2023 (4) TMI 942 - AT - Income Tax

Accrual of income in the hands of dissolved partnership firm - Interest accrued for the period subsequent to dissolution - AR submitted that interest cannot be assessed in the hands of the assessee being a partnership firm which dissolved - HELD THAT - Form 26AS reflects the receipt of interest by the assessee firm from ING Vysya Bank Ltd. on which the bank has deducted tax at source. It shows that the bank has credited the entire amount of interest of the year in the account of the assessee partnership firm in whose name the accounts stand in the books of the bank. CIT(A) has recorded a finding of fact that the fixed deposit in the bank continued in the name of the firm and interest income was received for the entire previous year and utilised by the firm. This finding has not been controverted by the Ld. AR. Section 189 mandates that where a firm is dissolved the AO shall make an assessment of the total income of the firm as if no such dissolution had taken place and all the provisions of the Act including the provisions relating to levy of a penalty or any other sum chargeable under any provisions of this Act shall apply to such assessment. It is thus obvious that section 189 keeps the firm alive for the purposes of assessment despite its dissolution. It ensures that the firm which is dissolved does not escape the liability to tax after its dissolution - No substance in the argument of the Ld. AR that the entire amount of interest received by the firm during the previous year cannot be assessed in the hands of the assessee firm - Decided against assessee. Assessment u/s 153A - Search under section 132 - whether no incriminating material has been found/seized during search? - AR did not advance any arguments in order to refute the findings of the Ld. CIT(A). It is not in dispute that the assessee had not filed its original return for AY 2016-17 under section 139(1) of the Act leading to the legitimate legal inference that the entire income pertaining to AY 2016-17 would be regarded as undisclosed income in a case where search under section 132 of the Act has been conducted. In such a scenario, in our view the CIT(A) has rightly held that the Ld. AO would get the jurisdiction to assess the entire income similar to that in regular assessment u/s 143(3) of the Act as assessment for AY 2016-17 is unabated. We endorse the finding of the Ld. CIT(A) and decide ground No. 1 against the assessee.

Summary

Issues involved:
The issues involved in the judgment are (1) whether the Assessing Officer exceeded jurisdiction in examining the issue of bank FDR interest, (2) whether the entire interest income can be assessed in the hands of the dissolved partnership firm, and (3) whether the addition made without issuing a show cause notice violates principles of natural justice.

Issue 1: Jurisdiction of Assessing Officer
The Appellate Tribunal considered whether the Assessing Officer exceeded jurisdiction in examining the issue of bank FDR interest for the Assessment Year 2016-17, which was an unabated year with no incriminating material found during the search. The Tribunal upheld the decision of the Ld. CIT(A) that in the absence of filing the return for the AY, the entire income would be treated as undisclosed income, giving the Assessing Officer the authority to assess the entire income similar to a regular assessment under section 143(3) of the Act. The Tribunal endorsed the Ld. CIT(A)'s findings, dismissing the appeal on this ground.

Issue 2: Assessment of Interest Income
Regarding the assessment of interest income of Rs. 71,998/- in the hands of the dissolved partnership firm, the Tribunal analyzed the facts and submissions made by the parties. The Ld. CIT(A) found that the dissolution of the firm was not proved beyond doubt, as the dissolution deed was not filed before the department immediately after dissolution. The Tribunal noted that the fixed deposit continued in the name of the firm, and interest income was received and utilized by the firm, leading to the conclusion that the entire interest income could be assessed in the hands of the partnership firm despite its dissolution. The Tribunal decided against the assessee on this ground.

Issue 3: Violation of Natural Justice
The general issue raised by the assessee was whether the addition made without issuing any show cause notice violated the principles of natural justice. The Tribunal did not find any violation of natural justice in the proceedings and upheld the decision of the lower authorities. The appeal was ultimately dismissed by the Tribunal.

Separate Judgment:
The judgment was delivered by SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and MS. ASTHA CHANDRA, JUDICIAL MEMBER.