Case Law Details
Jugal Kishore And Sons Vs ITO (ITAT Chandigarh)
Summary : The appeal before the Income Tax Appellate Tribunal (ITAT), Chandigarh, arose from an order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, relating to Assessment Year 2015-16. The assessee challenged the addition of ₹3,85,46,094 made by the Assessing Officer (AO), contending that the partnership firm had ceased to exist after its dissolution on 30 September 2011 and, therefore, could not be subjected to assessment for the year under consideration.
The assessee explained that the partnership firm, originally constituted in July 2010 by Mohit Manchanda and Sanjeev Kumar, had been dissolved in 2011-12 and converted into a proprietorship concern operated by Mohit Manchanda under the same name. The same bank account continued to be used after completion of KYC formalities. During the relevant year, deposits amounting to ₹3,85,46,094 were made in this bank account. On the basis of these deposits and the alleged non-filing of a return of income, proceedings under Sections 148A and 148 were initiated, culminating in the addition of the entire amount to the income of the dissolved partnership firm.
Before the AO, CIT(A), and subsequently the Tribunal, the assessee furnished the dissolution deed, a bank certificate evidencing the conversion of the entity, audited financial statements of the proprietorship concern, income tax returns of the proprietor, and bank statements. It was also pointed out that summons issued under Section 131 to Mohit Manchanda had been duly complied with and that all relevant records had been produced, demonstrating that the deposits formed part of the regular business transactions of the proprietorship concern.
The Tribunal observed that the dissolution deed and the bank certificate produced by the assessee had not been disputed or negated by the lower authorities. It further noted that the bank balance disclosed in the balance sheet of the proprietorship concern matched the balance reflected in the bank account in question. The Tribunal accepted the assessee’s contention that the partnership firm was not in existence during the relevant assessment year.
The Tribunal held that the addition had been wrongly made in the hands of a non-existing firm. It also observed that since the deposits had already been accounted for in the books of the proprietorship concern, taxing the same amount again in the hands of the dissolved partnership firm would amount to double taxation. Consequently, the addition of ₹3,85,46,094 was deleted.
Having allowed the appeal on merits, the Tribunal declined to adjudicate the grounds challenging the validity of the reassessment proceedings under Section 148, holding that any findings on those issues would be merely academic. Accordingly, the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This is an appeal filed by the Assessee against the order of the Ld. CIT(A), NFAC, Delhi dt. 18/08/2025 pertaining to Assessment Year 2015-16.
2. In the present appeal Assessee has raised the following grounds:
1. That the Ld. CIT has erred in passing order by confirming the addition as made by the Ld. AO amounting to Rs. 3,85,46,094/- even though the assessee firm was not in existence in the year under consideration and it was dissolved way back in year 2011.
2. The bank deposits pertains to Sh. Mohit Manchanda who has taken over the business of Partnership Firm namely M/s Jugal Kishore & Sons and all the credits have been duly recorded in his books of accounts which were substantiated during the appellate proceedings.
3. That the assessee has filed financial statements, dissolution deed and bank certificate confirming the conversion of partnership firm into proprietorship concern before the Ld. AO as well as the Worthy CIT(A) but the same was never considered.
4. Notwithstanding the above, the case of the assessee has been reopened on the basis of invalid reasons to believe without any independent application of mind and therefore, the reopening made u/s 148 is invalid and void-ab-initio.
5. That the appellant craves to leave, add or amend the above grounds of appeal filed by the assessee.
3. Briefly, the facts of the case are that the assessee is a partnership firm which was formed in July 2010 and the partnership firm was constituted by two partners namely Sh. Mohit Manchanda s/o Sh. Jugal Kishore and Sanjeev Kumar s/o Sh. Jugal Kishore. A cash credit limit account was opened in the name of the ‘partnership firm’ with ‘Union Bank of India’, bearing account no. 520605040200610 after the incorporation. There has been total deposits of Rs.3,85,46,094/- in the above mentioned bank account during the year. A show cause notice u/s 148A(b) was issued to the assessee as to why the case should not be reopened u/s 148 as no return of income had been filed by the assessee for the year under consideration. There has been deposits in its account. Against the show cause the assessee submitted that the partnership firm was dissolved on 30.09.2011 and the same had been converted to the proprietorship concern having same name and same bank account in which Mohit Manchanda (partner in the assessee firm) was the proprietor. However, the case of the assessee was reopened u/s 148 vide notice dated 07.04.2022 by giving findings on page 2 of the order passed u/s 148A(d).
3.1 Subsequently, the AO concluded during the assessment proceedings and the entire deposits of Rs.3,85,46,094/- has been added to the income of the assessee.
4. Against the order of the Ld. AO the assessee filed an appeal before the Ld. CIT(A) wherein it was again contended that the partnership firm was dissolved in the year 2011-12 and that the said firm had been converted to the proprietorship concern. The assessee filed evidences as discussed below. The assessee has also raised ground of appeal before the Ld. CIT(A), against the reopening made by the AO u/s 148. The Ld. CIT(A) passed the order on 18.08.2025 wherein the appeal of the assessee have been dismissed.
4.1 The CIT(A) has also dismissed the ground of appeal in respect of contention raised by the assessee against the reopening made by the AO u/s 148.
5. Against the order of the Ld. CIT(A) the assessee preferred in appeal before the Tribunal.
6. Before us, the ld. Counsel for the Assessee argued that the reopening has been made on the basis of borrowed satisfaction and without any independent application of mind. The assessee has also relied upon various judgments given on pages 6 to 8 of the brief synopsis which read as under:
i. Income Tax Officer vs Taj Land Developers and Promoters (P) Ltd., ITAT Chandigarh, ITA No. 606/Chd/2024-Reassessment-Reason to believe-Information that the assessee has not filed the return of income for the year under consideration-CIT(A) has question the reopening observing that the assessee has filed the return under s. 139(1)-As per judicial precedent if return has been accepted under s. 143(1), it would not automatically authorize the AO to reopen the assessment-AO has not applied his mind on any of the information-Moment he got the information from Annual Information Return Wing, without cross-verifying it, recorded the reasons and issued notice to the assessee-If AO assumed that return was not filed, then this assumption would goad him on incorrect formation of opinion-AO he has not verified the information received by him from the AIR and treated such informationas a gospel truth, which is not permissible under s. 147-AO has started his formation of belief on a wrong foundation of facts-Similarly, the approval granted by the Addl. CIT is also in a mechanical manner because once she was not apprised with complete facts, then how he could approve it-He was also informed that assessee has not filed the return-That would give an indication that both the authorities were not possessing the complete record of the assessee pertaining to the assessment of this year-Therefore, that learned CIT(A) has rightly applied his mind and rightly quashed the reopening of the assessment-Tata & Sons Ltd. vs. Dy. CIT (Writ Petn. No. 2545 of 2010, 3rd Feb., 2022) & Ankita A. Choksey vs. ITO (2019) 411 ITR 207 (Bom) followed.
(ii) BIC Cello (India) Pvt. Ltd. vs ACIT and other (475 ITR 463) (Bombay High Court)
(iii) Gandhibag Sahakari Bank Ltd. v. Deputy Commissioner of Income-tax/Assistant Commissioner of Income-tax-SLP filed by the Department has been dismissed- Section 69A, read with section 148, of the Income-tax Act, 1961 Unexplained money (Cash deposits) – Assessment year 2017-18 – Petitioner/assessee, a Cooperative Bank, faced scrutiny regarding its income tax return for relevant year, specifically focusing on cash deposits made during demonetization Assessee, explaining its acceptance of old currency during relevant period and depositing it with RBI, provided detailed information and co-operated fully with inquiries Despite this, Income-tax Department issued multiple notices seeking further details about these transactions – An assessment order was passed in December 2019, but later, a notice under section 148 was issued, proposing to reopen assessments based on information from Insight Portal indicating an amount of Rs. 17.99 crores had escaped assessment Assessee challenged this notice, arguing it lacked proper assessment and was issued on incorrect grounds – However, it was found that it had not been indicated in reasons as to how there was formation of belief by Assessing Officer that income had escaped assessment – Reasons supplied did not indicate that any exercise of independent verification thereafter was undertaken resulting in consideration of same with due application of mind by Assessing Officer so as to reopen completed assessment -Further reopening was on basis of gross incorrect facts that assessment had been completed under section 143(1) and was hence no assessment under section 2(40) when infact assessment had been completed under section 143(3) – Whether therefore, reopening of completed assessment only on basis of information on Insight Portal amounted to reopening of such assessment due to change of opinion, hence, notice issued under section 148 was to be quashed and set aside Held, yes [Paras 9 to 12] [In favour of assessee]
(ii) HIGH COURT OF GUJARAT Toral Hemanshubhai Shah v. Assistant Commissioner of Income-tax-Section 69A read with section 147 and 148 of the Income-tax Act, 1961 – Unexplained moneys – Assessment year 2012-13 – Assessee filed her return for Assessment Year 2012-13 – Assessing Officer received information that assessee had made purchases and sale of commodities through NMCE platform, resulting in a profit – He held that assessee’s return of income did not reflect this profit, leading to belief that income had escaped assessment Assessee argued that reassessment was based on incorrect facts – It was noted that said profit was already reflected in assessee’s records and bank statements – Whether in such circumstances, it could be said that reasons so recorded and notice under section 148 was nothing but a sheer non application of mind by revenue and therefore, it deserved to be quashed [Paras 12 and 14] [In favour of assessee]
6.1 It has also been argued by the Ld. Counsel of the Assessee that the case has been reopened on the basis of incorrect figures and it has been stated that the figures mentioned in the order u/s 148A(d) was different than the assessment order u/s 147.
6.2 The Ld. Counsel of the assessee argued that the partnership firm was converted into a proprietorship concern w.e.f. 2011-12 having same name and maintaining same bank account after updation of the KYC and that the assessee firm was dissolved on 30.09.2011. It has been explained that same name was kept by the proprietor namely Mohit Manchanda, who was also one of the partner in the assessee firm. It has also been stated by the counsel of the assessee that the bank account was being operated by the proprietor after conversion and that the said bank account has been incorporated in the audited balance sheet of the proprietor. The assessee also furnished the copies of the balance sheet along with the ITR of Mohit Manchanda of the proprietorship concern.
6.3 It has been contended by the assessee that summons u/s 131 were also issued to the proprietor Mohit Manchanda, before the proceedings were reopened and he had filed details in response to the same wherein he had explained that the firm was not in existence during the year under consideration. He has also filed the Audited Balance Sheet, Profit and Loss account of the proprietorship concern, ITR and the bank account statement.
6.4 The Ld. Counsel has relied upon the certificate from bank and the copy of the dissolution deed. It has been stated that the return of income had been filed against the notice u/s 148, without disclosing any particulars by filing a blank return of income for the limited purpose of compliance to the notice u/s 148. Further, it was argued that though the partnership firm was not in existence during the relevant assessment year so there was no option to file any reply to the notice u/s 148. As it was mandatory for the assessee to comply with the said notice by filing the return of income just for the said purpose the assessee had filed the return of income in response to the notice u/s 148.
7. Per contra, the Ld. DR relied upon the orders of the lower authorities.
8. We have heard the rivals submissions and perused the material available on record including the paperbook furnished by the assessee. We find merits in the contention of the assessee that the partnership firm stand dissolved w.e.f 30.09.2011 as per the dissolution deed filed by the assessee before the AO and Ld. CIT(A). It is also supported by the certificate from the bank. The said documents have been furnished by the assessee before the AO and the CIT(A) and from a perusal of the AO orders and order of Ld. CIT(A) the said set of documents have not been negated by the lower authorities.
8.1 We have also noted that summons u/s 131 were issued to Mohit Manchanda, in response to which he had filed the reply along with the Audited Balance Sheet, Profit and Loss account of the proprietorship concern, ITR and the bank account statement. It has been noticed that the bank balance as disclosed in the Balance Sheet of the proprietorship concern tallies with the balance as per the bank account statement bearing account number 520605040200610 in which there are deposits of the proprietorship concern out of the regular business sources.
8.2 We also find that the return of income had been filed against the notice u/s 148 disclosing Nil income because assessee thought it is mandatory to file the return of income against the notice u/s 148 otherwise no reply could be filed against the said notice as the said portal only accepts particular format for ITR filing. It is also noticed that the assessee has filed the reply to the show cause notice u/s 148A(b) wherein the assessee had filed the copy of the dissolution deed of the firm.
8.3 Hence, in view of the dissolution deed and the bank certificate furnished by the assessee and the bank balances being tallied with the Balance Sheet of the proprietorship concern it can be inferred that the assessee firm was not in existence in the relevant assessment year and therefore, the addition on such non-existing firm has been wrongly made. Moreover, when the said deposits are already forming part of the regular books of accounts of the proprietorship concern the same income cannot be taxed twice. In view of the above findings the addition made in the case of the assessee are deleted.
8.4 Since, we have deleted the addition on the merits of the case, therefore, we are not inclined to give any findings on other grounds of appeal in respect of the reopening made u/s 148 as it will be just academic in nature.
9. In the result, appeal of the Assessee is allowed.
Order pronounced on 28/04/2026
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