Facts of the Case

The assessee, a partnership firm, had not filed returns for AYs 2015-16 and 2018-19. Based on information regarding substantial bank transactions, reassessment proceedings were initiated under sections 148A and 148. Due to non-compliance, the Assessing Officer completed assessments making additions of ₹5.16 crore for AY 2015-16 and ₹2.34 crore for AY 2018-19, treating bank deposits as unexplained money under section 69A.

The CIT(A), NFAC dismissed the appeals summarily for non-prosecution, holding that the assessee was not interested in pursuing the matter.

Issues Involved

  1. Whether deposits in a bank account linked to a firm’s PAN can be taxed in the firm’s hands when the account allegedly belongs to an individual proprietor.
  2. Whether additions under section 69A are sustainable without determining beneficial ownership of the account.
  3. Whether appellate dismissal for non-prosecution without examining facts violates principles of natural justice.

Petitioner’s Arguments

The assessee contended that the bank account with Bank of Baroda did not belong to the partnership firm but to Mr. Aftab Alam, who operated a proprietary concern named M/s Auto King. It was submitted that Mr. Alam regularly filed income tax returns and disclosed the bank account in his financial statements and audit reports.

The assessee argued that its PAN had been wrongly mapped to the account at the time of opening. It further pointed out that in AY 2017-18, the Income Tax Department had conducted detailed enquiries and concluded that the beneficial owner of the account was Mr. Aftab Alam (proprietor), not the partnership firm.

Accordingly, repeated reassessment of the firm on the basis of the same account was unjustified, especially when prior findings were not considered.

Respondent’s Arguments

The Revenue contended that since the bank account was linked to the firm’s PAN, notices were correctly issued to the firm. Due to non-compliance by the assessee, earlier findings regarding ownership were not brought to the notice of the authorities.

It was submitted that instead of quashing the assessment, the matter should be remanded for reconsideration in light of prior investigations.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that detailed enquiries in AY 2017-18 had already established that the beneficiary of the bank account was the individual proprietor, Mr. Aftab Alam, and not the partnership firm. However, these findings were not considered during the impugned assessments due to non-compliance by the assessee.

Given the significance of these earlier findings, the Tribunal held that the matter required fresh examination to determine the true tax liability. Accordingly, the additions were set aside and the cases were restored to the Assessing Officer for de novo assessment after considering the prior assessment records and verifying ownership of the bank account.

The assessee was directed to cooperate fully in the proceedings. The appeals were allowed for statistical purposes.

Important Clarification

The Tribunal did not adjudicate the taxability of the deposits on merits. It emphasized that additions under section 69A cannot be sustained solely on the basis of PAN linkage without establishing beneficial ownership of the bank account. Proper verification of earlier departmental findings is essential before determining liability.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771063378_MSAUTOKINGALLAHABADVS.ITOWARD11ALLAHABAD.pdf

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