Vitraag Trading (Dissolved) Vs DCIT (ITAT Rajkot)
Rajkot ITAT Quashes ₹8.91 Crore Reassessment Against Dissolved Firm: Notice to Non-Existent Entity Is Void; Same Income Cannot Be Taxed Again After Assessment in Successor’s Hands
The Rajkot ITAT in Vitraag Trading (Dissolved) v. DCIT quashed reassessment proceedings for AY 2013-14 against a partnership firm which had ceased to exist nearly two years before the relevant assessment year.
The assessee-firm, engaged in gold and silver bullion trading, had been dissolved with effect from 30 September 2011, and from 1 October 2011 the business was carried on as the sole proprietorship of Shri Vishal Bharatbhai Vasa. Nevertheless, based on information showing alleged transactions/turnover of ₹111.38 crore, the AO issued notice under section 148 in the firm’s name and, in an ex-parte assessment, estimated profit at 8% under section 44AD, making an addition of ₹8.91 crore.
Crucially, the Department was already aware of the firm’s dissolution. In the scrutiny assessment for AY 2012-13 itself, the AO had recorded that the partnership existed only from 1 April 2011 to 30 September 2011 and thereafter stood converted into a proprietorship. The Department had thus accepted AY 2012-13 as the last assessment year of the partnership firm. The conversion had also separately been intimated to the Department by letter dated 11 November 2014.
The Tribunal further noted that the disputed bank transactions after 1 October 2011 had been disclosed by the proprietor and reassessment proceedings had separately been completed in his hands. Therefore, attempting to tax the very same transactions again in the hands of the erstwhile partnership firm would result in impermissible double taxation.
The ITAT found an additional jurisdictional defect: the reasons recorded for reopening did not identify the particular bank account or precise transaction allegedly representing escaped income of the partnership firm. Such vague reasons failed to disclose the foundational material necessary for assuming jurisdiction under section 147.
Following the Gujarat High Court ruling in Anokhi Realty (P.) Ltd. v. ITO, the Tribunal held that a notice issued to a non-existent entity after succession of business is void, rendering the consequential reassessment unsustainable.
Accordingly, the ITAT quashed the reassessment and directed deletion of the ₹8.91 crore addition. The assessee’s appeal was allowed.
Cases Discussed
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2013-14, is directed against the order under section 250 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] passed by the National Faceless Appeal Centre [hereinafter referred to as ‘NFAC’], dated 17.01.2025, which in turn arises out of an order passed by assessing officer u/s. 147 read with section 144 of the Act, dated 18.03.2022.
