Steecon Infrastructure Vs ITO (ITAT Mumbai)
ITAT Mumbai held that addition towards unexplained and undisclosed income sustained as assessee itself claim payment of cash in the civil suit and failed to explain the source of the cash payment.
Facts- The assessee is a registered partnership firm. No regular return of income for the year under consideration was filed by the assessee. AO received an information from the Investigation Wing that assessee in the civil suit has claimed to have paid an amount of ₹ 1,44,00,000/- in cash which was paid to shri Gulab Singh Bhandari, as an advance for purchase of a property in addition to the payment of ₹ 3,56,00,000/-made through cheques.
AO assessed total income at ₹ 1,44,00,000/-. CIT(A) upheld the action of AO. Being aggrieved, present appeal is filed by the assessee.
Conclusion- Held that the assessee itself has made claim of payment of cash of ₹ 1,44,00,000/-and therefore it is for the assessee to explain the source of the same and in absence of which, the Assessing Officer has correctly held it to be unexplained and undisclosed income in the hands of the assessee. We do not find any error in the order of the Ld. CIT(A) in upholding the same.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is directed against order dated 30/11/2018 passed by the learned Commissioner of Income Tax (Appeals)-1, Jodhpur [in short the Ld. CIT(A)] for assessment year 2012-13, raising following grounds:
1) On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in confirming the assessing officer’s action of issuing the Notice u/s.148 of the Income Tax Act without recording the reasons if any and supplying the same to the Appellant Firm along with the Notice.
2) On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in confirming the assessing officer’s action of passing the Assessment Order u/s.143(3) r.w.s. 147 without disposing off the objections raised by the appellant firm by way of passing the speaking order and therefore the assessment order is bad in law and void-ab-initio as held by Honourable Supreme Court in case of G.K.N. Driveshafts India Ltd, 259 ITR 19.
3) On the facts and circumstance of the case, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.1,44,00,000/- as Undisclosed Income in the hands of the Appellant Firm without any corroborative evidence. Further, the Id. Commissioner of Income Tax (A) failed to appreciate that the appellant firm had categorically denied in the statement recorded u/s.131 of any such payments and also the Seller of Property has denied receipt of any such amount.
4) On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition without appreciating the facts that the addition of Rs.1,44,00,000/- is not sustainable in law only on the basis of assertions made in the Plaint filed before the District Court without any corroborative evidence in respect of such payments.
5) On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant was formed during the current assessment year itself and there were no operations carried out any time before and therefore the same could not be held as income in hands of appellant.
2. This appeal was filed at Jodhpur bench of the ITAT on 05/03/2019. Subsequently, on a request on behalf of the assessee for transfer of appeal to Mumbai, by the order of the Hon’ble President ITAT dated 05/10/2020, this appeal has been transferred to Mumbai benches of the ITAT.
3. Briefly stated facts of the case as culled out from the order of the lower authorities and submission of the assessee are that the assessee, a registered partnership firm, was constituted vide partnership vide dated 12/04/2011 by three partners namely (i) M/s Steecon infrastructure Private Limitd (1/3rd share of profit) through its Director Shri Vijay Bholanath Sharma, (ii) Shri Manish Prakash Mutha (1/3rd share of profit) and (iii) shri Ashok Mohanraj Chhajed (1/3rd share of profit). In the case of the assessee, no regular return of income for the year under consideration i.e. AY 2012-13 was filed by the assessee. Subsequently, the Assessing Officer received an information from the Investigation wing of the Income-tax department Jodhpur, dated 15/07/2014 that assessee in the civil suit filed before the Additional Civil Judge, Jodhpur, has claimed to have paid an amount of ₹ 1,44,00,000/- in cash, which was paid to shri Gulab Singh Bhandari, as an advance for purchase of a property in addition to the payment of ₹ 3,56,00,000/-made through cheques,. As no return of income was filed by the assessee, the Assessing Officer recorded reasons to believe that income escaped assessment and issued notice under section 148 of the Income-tax Act, 1961 (in short ‘the Act’) on 08/09/2014, asking the assessee to file return of income, but no compliance was made by the assessee. Subsequently notices under section 142(1) of the Act were issued calling for details and information in respect of the transaction of the property. The Assessing Officer rejected the contention of the assessee that no payment in cash was made for purchase of the property and in reassessment order passed under section 147 r.w.s.143(3) of the Act on 30/03/2016 , he assessed total income at ₹ 1,44,00,000/-,. Aggrieved, the assessee filed appeal before the Ld. CIT(A), however could not succeed, both on the legal ground challenging the validity of the reassessment as well as on merit of the addition. Not satisfied with the finding of the Ld. CIT(A), the assessee is in appeal before the ITAT by way of grounds as reproduced above.
4. Before us, the learned counsel of the assessee filed an application on 30/03/2022 raising an additional ground on behalf of the assessee, which is reproduced as under:
“On the facts and circumstances of the case, the notice issued u/s 148dated 08.09.2014on no-existing entity is illegal, invalid and void-ab-initia, as the appellant firm was dissolved on 01.01.2013”.
5. We have heard rival submission of the parties on the issue of admissibility of the additional ground. We find that additional ground raised being purely legal in nature and no investigation of the fresh facts is required, therefore additional ground raised is admitted for adjudication relying on the decision of the Hon’ble Supreme Court in the case of National thermal Power Corporation Ltd reported in 229 ITR 383 (SC).
6. In support of the additional ground raised, the learned counsel of the assessee submitted that the firm was dissolved vide deed of dissolution dated 01/01/2013 and therefore notice under section 148 of the Act has been issued on non-existent entity, which is illegal, invalid and void ab-initio, in view of the decision of the Hon’ble Supreme Court in the case of Maruti Suzuki India Ltd (2019) 107 taxmann.com 375 (SC).
7. The learned Departmental Representative (DR) on the other hand submitted that assessee has filed the dissolution deed dated 1/1/2013 for the first time before the Assessing Officer on 15/10/2015 ( i.e. after issue of notice u/s 148 of the Act) . A copy of the said letter of the assessee along with copy of dissolution deed dated 01/01/2013 is available on assessee’s paper-book pages 87 to 91. According to him, the assessee did not brought the fact of the dissolution of the firm to the notice of the Assessing Officer within 15 days of the discontinuance of business/dissolution of firm as required under section 176(3) of the Act, therefore Assessing Officer cannot be faulted for issuing notice for reopening of the assessment in the name of the firm.
8. Regarding the dissolution deed, he submitted that said deed is neither registered nor notarized. He further submitted that in the main part of the deed (on paper book page 89), effective date of dissolving of the firm is left blank. He also pointed out that on the said dissolution deed, signature of the partners are appearing on the last page and not on all pages. He emphasized that signature of the partners on the last page of the dissolution deed were not matching with the signature of the partners on the partnership deed dated 12/04/2011.
9. He further referred to section 189 of the Act and submitted that where a firm has been dissolved, assessment could be done by the Assessing Officer as if no such dissolution had taken place. He submitted that the partnership firm has been dissolved for subsequent acts but as far as the business which was carried out by the firm prior to its dissolution, all the partners are in existence and they are responsible for all the past acts of the firm jointly and severely. The learned DR also relied on the decision dated 5/04/2022 of the Hon’ble Supreme Court in the case of PCIT Vs Mahagun realtors P Ltd CIVIL APPEAL NO.OF 2022(ARISING OUT OF SPECIAL LEAVE PETITION (C) NO. 4063 OF 2020)
10. The Ld. Counsel of the assessee in the rejoinder referred to the provisions of section 189 of the Act and submitted that the subsection 1 of section 189 states that the reassessment order or the notice can be issued on firm name or firm PAN which was already dissolved. He further referred to subsection 4 of section 189 and submitted that said subsection clarifies the position as laid down in subsection 1, where the Assessing Officer is required to commence or conclude the assessment against the persons referred to in subsection 3 in case of dissolution of firm. In view of the learned counsel of the assessee, since the firm was already dissolved before the issuance of notice under section 148 of the Act, thus notice is bad in law because the notice could have been issued only on legal representatives i.e. the partners of the firm who were partners at the time of dissolution as required under subsection 3 of section 189.
11. Further, the learned counsel submitted that in the case, for a moment, it is presumed that the Assessing Officer was not aware of the fact of dissolution but that is not relevant for deciding the legality of the notice as an illegal notice cannot be considered to be legal due to non-awareness. He further submitted that in any case, the note sheet of assessment record mentions that Assessing Officer asked the assessee to submit copy of the dissolution deed, which means the Assessing Officer was made aware of the fact of the dissolution and therefore he had asked to submit a dissolution deed on or before 14/09/2015. He further submitted that in response to the said order sheet query, the assessee submitted a dissolution deed along with a letter, a copy of which is available on paper book page 87. He submitted that the Assessing Officer was aware of the dissolution of the firm on 24/08/2015, therefore he should have thereafter continued the reassessment only in the name of the legal representatives and not in the name of the firm, therefore all the notices issued after 24/08/2015 are null and void and the assessment order issued on 31/03/2016 on the dissolved firm is bad in law and deserved to be quashed. The learned counsel relied
on following decisions in support of his contention:
1. Income Tax Officer Vs. Bhupendra Bhikhalal Desai (2021) 131 com 40 (SC)
2. Bhupendra Bhikhalal Desai Vs. Income Tax Officer (2021) 196 com 529 (High Court of Gujarat)
3. Rupa Shyamsundar Dhumatkar Vs. Assistant Commissioner of Income Tax (2020) 120 com (High Court of Bombay)
4. PCIT, Delhi Vs. Maruti Suzuki India Ltd (2019) 107 com 375 (SC)
5. ACIT Vs. Neha Enterprises ITA No. 3666/M/2015 (Mumbai Tribunal)
6. ACIT Vs. DLF Cyber City Developers Ltd (2015) 53 com 81 (Delhi Tribunal)
12. Further, decision of the Hon’ble Bombay High Court in the case of Commissioner of Income-tax Vs Devidayal & Sons reported in 68 ITR 425 (Bombay) was specifically brought to the knowledge of the learned counsel of the assessee by way of note-sheet entry dated 7/6/23 and ld counsel was heard on the same on 23/06/23. . The learned counsel of the assessee responded that said decision is distinguishable as it pertains to provisions of section 44 of Income-tax Act, 1922 and not to provisions of section 189 of Income-tax Act, 1961, which is in question in the case. He further submitted that in the case notice was neither issued to any of the partners nor it was addressed to any of the partners, who were partners at the time of the dissolution. Thus, he reiterated his arguments that notice issued by the Assessing Officer in the case of the assessee is invalid and therefore assessment order is void ab-initio.
13. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. In the case date wise event chart submitted by the assessee is reproduced as under:
