Shakti Enterprise Vs ITO (ITAT Ahmedabad)
Same Bank Account Does Not Keep a Dissolved Firm Alive: ITAT Deletes ₹28.18 Lakh Addition and Non-Filing Penalty
Summary: The continuation of a bank account number after dissolution of a partnership firm does not establish that subsequent transactions belong to that firm. Where an erstwhile partner takes over the business, operates the accounts in his individual capacity and accounts for the transactions, the income cannot be assessed in the hands of the dissolved partnership merely because the earlier account number remains unchanged. This is the principle emerging from the Ahmedabad ITAT’s decision in Shakti Enterprise v. Income Tax Officer, ITA Nos. 942 & 943/Ahd/2026, pronounced on 12 October 2026, concerning assessment year 2017–18.
Shakti Enterprise was constituted as a partnership firm on 9 July 2012. It was subsequently dissolved under a dissolution deed dated 19 June 2015. Under that arrangement, one of its partners, Shri Chirag Barot, took over all the assets and liabilities and continued the business as a sole proprietor from 20 June 2015. The business continued under the same trade name, but the person carrying it on had changed from a partnership firm to an individual proprietor.
Since the partnership had already been dissolved before the relevant financial year, no return was furnished in its name for assessment year 2017–18. However, information concerning substantial cash deposits during demonetisation prompted the Assessing Officer to issue a notice under section 142(1). There was no compliance during the assessment proceedings. The officer obtained banking details and proceeded to make additions in the hands of the erstwhile firm.
The additions comprised ₹11,65,000 towards cash deposits during demonetisation and ₹16,53,300 towards other credit entries, aggregating to ₹28,18,300. The assessee’s grounds challenged these additions under section 69A, with the demonetisation deposit addition also referring to section 115BBE. The dispute was whether the transactions could be attributed to the dissolved firm when the business had already been taken over by its former partner.
Before the Commissioner (Appeals), the assessee produced additional evidence supporting the dissolution and the subsequent operation of the business by Shri Barot. A remand report was obtained from the Assessing Officer. Although that report recommended acceptance of the additional evidence, the Commissioner (Appeals) refused to admit it, reasoning that sufficient opportunities had been available during assessment and the assessee had failed to utilise them. The additions were consequently upheld.
The Tribunal condoned a delay of 116 days in filing the appeal. The explanation was that the old email address was no longer being used after dissolution of the firm. In the interests of justice, the Tribunal proceeded to examine the merits.
The evidence established that the partnership stood dissolved on 19 June 2015 and that Shri Barot thereafter continued the business in his proprietary capacity. The disputed transactions related to a period subsequent to dissolution. Significantly, the bank certified that the two specified accounts maintained in the name of Shakti Enterprise were linked to Shri Barot’s individual PAN. This supported the contention that the accounts were thereafter maintained by him in his individual capacity.
The Tribunal rejected the inference that retention of the earlier bank account number proved continuation of the partnership. The character of a transaction must be determined by the dissolution deed, the person conducting the business, the ownership and operation of the account, and the surrounding evidence. An unchanged account number, standing alone, could not establish that every subsequent entry belonged to the erstwhile firm.
Shri Barot had filed his individual return for assessment year 2017–18 on 6 October 2017, declaring total income of ₹4,88,510 from the proprietary concern. The Assessing Officer had verified the relevant facts during remand, including the individual’s balance sheet. The Tribunal recorded that the banking transactions had been duly taken into account by Shri Barot. It therefore deleted the entire addition of ₹28,18,300 in the firm’s hands.
The connected appeal concerned a ₹5,000 penalty under section 271F for failure to furnish the firm’s return. The Tribunal observed that the firm had already been dissolved and had no assessable income during the relevant year. On these facts, it held that the firm was not required to file the return for that year and deleted the penalty. Both appeals were allowed.
Author’s Comments
The decision underlines the distinction between continuity of a business name or banking arrangement and continuity of the taxable person. A proprietary concern may carry on the same activity under the same name, but that does not make its transactions those of the former partnership. Documentary evidence identifying the person who actually owned and conducted the business is therefore crucial.
Equally, the ruling should not be read as granting general immunity to dissolved firms from assessment or return obligations. The relief rested on the finding that the disputed transactions belonged to the successor proprietor and had been accounted for by him. Dissolution, takeover documents, bank confirmation and the proprietor’s records together established that position. Tax must follow the person to whom the transactions belong; an unchanged bank account number cannot substitute for that inquiry.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
Both the captioned appeals relate to the same assessee are against the separate orders of even date 29.09.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relate to same Assessment Year (A.Y.) 2017-18.
2. In ITA No.942/Ahd/2026, the assessee is aggrieved by the action of CIT(A) in confirming the quantum additions made by the Assessing Officer (in short ‘the AO’), whereas, in ITA No.943/Ahd/2026 the assessee has contested the confirmation of penalty levied by the AO u/s.271F of the Act for non-filing of return of income.
ITA No.942/Ahd/2026
3. The assessee raised the following grounds of appeal:-
“1. The Ld. CIT (A)-NFAC erred on facts and in law in dismissing the appeal of the appellant without taking appreciating the appeal submissions and remand report furnished by the Assessing Officer in right perspective.
2. The Ld. CIT(A)-NFAC erred on facts and in law in upholding addition of Rs. 11,65,000/- u/s 69A r.w.s. 115BBE of the Act being cash deposited in Punjab National Bank Account No. 3937002100009622 despite adducing evidence that the same bank account is linked to PAN: AOXPB5994H belonging to Shri Chirag Barot who has disclosed it in his return of income and said bank account do not contain any cash deposit referred to in the assessment order.
3. The Ld. CIT(A)-NFAC erred on facts and in law in upholding addition of Rs. 16,53,300/- u/s 69A being other credits in Punjab National Bank Account No. 3937002100009622 despite adducing evidence that the same bank account is linked to PAN: AOXPB5994H belonging to Shri Chirag Barot who has disclosed it in his return of income and said bank account do not contain any credits referred to in the assessment order.”
4. There was delay of 116 days in filing of appeal before ITAT. Assessee submitted non-use of old email ID post dissolution of the firm as the reason for delay in filing of appeal. In the interest of justice, delay is condoned.
5. Brief facts of the case are that the appellant was a partnership firm formed on 09-07-2012. It was dissolved by dissolution deed dated 19-06-2015 as per which all assets and liabilities of erstwhile firm were taken over by one of the partners namely; Chirag Barot. He became proprietor of dissolved firm w.e.f. 20-06-2015. In the absence of partnership firm as on 31-03-2017, no return of income was furnished for the firm for A.Y. 2017-18. AO issued notice u/s. 142(1) of the Act to assessee firm based on information that assessee has made huge cash deposits during demonetization period. As there was non-compliance during the proceedings, AO obtained relevant bank account details and due to non-receipt of reply made the following additions:
| Particulars | Amount |
|---|---|
| (i) Amount of Cash Deposits during demonetization period | Rs. 11,65,000/- |
| (ii) Other cash credit entries in the bank account | Rs. 16,53,300/- |
| Total | Rs. 28,18,300/- |
6. Aggrieved by this addition, assessee filed appeal. During the course of first appeal proceedings, Shri Chirag Barot, ex-partner, filed additional evidence in support of its claim. Appeal was dismissed by CIT(A) holding that appellant’s claim of non-existence of firm was not supported by any evidence produced during the course of assessment. Further, though remand report was obtained during appeal proceedings which recommended acceptance of additional evidence, CIT(A) did not admit additional evidence for the reason that assessee had ample chances to furnish before AO but chose not to comply.
7. Aggrieved by this, assessee filed appeal before ITAT.
8. We have heard both parties and perused the materials on record.
8.1 It is an admitted fact that the assessee firm, M/s. Shakti Enterprises, stood dissolved w.e.f. 19-06-2015 under a deed of dissolution. Under the terms of the dissolution deed, one of the erstwhile partners, Shri Chirag Barot, took over the assets and liabilities of the firm and continued business thereafter in his individual/proprietary capacity with the same name, M/s. Shakti Enterprises (TIN No. 24074205812and CT No. 24574205812).
8.2 The addition under consideration relates to transactions appearing in the bank account (xxxxx9622) during the previous year relevant to the assessment year 2017-18 i.e. subsequent to the dissolution of the partnership firm.
8.3 In support of its contention that the bank accounts were thereafter operated by the erstwhile partner, Shri Chirag Barot, in his individual capacity, the appellant had produced a certificate issued by the concerned bank. The bank has certified that M/s. Shakti Enterprise has been maintaining two accounts (i) xxxx4535 & (ii) xxxxx9622 and the PAN Card No. AOXPB5994H is linked with the above accounts. This PAN is that of Shri Chirag Barot in his individual capacity.
8.4 The fact that one of the bank accounts continued to have the same account number which had earlier been used by the partnership firm cannot, by itself, lead to the conclusion that the partnership firm continued to exist or that every transaction appearing in such account subsequent to dissolution represented the transaction of erstwhile firm. The character of the transaction has to be determined having regard to the dissolution deed, the person carrying on the business after dissolution, the ownership and operation of bank account during the relevant period and the other surrounding evidence.
8.5 The undisputed facts of the case are (i) the partnership firm stood dissolved on 19-06-2015 (ii) under the dissolution deed, its assets and liabilities were taken over by one of the partners who thereafter continued the business (iii) the disputed banking transactions pertained to a period subsequent to such dissolution and (iv) the concerned bank has certified that the individual was maintaining these specified accounts in his individual capacity and that his individual PAN was linked with those accounts. Shri Chirag Barot has filed his return of income for A.Y. 2017-18 in his individual capacity (PAN AOXPB5994H) for proprietary concern, Shakti Enterprise on 06-10-2017 admitting total income of Rs. 4,88,510/-. Further, the aforesaid facts have also been verified by the AO in the remand report as called for by the Ld. CIT(A) during the appellate proceedings. The AO has also verified the above aforesaid facts from the balance sheet of Shri Chirag Barot. In these circumstances, mere continuation of earlier bank account number cannot constitute sufficient material for treating the transaction appearing therein during the previous year relevant to assessment year 2017-18 as transactions of the erstwhile partnership firm. The transactions in the said bank account have been duly taken into account by the individual Shri Chirag Barot. Therefore, the impugned addition made by the AO, in the hands of the firm, is not sustainable and the same is ordered to be deleted.
9. In the result, appeal of the assessee stands allowed.
ITA No.943/Ahd/2026
10. This appeal has been filed by the assessee against the action of the Ld. CIT(A) in confirming the penalty of Rs.5000/- levied by the AO u/s 271F of the Act on account of failure of the assessee in filing the return of income. As noted above, the firm stood dissolved on 19.06.2015 and there was no assessable income of the firm during the year under consideration and, therefore, the assessee firm was not supposed to file the return for the year under consideration. In view of this, the impugned penalty levied by the AO u/s 271F of the Act is not sustainable and the same is ordered to be deleted.
11. In the result, the appeal of the assessee stands allowed.
12. In the combined result, both the appeals filed by the assessee stand allowed.
This Order is pronounced on 12/10/2026
