Smt. Sharadamma Vs ITO (ITAT Bangalore)
A Joint Bank Account Does Not Create an AOP: ITAT Quashes Assessment on Village Collections
Who was the assessee?
In Smt. Sharadamma v. ITO, ITA No. 208/Bang/2026, the Bengaluru Bench of the Income Tax Appellate Tribunal examined an assessment made in the name of an alleged association of persons (AOP) of Basavegowda and Venkatesh for assessment year 2014–15. The department relied principally on a jointly operated bank account connected with collections from lorries transporting sand near Paduvalahippe village in Hassan district. The Tribunal held that the existence of the alleged AOP had not been proved and set aside both the assessment and the Commissioner (Appeals)’s order.
The appeal was pursued by Smt. Sharadamma, legal heir of the late Shri Basavegowda. Although the matter arose from bank credits, the decisive question was about the person whom the department had assessed. The Tribunal pronounced its order on 21 September 2026.
The department’s case rested on the bank account
The Assessing Officer identified credits in a savings account at Kaveri Grameena Bank and initiated proceedings in the name of the alleged AOP. The order initially refers to bank credits of ₹3,97,729. Shri Venkatesh responded to the notices, repeatedly stating that no AOP of Basavegowda and Venkatesh existed, that he was not a member of such an AOP, and that no one had applied for a PAN in its name.
The Assessing Officer took a different view. He considered the joint opening and operation of the account sufficient to show that Basavegowda and Venkatesh had come together to earn income. A PAN had been allotted to the alleged AOP by the department. With no further response to later notices, he completed the assessment in its name. The Commissioner (Appeals) affirmed that approach.
Before the Tribunal, Sharadamma explained the purpose of the account differently. Her case was that Basavegowda and Venkatesh had handled money collected from owners of lorries transporting sand from the Hemavathi river near the village. The funds, she said, were used for the benefit of villagers and distributed to village families. Operating the account on behalf of villagers did not mean that the two account holders had voluntarily formed an income-earning association of their own.
An AOP needed evidence of association
The Tribunal decided to address the existence of the AOP itself, despite the earlier assessment and appellate proceedings having been decided without an effective response from the assessee. It found no reason to send that threshold issue back when the department’s own records and the responses already on file could be examined.
The Income-tax Act includes an association of persons within its definition of a “person”. But an account in two names does not, by itself, establish that its holders joined together voluntarily for a common income-earning activity. The Tribunal found no evidence that Basavegowda and Venkatesh had pooled funds or combined their efforts with the intention attributed to them by the Assessing Officer. Venkatesh’s replies had expressly denied the alleged association.
The Tribunal also referred to Konkani Bharat Dairy Farm (AOP) v. ACIT, in which the Pune Bench had placed the burden of proving an AOP’s existence on the Assessing Officer. Applying that approach, it held that the department had not established the factual basis for assessing Basavegowda and Venkatesh as a separate AOP.
Allotting a PAN to the entity named by the Assessing Officer did not establish that the entity existed. The disputed status had to be supported by evidence of the people’s relationship and activity, rather than inferred from the department’s registration of a name.
Earlier assessments told a different story
The Tribunal also examined the department’s treatment of the village collections in other years. Assessment records referred variously to an AOP of Paduvalahippe Village Group 1, an AOP of Paduvalahippe Village Group 2, and AOPs named after different pairs of individuals. An earlier assessment concerning the same village activity recorded that villagers collected money from sand transporters and treated village groups as assessable entities.
Those records mattered because they showed that the department itself had used different descriptions for the person connected with the collections. The Tribunal also noted earlier proceedings involving Sharadamma as Basavegowda’s legal heir. In that setting, the choice to assess an AOP consisting specifically of Basavegowda and Venkatesh for the year in dispute lacked a demonstrated factual foundation.
Basavegowda had died on 7 September 2014, before the proceedings discussed in the order. The Tribunal considered it significant that the assessment order itself described him as “Late Shri Basavegowda”, showing that the Assessing Officer knew of his death. That was an additional circumstance in the Tribunal’s reasoning, alongside its central finding that the alleged AOP had never been established on the evidence.
Author’s comment
The decision addresses a basic step that can be lost when scrutiny begins with a bank account: identify the correct taxable person before attributing income to it. Joint holders may operate an account for many reasons. Here, the department had to prove its particular claim that the two men voluntarily associated to earn income; the account title and a department-allotted PAN did not supply that proof.
The order should be read on its facts. Its conclusion does not decide the tax treatment of every village collection, nor does it establish that the death of any member automatically ends every AOP. It decides that this assessment, made in the name of the alleged AOP of Basavegowda and Venkatesh, could not stand. The assessee’s appeal was allowed, and the assessment and appellate orders were set aside.
Cases Discussed
- Konkani Bharat Dairy Farm (AOP) vs. ACIT, (2008) 113 ITD 72 (ITAT Pune) — relied upon for the principle that the onus to prove existence of an AOP is on the Assessing Officer and that there must be material showing persons voluntarily joined together and pooled their funds for a common activity.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 16/11/2025 in respect of the A.Y. 2014-15.
2. The brief facts of the case are that the AO based on the information available with him, had found that assessee has maintained a savings bank account jointly with one Shri Venkatesh in the Kaveri Grameena Bank. Therefore, a notice u/s. 142(1) was issued on 29/03/2016 calling for the filing of the return of income in respect of the bank credits of Rs. 3,97,729/-. Mr. Venkatesh had sent a reply to the said notice on 04/05/2016 which was dated as 20/04/2016 and informed the AO that the notice was issued in the name of M/s. AOP of Basavegowda and Venkatesh whereas no such AOP was available and also informed that he is not a member of any AOP and requested the AO to withdraw the said notice issued in the name of M/s. AOP of Basavegowda and Venkatesh. The AO suomoto issued a PAN to the alleged AOP and proceeded the assessment as if there is an AOP.
3. Subsequently, notice u/s. 148 was issued on 10/01/2017. Again, the said Mr. Venkatesh sent a reply dated 26/01/2017. In the said reply, it was again asserted that there was no AOP in the name of Basavegowda and Venkatesh and no such PAN was also applied by anyone of them. The said Mr. Venkatesh again reiterated that he is not a member of any AOP and therefore, requested to withdraw the notice issued to him. Again the AO sent a letter on 02/05/2017 and clarified the issues raised by the said M/s. AOP of Basavegowda and Venkatesh. There was no response to the said letter and therefore, another letter was sent to the assessee on 18/05/2017. Thereafter the assessee again sent a letter dated 11/05/2017 reiterating the very same reasons given in his earlier letter. The AO sent a detailed response to the assessee by a letter dated 30/05/2017 and informed that the said Shri Basavegowda and Shri Venkatesh jointly opened SB account and the said account is very much in their control and therefore, the explanation given by the said Mr. Venkatesh about the non-existence of any such AOP cannot be accepted. The AO had also stated that the members joined together for the purpose of earning income and therefore, it is an association of persons (AOP) and therefore, the objections raised by the said Mr. Venkatesh could not be accepted. The AO, thereafter sent a notice to complete the assessment ex-parte u/s. 144 of the Act on 27/06/2017. The notice was not responded and therefore, the AO had proceeded to complete the assessment u/s. 144 of the Act and assessed the interest income in the hands of the AOP Basavegowda and Venkatesh. The AO had also stated that the predecessor AO has allotted a GIR number BV001/HSN and a new PAN was allotted as AACAB6663M which was also intimated to the assessee.
4. As against the said order, the legal heir of the deceased Shri Basavegowda filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had also confirmed the ex-parte order by affirming the assumption made by the AO that there was an AOP.
5. As against the said order, the assessee is in appeal before this Tribunal.
6. At the time of hearing, the Ld.AR submitted that the L/R of the deceased assessee is from a village background and not familiar with the e-proceedings and therefore the L/R of assessee could not view the hearing notices sent by the Ld.CIT(A). The Ld.AR submitted that there was no AOP in the eye of law and the AO had also does not have any documents to show that there was an AOP of Basavegowda and Venkatesh. The Ld.AR also relied on the submissions made by the said Mr.Venkatesh to the notices issued by the AO and submitted that the parties had objected about the notices issued in the name of a non-existing AOP. The Ld.AR further submitted that the assessee and Mr. Venkatesh opened the SB account in Kaveri Grameena Bank, Paduvalahippe branch on behalf of the villagers to deposit the money collected from the lorry owners who have transported the sand from the Hemavathi river flowing adjacent to the village and therefore, there is no question of AOP of Basavegowda and Venkatesh. The Ld.AR also submitted that the money collected and deposited were spent for the benefits of the entire village and also distributed to the families of the village. The Ld.AR also, even for arguement sake there is an AOP, submitted that at the time of initiation of assessment proceedings, the Basavegowda expired on 07/09/2014 which is also known to the Department and it is evident from the assessment order page 1 in which it was mentioned as Late Shri Basavegowda and in that circumstances, there would not be any AOP. The Ld.AR also filed a synopsis and also enclosed the death certificate of Shri Basavegowda, order of this Tribunal in ITA Nos. 1667, etc. /Bang/2014 dated 23/02/2017, assessment orders for A.Ys. 2011-12 and 2010-11 by way of a paper book. The Ld.AR also brought to our notice about the various orders passed by this Tribunal in respect of the A.Ys. 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 in which the AO himself had made the assessment in the name of AOP of Puduvalahippe village.. Group – 1. The Ld.AR also brought to our notice that the AO had also made the assessments for the years 2010-11, 2011-12, 2012-13 in the name of AOP of Puduvalahippe village Group – 2. For the A.Ys. 2010-11 & 2011-12, the AO had made the assessments in the name of AOP of Bommegowda and Rangegowda. Similarly, for the very same A.Ys. the AO had made the assessments in the name of AOP of Basavegowda and Venkatesh. The Ld.AR therefore submitted that the AO without having any materials had made the assessments according to his wish and therefore, prayed that the appeal filed by the assessee may be allowed instead of remitting the same to the Ld.CIT(A).
7. The Ld.DR submitted that the bank accounts were opened and operated both by Basavegowda and Venkatesh and therefore, the AO had made the assessment in the name of AOP after getting the PAN for the said AOP. The Ld.DR further submitted that the AO was handicapped since no details were furnished either of them and therefore after discussing the issue elaborately, had made the assessment in the name of AOP and prayed to dismiss the appeal.
8. We have heard the arguments of both sides and perused the materials available on record.
9. Before going into the merits of the case, we wish to adjudicate the issue whether any AOP was in existence or not. Therefore, we are adjudicating the said plea even though the orders are ex-parte instead of remitting the same to the authorities below.
10. As stated in the facts, the assessment was made in the name of the AOP for which the AO has no materials. The notices sent to the AOP, received by Mr. Venkatesh was properly replied and informed that there is no AOP and the said Mr. Venkatesh is also not a member of any AOP and therefore, requested to drop the proceedings. In the Income Tax Act u/s. 2(31), person has been defined as an association of persons or a body of individuals whether incorporated or not. Apart from the said definition, there is no definition for the association of persons. We have also gone through the meaning of the word “association of persons” which defines it as a group of two or more individuals that come together voluntarily to achieve a common purpose or engage in a joint business or financial activity. From the said definition, it is evident that the AOP should be formed with the intent to carry out an enterprise, manage a project or generate income and profits. The group of persons should join together voluntarily in order to constitute an association of persons. If the above said conditions are not satisfied, it could not be termed as an association of persons. In the present case, there is no iota of evidence to show that the persons had voluntarily joined together to achieve the object. In such circumstances, the assessment made in the name of the AOP is not sustainable. Further, in the assessment order itself, the AO has mentioned the name of the Basavegowda as Late Shri Basavegowda and therefore, at the time of passing the assessment order, the AO was very much known that the said Basavegowda was expired. When one of the person, who is part of the AOP died, there would not be any AOP as alleged by the authorities. Therefore, the assessment made in the name of AOP is not sustainable.
11. We have also perused the order of this Tribunal in ITA Nos. 1667, etc. /Bang/2014 dated 23/02/2017 in which the Department had made assessments in the name of several AOPs which shows that the Department itself is not sure about the status of the assessees while framing the assessments. In some of the assessment orders, the assessees name have been mentioned as AOP of Bommegowda and Rangegowda and AOP of Basavegowda and Venkatesh apart from the assessments made in the name of AOP of Puduvalahippe Village, Group – 1 and Group – 2. On going through the order of this Tribunal, we found that the AO himself is not sure about the status of the assessees and that is why the name of the assessee has been mentioned differently in the assessment orders.
12. We have also gone through the synopsis filed by the assessee in which in paragraph number 12, it was submitted that the assessment order for the A.Y. 2011-12 was passed in the name of the AOP of Puduvalahippe village, Group – 1 and in the said order, in para number 5, it was stated that as per the explanation given and other evidences furnished to the extent that the villagers of Puduvalahippe village were collecting money from the transporters of sand and therefore, the villagers of Puduvalahippe Village were treated as an assessable entity and accordingly, the income has been estimated in the hands of AOP of Puduvalahippe village, Group – 1 and Group – 2 accordingly. Therefore, the assessment made in the name of AOP of Basavegowda and Venkatesh is not sustainable.
13. We have also considered the submission made by the assessee that in respect of the A.Ys. 2009-10 to 2011-12, the assessments were reopened u/s. 147 of the Act in the name of the present appellant by citing her as L/H of Late Basavegowda and assessed the entire credits as income. It is to be noted that the said assessment orders were made prior to the passing of the assessment order for the impugned A.Y. 2014-15 and therefore, the Department was precluded from making the assessment in the name of AOP of Basavegowda and Venkatesh. We have also considered the fact that for the earlier A.Ys., the Department had passed the assessment orders by relying on the very same bank account in the name of AOP of Puduvalahippe Village, Group – 1 and Group – 2. In such circumstances, the assessment made by the AO in the name of AOP of Basavegowda and Venkatesh is against the facts and also against the provisions of the Act.
14. We have also perused the order of the Hon’ble Pune Bench of this Tribunal reported in (2008) 113 ITD 72, in the case of Konkani Bharat Dairy Farm (AOP) vs. ACIT wherein the Tribunal had held that the onus to prove the existence of an AOP is on the assessing officer. Further held that there was no material to show that they had joined together, of their own volition and had pooled their funds with a view to jointly engage themselves in the common activity of dairy business. By applying the same principle to the facts of the present case, there is no evidence that the said Basavegowda and Venkatesh joined together voluntarily and pooled their funds with a view to earn income. In such circumstances, we are of the view that the assessment order made in the name of the AOP of Basavegowda and Venkatesh is not sustainable and therefore we set aside the assessment order as well as the Ld.CIT(A) order.
15. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 21st September, 2026.
