Case Law Details
Krishna Enterprise Vs ITO (ITAT Ahmedabad)
The case of Krishna Enterprise Vs ITO before the Income Tax Appellate Tribunal (ITAT), Ahmedabad bench, centered on the validity of an income tax assessment framed on a dissolved partnership firm for the Assessment Year (AY) 2017-18. The Tribunal addressed a significant delay in filing the appeal and the substantive issues related to the assessment on a non-existent entity and unexplained cash credits.
Condonation of Delay
The assessee, Shri Krishna Enterprise, filed the appeal with a delay of 344 days. The former partner, Shri Yogesh H. Aalwani, submitted an affidavit explaining the delay. The firm was dissolved on April 1, 2016, and the business continued as a sole proprietorship by Aalwani under the same name. The delay was attributed to the assessee’s lack of awareness regarding electronic communication, not regularly checking emails, and the mobile number registered in the appeal form (Form 35) being inactive. The assessee became aware of the Commissioner of Income Tax (Appeals)’s (CIT(A)’s) dismissal order only upon receiving a communication regarding penalty proceedings on June 24, 2025.
Judicial Precedents for Condonation
The ITAT considered the precedents set by the Supreme Court:
- Collector, Land Acquisition vs. Mst. Katiji: This case advocates for a liberal construction of the term “sufficient cause” to advance substantial justice, noting that a litigant usually doesn’t benefit from a delayed appeal.
- Balakrishnan vs. M. Krishnamurthy: This ruling established that the acceptability of the explanation is what matters, not merely the length of the delay.
Guided by these principles, and accepting the explanation as bona fide, especially considering the difficulties small-town taxpayers face with new e-proceedings, the Tribunal condoned the delay of 344 days and admitted the appeal for a decision on the merits.
The Substantive Issue and Assessment Facts
The original assessment was initiated after the Assessing Officer (AO) noticed substantial cash deposits in the assessee’s bank accounts during the demonetisation period (AY 2017-18), based on Annual Information Report (AIR) and “Operation Clean Money” data.
Due to the assessee’s non-compliance—failing to file a return of income or submit details despite statutory notices—the AO completed the assessment ex-parte under Section 144 of the Income Tax Act, 1961. The AO found cash deposits of Rs. 12,10,400 and total bank credits of Rs. 7,52,08,145. Lacking a satisfactory explanation, the AO treated the cash deposit and 10/%of the unexplained credits (Rs. 75,28,815 as unexplained income under Section 69A, totalling Rs. 87,39,215, which was taxed under Section 115BBE.
On appeal, the CIT(A) upheld the addition, noting the assessee’s failure to prosecute the appeal and respond to notices.
Tribunal’s Holding and Key Legal Principle
The primary legal challenge before the ITAT was whether the assessment was bad in law because it was framed on a dissolved firm (a non-existent entity).
The assessee argued that the firm was dissolved on April 1, 2016, and the income/deposits were already accounted for in the proprietary concern’s books and audited under Section 44AB, making the firm’s assessment a case of double taxation.
The ITAT, however, held that the assessee did not intimate the dissolution to the Assessing Officer, nor did it participate in the assessment proceedings. The firm’s PAN remained active, and the bank accounts were operated in the firm’s name.
The Tribunal’s crucial holding was:
The framing of assessment in the name of the firm in the present facts cannot be straightaway termed as a jurisdictional defect, but rather a consequence of the assessee’s own non-compliance and non-disclosure.
The AO, having no means to know of the dissolution, was justified in framing the assessment based on available records.
Restoration for De Novo Adjudication
Despite this finding, the ITAT acknowledged that the assessee had filed additional documentary evidence (dissolution deed, audited accounts of the proprietary concern, and tax return acknowledgements) before the Tribunal. The Departmental Representative (DR) also raised a factual counter-point: the bank credits ($\text{Rs. }7.52$ crore) significantly exceeded the turnover disclosed in the proprietary accounts ($\text{Rs. }1.28$ crore), requiring reconciliation.
Given the need to properly adjudicate both the legal issue regarding the assessment on a dissolved firm (after considering the dissolution deed) and the factual issue of reconciling the large unexplained bank credits, the ITAT, in the interest of justice, set aside the CIT(A)’s order.
The matter was restored to the file of the AO for de novo adjudication, with a direction to consider all documents filed by the assessee and to provide a reasonable opportunity of being heard. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 17.05.2024, for the Assessment Year 2017-18, arising from the assessment order passed by the Income Tax Officer, Ward 5, Nadiad [hereinafter referred to as “Assessing Officer of AO”] u/s 144 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 17.10.2019.
2. Condonation of Delay
2.1 At the outset, it is noted that the appeal has been filed belatedly with a delay of 344 days. The assessee filed an affidavit of Shri Yogesh H. Aalwani, ex-partner of the assessee firm, explaining the reasons for the delay. The explanation offered by the assessee can be summarised as under:
1. The assessee firm, Shri Krishna Enterprise, was a partnership which stood dissolved with effect from 01.04.2016, and thereafter the business was continued by Shri Yogesh H. Aalwani as a sole proprietor under the same trade name.
2. The assessment order u/s 144 was framed in the name of the dissolved firm. Upon receiving notice of demand, the assessee preferred appeal before the learned CIT(A).
3. The learned CIT(A) passed order on 17.05.2024 through the faceless system. The assessee contends that it was not conversant with electronic communication and did not check e-mails regularly. Further, the mobile number updated in Form 35 was not in active use by the assessee, and therefore the electronic intimation of the appellate order did not come to its notice.
4. The assessee submits that all documents, including the deed of dissolution and audited accounts of the proprietary concern, were filed along with Form 35 before the CIT(A), but these were not taken into consideration while passing the order.
5. It was only when a communication was received from the Department on 24.06.2025 regarding non-compliance with penalty proceedings that the assessee came to know of the CIT(A)’s dismissal order. Immediately thereafter, the present appeal was filed before the Tribunal.
2.2 The assessee has thus explained that the delay was occasioned due to lack of awareness of electronic communication, coupled with the fact that the mobile number registered in Form 35 was not in operation, and that there were no deliberate or intentional latches on its part. The affidavit also stresses that the matter involves substantial merits, namely validity of assessment framed on a non-existent entity and double taxation of income already accounted for in the hands of the proprietor.
3. We have given our thoughtful consideration to the reasons advanced by the assessee. It is well-settled law that the expression “sufficient cause” for delay should receive a liberal construction so as to advance substantial justice. The Hon’ble Supreme Court in Collector, Land Acquisition vs. Mst. Katiji (167 ITR 471) laid down that ordinarily a litigant does not stand to benefit by lodging an appeal late and that refusing to condone delay can result in a meritorious matter being thrown out at the threshold. Similarly, in Balakrishnan vs. M. Krishnamurthy (1998) 7 SCC 123, it was held that the length of delay is not decisive, but the acceptability of the explanation is what matters.
3.1 In the present case, the explanation tendered by the assessee appears bona fide. With the advent of e-proceedings, it is not uncommon for small-town taxpayers to face genuine difficulties in receiving electronic communications and in promptly acting upon them. It is also a matter of record that once the assessee became aware of the appellate order, the present appeal was filed without further delay.
3.2 Considering the totality of circumstances, and guided by the aforesaid judicial pronouncements, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal in time. In the interest of substantial justice, the delay of 344 days in filing the present appeal is therefore condoned and the appeal is admitted for adjudication on merits.
4. Facts of the Case
4.1 The assessee was originally a partnership firm. Based on information from the Annual Information Report (AIR) and “Operation Clean Money,” the AO noticed substantial cash deposits in the bank accounts of the assessee during the demonetisation period. Despite issue of statutory notices u/s 142(1), the assessee did not file return of income or details as required. The AO, therefore, proceeded to complete assessment u/s 144 of the Act.
4.2 During the course of assessment proceedings, the AO also issued notices under section 133(6) of the Act to Bank of India, Nadiad, calling for information regarding the assessee’s bank accounts. In response, the bank furnished account statements. On verification, the AO noticed that the assessee had deposited cash of Rs.12,10,400/- during the period from 09.11.2016 to 30.12.2016 and further observed total credits in bank accounts amounting to Rs.7,52,08,145/-. In the absence of satisfactory explanation, the AO treated the entire cash deposit of Rs.12,10,400/- and 10% of the unexplained bank credits amounting to Rs.75,28,815/- as income u/s 69A of the Act. The total assessed income was determined at Rs.87,39,215/-, taxed u/s 115BBE, and penalty proceedings were separately initiated.
4.3 Aggrieved, the assessee carried the matter in appeal before the learned CIT(A). The case of the assessee was that the firm had already been dissolved on 01.04.2016 and the business was thereafter carried on by Shri Yogesh H. Aalwani as a sole proprietor under the same name and style. It was further submitted that the impugned deposits and credits were duly accounted for in the books of the proprietary concern and had been subject to audit u/s 44AB. Supporting documents such as the deed of dissolution, audited accounts, and income tax return acknowledgments were claimed to have been filed. The learned CIT(A), however, dismissed the appeal by observing that the assessee did not respond to notices and failed to prosecute the appeal. Referring to judicial precedents, the CIT(A) held that the conduct of the assessee showed lack of interest and, accordingly, sustained the addition of Rs.87,39,215/-.
4.4 Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds:
1. Addition of Rs. 87,39,230/- being unjust and unlawful be deleted .
2. Assessment having been framed on dissolved firm is bad in law.
3. Your appellant prays to add, alter or amend grounds of appeal at the time of hearing.
5. Before us, the learned Authorised Representative (AR) submitted that the assessment was framed in the name of a dissolved firm. It was explained that the partnership firm stood dissolved on 01.04.2016 and thereafter the business was continued by Shri Yogesh H. Aalwani as a sole proprietor under the same trade name. Therefore, the assessment made in the name of a non-existent firm is bad in law. It was further submitted that all bank deposits and credits have been duly recorded in the books of the proprietary concern of Shri Yogesh H. Aalwani, which were audited u/s 44AB. Copies of the dissolution deed, financial statements, income tax return acknowledgment, and other supporting documents were placed in the paper book. It was argued that taxing the same income again in the name of the dissolved firm amounts to double taxation and the addition deserves to be deleted.
6. The learned Departmental Representative (DR), on the other hand, supported the orders of the authorities below. It was submitted that apart from cash deposits of Rs.12,10,400/-, the AO noticed total credits of Rs. 7,52,08,145/- in the bank account and, in the absence of any reconciliation, treated 10% thereof as unexplained income. It was further pointed out that the Profit & Loss account filed by the assessee reflected turnover of only Rs.1,28,09,737/- which is far less than the quantum of credits appearing in the bank accounts. In such circumstances, the addition made by the AO was justified.
7. We have carefully considered the rival submissions and perused the record. It is a matter of record that the assessee firm claims to have been dissolved on 01.04.2016 and thereafter the business was carried on by one of the erstwhile partners as a proprietary concern. However, the assessee did not participate in the assessment proceedings, and no intimation of dissolution was ever given to the Assessing Officer. The PAN of the firm also continued to remain active, and the bank accounts were operated in the same name. In these circumstances, the Assessing Officer had no means to know that the firm had ceased to exist. The assessment was therefore framed in the name of the firm on the basis of records available to him. Thus, the framing of assessment in the name of the firm in the present facts cannot be straightaway termed as a jurisdictional defect, but rather a consequence of the assessee’s own non-compliance and nondisclosure.
7.1 The assessee has placed reliance on audited accounts of the proprietary concern and income tax return acknowledgments to submit that the impugned deposits and credits were duly recorded in the successor’s books. However, we notice that the AO has pointed out large unexplained credits aggregating to Rs. 7.52 crore in the bank accounts, whereas the turnover disclosed in accounts is much lower at Rs. 1.28 crore. No reconciliation of these entries with the books of account has been demonstrated before us.
7.2 In view of the rival contentions and the availability of additional documentary evidence filed before us, we are of the considered opinion that the matter requires a fresh examination at the end of the AO. Both legal issue regarding assessment on a dissolved firm and factual issue regarding reconciliation of bank deposits/credits with the books of accounts of the proprietor need to be properly adjudicated.
Accordingly, in the interest of justice, we set aside the impugned order of the CIT(A) and restore the matter to the file of the AO for de novo adjudication, after considering all documents filed by the assessee, including the dissolution deed, audited accounts, and tax return of Shri Yogesh H. Aalwani. The AO shall provide reasonable opportunity of being heard to the assessee.
8. In the result, the appeal is allowed for statistical purposes.
Order pronounced in the Court on 26th September, 2025 at Ahmedabad.
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