Case Law Details
ITO Vs Devarshi Pharma (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed the Revenue’s appeal for statistical purposes and restored the matter to the Assessing Officer for verification of factual aspects relating to additions made under Section 69A of the Income Tax Act, 1961.
The case arose from an assessment order passed under Section 144 for Assessment Year 2017-18, wherein the Assessing Officer treated deposits and credits appearing in the bank account of M/s Devarshi Pharma as unexplained money under Section 69A. The firm had been selected for scrutiny due to cash deposits of Rs. 12,00,000 made during the demonetisation period from 09.11.2016 to 30.11.2016. Since no return of income had been filed for the relevant assessment year and notices issued under Section 142(1) remained uncomplied with, the Assessing Officer proceeded on the basis of the bank statements.
The Assessing Officer observed that cash deposits of Rs. 27,90,000 and other credits amounting to Rs. 1,27,92,803 had been made in the bank account during the financial year 2016-17. In the absence of any explanation regarding the nature and source of the aggregate amount of Rs. 1,55,82,803, the entire amount was treated as unexplained money under Section 69A and added to the total income of the firm.
Before the Commissioner of Income Tax (Appeals), the assessee challenged the addition and also contended that the assessment itself had been framed in the name of a non-existent entity. According to the assessee, M/s Devarshi Pharma had originally functioned as a partnership firm comprising two partners, Shri Vikas Mohan Gupta and Shri Ajay Jain. The partnership firm stood dissolved with effect from 31.03.2015, and the business was thereafter taken over by Shri Vikas Mohan Gupta as a proprietorship concern operating under the same trade name, M/s Devarshi Pharma.
The assessee submitted that although a request had been made to the bank to convert the account from partnership status to proprietorship status and to update the PAN details, the bank had not carried out the change. It was further contended that all entries reflected in the disputed bank account had been duly incorporated in the books of the proprietorship concern and considered while computing the income of Shri Vikas Mohan Gupta. Copies of the proprietor’s income tax return, computation of income, balance sheet and profit and loss account were furnished during the appellate proceedings. The assessee also produced the dissolution deed dated 31.03.2015, the registration certificate issued in the name of the proprietorship concern and a copy of the application submitted to the State Bank of India requesting updation of PAN details in the bank account.
The CIT(A) accepted the assessee’s contention that the partnership firm had ceased to exist with effect from 31.03.2015 and observed that the first notice under Section 142(1) had been issued nearly three years after dissolution of the firm. Relying upon judicial precedents, including the decision of the Supreme Court in PCIT v. Maruti Suzuki India Ltd., the CIT(A) held that assessment proceedings initiated and completed in the name of a non-existent entity are void ab initio. On this basis, the CIT(A) concluded that the assessment framed in the name of the dissolved partnership firm suffered from a jurisdictional defect and could not be sustained. Consequently, the addition under Section 69A was deleted.
The Revenue challenged this finding before the Tribunal. The Departmental Representative argued that the dissolution of the firm had not been disclosed in the return of income or in the tax audit report.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is preferred by the revenue against the order dated 31.07.2025 of the Ld. National Faceless Appeal Centre (NFAC) Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN & Order No.: ITBA/NFAC/S/250/2025-26/1079150366(1) arising out of the order dated 31.12.2019 u/s 144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the ITO, Ward-2(2) for AY: 2017-18.
2. On hearing both sides we find that assessment was completed u/s 144 of the Act making an addition u/s 69A of the Act in regard to cash deposits in the bank account of the assessee firm and the same has been deleted by the ld. CIT(A) by the following findings:
“5. I have examined the facts of the case, grounds of the appellant, assessment order and submission given during the appellant proceedings. Ground No. 01 to 08 mainly pertain to that the Assessing Officer acted illegally in assuming jurisdiction over the firm when during the year the partnership firm does not exist and the assessment is on nonexistent entity and the additions arising out of it.
5.1 The case of M/s Devarshi Pharma (PAN: AACFD7157K) was selected for scrutiny as the firm deposited a cash amount of Rs. 12,00,000/- into its SBI bank account (A/C No. 30501353169) during the demonetization period, from 09/11/2016 to 30/11/2016. The fact that the firm had not filed a return of income for the Assessment Year 2017-18. Statutory notices under section 142(1) were issued to M/s Devarshi Pharma to comply, but these efforts were in vain. Ultimately, the Assessing Officer made the assessment based on the bank statement of the firm. The AO observed that the firm had deposited cash of Rs. 27,90,000/- and credit amounts of Rs. 1,27,92,803/- into the bank account during the financial year 2016-17. When no explanation was provided regarding the nature and source of the amount of Rs. 1,55,82,803/-, the amount was treated as unexplained money under section 69A of the Act and was added to the total income of the firm, M/s Devarshi Pharma.
5.2 During the appellate proceedings, the appellant raised grounds no. 01 to 11. On perusal of all grounds, the main contention of the appellant is that the Assessing Officer erred in making an addition of Rs. 1,55,82,803/- under section 69A of the Income Tax Act. The second contention is that the firm was dissolved, but the AO passed an order on the firm without considering the appellant’s reply. The appellant stated that, up to 31/03/2015, Devarshi Pharma was a partnership firm with two partners, namely Shri Vikas Mohan Gupta and Shri Ajay Jain. The firm (Devarshi Pharma) was dissolved with effect from 01.04.2015, and the business of the partnership was taken over by Shri Vikas Mohan Gupta. The firm continued its business under the same name, M/s Devarshi Pharma, as a proprietorship with effect from 31.03.2015.
The appellant further stated that the bank account in question was to be converted from partnership to proprietorship, for which a request was also submitted to the bank However, the bank did not change the PAN in the account, and the department presumed that the transactions in the bank account were not accounted for. The appellant clarified that, in fact, all the entries were incorporated into the books of Devarshi Pharma, a proprietorship concern, during the year under consideration. Therefore, the addition is uncalled for and should be deleted.
A copy of the ITR of Shri Vikas Mohan Gupta, the computation of income, and copies of the balance sheet and profit and loss account are enclosed. The appellant mentioned that Shri Vikas Mohan Gupta, proprietor of M/s Devarshi Pharma, filed his return of income through E-filing Acknowledgment 57381725130318 on 13/03/2018, declaring an assessable income of Rs. 8,75,460/-.
5.4 During the appellate proceedings the appellant furnished the dissolution deed dated 31/03/2015, Certification of Registration and allotment of TIN 09476600890C is allotted to M/s Devarshi Pharma, Prop. Vikash Mohan Gupta was issued on 19/06/2015.
5.4.1 The appellant also attached an application submitted to the Branch Manager, SBI, Meerut, on 16/01/2019, wherein the appellant requested that the running current account (No. 30501353169) in the name of M/s Devarshi Pharma be updated. The appellant stated that the firm had been converted from a partnership firm to a proprietorship firm as of 31/03/2015. The appellant requested the bank to update the PAN from the firm’s PAN (AACFD7157K) to the proprietor’s PAN (Vikas Mohan Gupta — AENPG9286K).
5.4.2 The partnership firm was dissolved with effect from 31.03.2015. This fact was duly intimated to Assessing Officer vide letter dated 06/12/2018. Despite this, the Assessing Officer initiated proceedings and passed an assessment order in the name of the dissolved firm, which did not have legal existence at the time of issue of notice or order. I have perused the assessment order, the submissions of the appellant and judicial precedents. It is an established legal position that assessment proceedings initiated and completed in the name of a non-existent entity are void-ab-initio. This position has been affirmed by the Hon’ble Supreme Court in the case of PCIT v. Maruti Suzuki India Ltd. [2019] 416 ITR 613 (SC) :
“Once it is found that the entity in whose name the assessment is conducted had ceased to exist, such an assessment would be without jurisdiction and liable to be set aside.”
6. In the present case, as informed by the appellant the firm ceased to exist on 31.03.2015.It is seen from the assessment order that the first notice under section 142(1) was issued on 09.03.2018, nearly 3 years after the firm’s dissolution. Hence, the entire assessment proceedings suffer from a fundamental jurisdictional defect. In view of the above facts, it is held that the assessment made in name of non-existent partnership from is null & void and addition therefore could not be sustained.”
3. Ld. DR has submitted that dissolution of the firm was not disclosed in the return nor in tax audit report.
4. We are of the considered view that principles of assessment proceedings being initiated and concluded are held to be vitiated if the same are in the name of non-existing entity and the proposition has been affirmed by the Hon’ble Supreme Court in Maruti Zuzuki India Limited (supra) but same seems to have been erroneously applied by the Ld. CIT(A) in the case of assesse as the conversion of a partnership firm into proprietorship firm did not lead to any change in the name of the assesse firm as the same continued to be M/s Devarshi Pharma and it is the admitted case of the assesse that M/s Deverashi Pharma is now proprietorship concern of Mr. Vikas Mohan Gupta and it is claimed that all entries in the impugned bank accounts were incorporated in the books of M/s Devarshi Pharma, a proprietorship concern and Shri Vikas Mohan Gupta had accounted the same in the computation of income. However, assertions of the assessee has not been verified and no conclusive factual findings have been given by the Ld. CIT(A).
5. In the light of aforesaid we are of the considered view that if the impugned cash deposits have been accounted by the Shri Vikas Mohan Gupta in his computation of income and declared as part of assessable income then certainly the same cannot be added in the hands of the partnership firm.
6. Consequently, the appeal of the department is allowed for statistical purpose and the issue on merits are restored to the files of ld. Assessing Officer to examine and verify the factual aspects about the impugned entries being incorporated in the books of M/s Devarshi Pharma, as proprietorship concern and declared in the computation of income of Shri Vikas Mohan Gupta and thereafter, delete the additions in the hands of partnership firm.
Order pronounced in the open court on 03.06.2026
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