to Sanjay Mittal individually. The Tribunal therefore found no reason to interfere with the appellate findings and dismissed the Revenue’s appeal.
Conclusion
The ruling demonstrates that PAN details in bank records must be considered alongside evidence of the actual business transactions. In this case, the partnership deed, separate return and accounting records established that the receipts belonged to the firm.
The deletion rested on that evidence and the Revenue’s failure to rebut it. A failure to update banking particulars, by itself, did not justify taxing the partnership firm’s entire receipts in the individual partner’s hands.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal is filed by the Revenue as against the order dated 19.06.2024 passed by Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “Ld. CIT(A)”), arising out of assessment order passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) relating to the Assessment Year 2018-19.
2. Brief facts of the case are that the assessee is an individual carrying on business in the name and style of M/s. Udai Chand Mittal as a proprietary concern running retail outlet of Hindustan Petroleum, upto the Financial Year 2016-17. From the Financial Year 2017-18 onwards, two partners namely Shri Vishnu Kumar Mittal and Shri Ajay Kumar Mittal had been admitted as partners in the above said business. The partnership continued during the F.Y. 2017-18 and due to some dispute between the partners, the partnership firm was dissolved on 31.03.2018. Again the assessee continued the business as proprietorship concern from 01.04.2018. The assessee filed his return of income for the AY 2018-19 on 21.09.2018 declaring total income of Rs. 11,15,450/-. The return was selected for scrutiny assessment. The AO held that the assessee has failed to prove that the deposit in the bank account as reflected in the return of income of the partnership firm M/s. Udai Chand Mittal, but the bank account carries as a PAN No. of the individual. Therefore, the AO held the same not pertaining to the partnership firm and no copy ITR filed by the partnership firm before him, thereby receipts in the bank account of Rs. 8,68,08,670/- treated as income of the assessee.
3. Aggrieved against the assessment order, the assessee filed an appeal before Ld. CIT(A) and after perusal of the partnership deed, copy of ITR, profit and loss account, balance sheet, audit report of the partnership firm and copy of cash book, deleted the addition made in the hands of the assessee by observing as follows:- “4.3 I have carefully considered the facts of the case, the submission of the appellant and evidences on record. it is seen that the bank entries as mentioned in the assessment order related to the Firm M/s Udai Chand Mittal, Bayana. I find that the appellant had submitted the copy of Partnership Deed, Copy of ITR, Trading A/c. Balance Sheet of the Firm, Copy of Audit Report of Firm, Copy of Cash Book of Firm before the AO. The AO could have verified the fact from the other partners of the Firm ie. .e. Shri Vishnu Kumar Mittal and Shri Ajay Kumar Mittal but no such conformation was made before adding the same as income of the appellant only. The documents submitted by the appellant have not been proved as bogus or incorrect nor had the AO made any enquiry regarding the genuineness of the above documents made. Further, at the maximum, the AO if he was of the opinion that the above bank Account belongs to the appellant, he could take profit part of the receipts as is the income of the appellant instead of taking whole of the receipts as the income.
4.4 Section 69A of the Act reads as Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the (Assessing) officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”
4.5 From a plain reading of the above section, is clear that the conditions required is that a) assessee is found to be the owner of any money, bullion, jewellery or other valuable article and b) such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and c) the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or d) the explanation offered by him is not, in the opinion of the (Assessing) officer, satisfactory. In the case of the appellant, the cash deposited was not found in the possession of appellant as it is the partnership Firm’s account and not the appellant, and secondly the cash deposits related to the Firm M/s Udai Chand Mittal, Bayana. Thirdly, the appellant has also offered satisfactory explanation in the form of copy of Partnership Deed, Copy of ITR, Trading A/c. Balance Sheet of the Firm, Copy of Audit Report of Firm, Copy of Cash Book of Firm. Therefore, section 69A of the Act is not applicable in the instant case.
4.6 The facts is clearly established by the appellant that he was carrying on business under the name and style of M/s Udai Chand Mittal as a proprietary concern up to the Financial year 2016-17 and in the financial year 2017-2018, two partners i.e. Shri Vishnu Kumar Mittal and Shri Ajay Kumar Mittal were admitted as partners in the above said business. But the partnership continued only during the financial year 2017-2018, and due to some disputes between the partners, the firm was dissolved on 31.03.2018 and the appellant again continued the above said business as proprietorship concern since 01.04.2018. Therefore, it is established that the deposit in the bank account is income of the partnership firm M/s Uday Chand Mittal and not the appellant. Although the bank account in the name of M/s Uday Chand Mittal still carried the PAN details of the appellant, it does not mean that therefore, it becomes the Income of the ap es the Income of the appellant. The appellant can at best be faulted for not changing the PAN details attached to the bank account. Therefore, I am of the considered view that the addition of Rs. 8,68,08,670 u/s 69A of the Act is not sustainable and is directed to be deleted. The appeal on Ground Nos 1 to 9 are thus treated as allowed.”
4. Aggrieved against the appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal:-
“Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 8,68,08,670/- made by the AO on account of unexplained money u/s 69A of the I.T. Act, 1961 without appreciating the material facts of the case.”
5. Ld. CIT-DR appearing for the Revenue in support of the ground, requested to confirm the addition made by the AO.
6. Per contra, Ld. Counsel submitted before us a paper book containing various documents including show cause notice issued by the AO and reply filed by the assessee, wherein assessee furnished various details including bank account with Punjab National Bank (PNB), copy of the partnership deed, copy of the ITR filed by the partnership firm with audited report, cash book, etc. Since the partnership firm was closed within one financial year and the addition made by the AO in the bank account of PNB No. 1230012100000075 relates to the Firm with PAN No. AAFFU6669L and did not belong to the assessee, thus there cannot be any addition made in the hands of the assessee. Thereafter, Ld. CIT(A) fully appreciated the above facts as well as income returned by the partnership firm, deleted the addition, which does not require any interference and requested to dismiss the Revenue appeal.
7. We have given our thoughtful consideration and perused the materials available on record including the paper book and various details filed by the assessee. It is undisputed fact that the assessee filed return of income in his individual capacity on 21.09.2018 declaring total income of Rs. 11,15,450/-. Similarly, the partnership firm also filed its return of income on 21.09.2018 with audited balance sheet declaring total income of Rs. 4,11,551/-. The AO ignored the conversion of proprietary concern into proprietorship concern and thereby, added the whole receipts with bank account of the partnership firm as the income of the assessee in his individual capacity. After detailed analysis of the above documents namely ITR filed by the Partnership Firm with Audited Balance Sheet, Cashbook, Bank Passbook, etc., Ld. CIT(A) deleted the addition made in the hands of the assessee. Ld. CIT-DR appearing before us could not place on record any contrary documents to prove that the receipts in the bank account belongs to the assessee in his individual capacity. Thus, we do not find any merits in the grounds raised by the Revenue and the findings arrived by Ld. CIT(A) does not require any interference. Therefore, the grounds raised by the Revenue is devoid of merits and liable to be dismissed.
8. In the result, the appeal filed by the Revenue is hereby dismissed.
Order is pronounced in the open Court on 30-10-2026
