Shree Style Check Vs ITO (ITAT Ahmedabad)
Cash Deposits Already Included in Proprietor’s Turnover Cannot Be Added Again in Dissolved Firm’s Hands: ITAT
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal against an addition of ₹28,66,040 under Section 69A of the Income-tax Act, 1961. The Tribunal found that the disputed amount was already included in the turnover of ₹63,61,975 disclosed by the proprietor under Section 44AD. Consequently, the addition in the hands of the erstwhile partnership firm could not be sustained.
The assessee, Shree Style Check, was formerly a partnership firm. It was dissolved with effect from 1 April 2016, following which Shri Anand I. Shah took over and continued the business as a sole proprietor under the same trade name. Clause 7 of the dissolution deed provided that business activities carried out in the erstwhile firm’s name would be treated as activities of the proprietary concern until the necessary changes were made in government records. Accordingly, no return was filed in the dissolved firm’s name for Assessment Year 2017-18.
AO Assessed Cash Deposits in Erstwhile Firm’s Hands
The Assessing Officer issued a notice under Section 142(1) seeking details concerning cash transactions during 2016. In response, Shri Anand I. Shah furnished a submission dated 25 October 2019 enclosing the dissolution deed and his personal income-tax return, in which the proprietary concern’s profits had been disclosed.
The Assessing Officer did not accept the explanation and completed the assessment under Section 144. He added cash deposits of ₹28,66,040 as unexplained money under Section 69A and taxed the amount under Section 115BBE. The CIT(A), by an order dated 25 August 2025, confirmed the addition.
Proprietor Had Disclosed Business Income Under Section 44AD
Before the Tribunal, the assessee relied on the dissolution deed and Shri Anand I. Shah’s return for Assessment Year 2017-18. The proprietor had declared business income of ₹5,08,958 under the presumptive taxation scheme in Section 44AD against turnover of ₹63,61,975. The accompanying financial statements reflected a net profit of ₹4,81,560.79.
The assessee contended that the disputed cash deposits represented business turnover already disclosed by the proprietor. A separate addition in the dissolved firm’s hands would therefore result in double taxation.
The assessee also relied on the Delhi Tribunal’s decision in Mathur Ugam and Associates v. ITO, (2023) 153 taxmann.com 504, and alternatively requested that the documents be admitted as additional evidence under Rule 46A.
Disputed Amount Already Subsumed in Declared Turnover
The Tribunal found that the business income had already been offered to tax. On the facts before it, the Tribunal considered it immaterial whether the amount was assessed in the proprietor’s hands or the firm’s hands, so long as the same amount had been offered to tax.
Its decisive finding was that the disputed ₹28,66,040 was already subsumed in the total turnover of ₹63,61,975 disclosed by the proprietor.
Accordingly, the Tribunal allowed the appeal, granting relief against the Section 69A addition made in the hands of the erstwhile partnership firm.
Cases Discussed
- Mathur Ugam and Associates v. ITO — (2023) 153 taxmann.com 504 (ITAT Delhi). Relied upon by the assessee. The precise proposition for which it was cited requires verification from the correct judgment.
FULL TEXT OF THE ITAT AHMEDABAD JUDGMENT/ORDER
This appeal has been filed by the Assessee against the order dated 25.08.2025 passed by the National Faceless Appeal Centre(NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2017-18.
2. The Assessee has raised the following grounds of Appeal: –
1. The Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing an ex-parte order u/s 144 of the Act without appreciating that the partnership firm, Shree Style Check, was not in existence and had already been dissolved and converted into a proprietary concern w.e.f. 01.04.2016 vide dissolution deed.
2. The Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 28,66,040/- u/s 69A of the Act on account of cash deposits made across the year in the bank account, without appreciating the nature of appellant’s business.
3. The Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in invoking section 69A of the Act.
4. Alternatively, and without prejudice, The Ld. CIT(A) and Ld. AO have erred in law and on facts by not considering the peak balance theory.
5. The Ld. CIT(A) has erred in law and on facts in confirming the action of the Ld. AO in making such addition without appreciating that the cash deposits represented business turnover already declared by the proprietor Shri Anand I. Shah (PAN: ANXPS2734D) under the presumptive taxation scheme u/s 44AD of the Act thereby taxing the same income twice.
6. The Ld. CIT(A) and Ld. AO have passed the order without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. Their action is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
7. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld.AO in levying interest u/s.234A/B/C/D of the Act.
8. The Ld. CIT(A) has erred in law and on facts in confirming action of Ld.AO in initiating penalty proceedings under section 271AAC, 272A(1)(d) and 271F of the Act.
9. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
3. The brief facts of the case are that the assessee was a partnership firm that was dissolved on 01.04.2016. Pursuant to the deed of dissolution dated 01.04.2016, the business was taken over and continued by Shri Anand I. Shah as a sole proprietor under the name and style of Shree Style Check. Clause 7 of the dissolution deed provided that any business activity carried out in the name of the erstwhile partnership firm would be treated as an activity of the proprietary concern until the necessary changes were made in the government records. Since the partnership firm had been dissolved and its business was continued by the proprietary concern, no return of income was filed in the name of the erstwhile firm for AY 2017-18. Subsequently, the then jurisdictional Assessing Officer, Ward 5(2)(4), now Ward 1(1)(3) (hereinafter referred to as the “ AO”), issued a notice under section 142(1) of the Income-tax Act, 1961, in connection with cash transactions during the year 2016 and called for various details and documents. In response, Shri Anand I. Shah, vide his submission dated 25.10.2019, furnished a copy of the dissolution deed and his personal return of income, wherein the profits of the proprietary concern, Shree Style Check, were duly disclosed. However, the AO did not accept the explanation and documents furnished by the assessee and completed the assessment under section 144 of the Act. While completing the assessment, the Ld. AO made an addition of ₹28,66,040 under section 69A of the Act and levied tax on the same under section 115BBE of the Act.
4. Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] on 24.12.2019. The Ld. CIT(A), vide order dated 25.08.2025, confirmed the addition made by the AO.
5. In support of this claim, the appellant submitted a dissolution deed dated 08.03.2016, and the personal income tax return of Shri Anand I. Shah for A.Y. 2017-18. The proprietor’s return, filed under the presumptive scheme of Section 44AD, declared a business income of Rs.5,08,958/-from a total turnover of Rs.63,61,975/-, along with a net profit of Rs.4,81,560.79 as per the appended financial statements. The appellant contends that since the income was already declared by the proprietor, the addition in the hands of the dissolved firm amounts to illegal and invalid double taxation. The appellant also cited the ITAT Delhi Bench decision in the case of Mathur Ugam and Associates v. ITO (2023) 153 taxmann.com 504 (Delhi Trib.) as a judicial precedent in support of their position. An alternative plea was also made to have the submitted documents treated as additional evidence under Rule 46A of the Income Tax Rules, 1962. It is found that either way the income has offered to tax at this juncture, it is immaterial whether the said amount is assessed in the hands of the proprietor or the firm as long as the same amount is offered to tax.
6. Keeping in view, the facts on record, the appeal of the assessee is allowed as amount in dispute is already subsumed in the total turnover of Rs.63,61,975/-.
The order pronounced in the open Court on 15.10.2026.
