Same Cash Deposits Cannot Be Taxed in Firm and Proprietor: ITAT Surat

Usha Jewellers Vs ITO (ITAT Surat)

Summary: The Income Tax Appellate Tribunal, Surat Bench allowed the appeal of Usha Jewellers for AY 2017-18 and directed deletion of an addition of Rs. 31,69,500/- after holding that taxation of the very same cash deposits in the hands of both the assessee-firm and its successor proprietor constituted a mistake apparent from the record falling within the permissible scope of section 154 of the Income-tax Act, 1961. The assessee-firm had filed its return declaring total income of Rs. 2,40,620/-. In assessment completed on 09.12.2019, the AO made an addition of Rs. 31,69,500/- under section 69A in respect of cash deposits made in an Indian Overseas Bank account on 10.11.2016, 11.11.2016 and 22.11.2016 during the demonetisation period. A demand of Rs. 34,44,144/- was raised.

The assessee subsequently filed an application dated 06.11.2023 under section 154, contending that the partnership firm “Usha Jewellers” had been dissolved on 31.10.2016 and, with effect from 01.11.2016, the business under the same name was carried on by Shri Harshukbhai Parshottambhai Soni as a proprietorship concern. According to the assessee, the impugned cash deposits had already been considered and taxed in the assessment of Shri Harshukbhai Parshottambhai Soni. The AO rejected the rectification application on 08.12.2023, holding that there was no mistake apparent from the record and that deletion of the addition was beyond the scope of section 154. The CIT(A) upheld the rejection, observing that an appeal against an order under section 154 could examine only the correctness of the rectification order and could not adjudicate matters forming part of the original assessment order under section 144, which had not been appealed against.