Analysis of ITA No. 1606/DEL/2022: New Horizon Commercial Co. vs. ACIT, Central Circle-5, Jhandewalan Extension, New Delhi
Delving into the intricate legal battle between New Horizon Commercial Co., New Delhi (‘the appellant’) and the Assistant Commissioner of Income Tax, Central Circle-5, Jhandewalan Extension, New Delhi (‘the respondent’), this analysis brings to light the significant aspects of the Income Tax Appellate Tribunal’s decision regarding case number ITA 1606/DEL/2022 for the assessment year (AY) 2016-17.
Filed against the backdrop of an unfavorable order dated 31.05.2022 by the Commissioner of Income Tax (Appeals) – 24, New Delhi, concerning the AY 2016-17, the appellant New Horizon Commercial Co. sought redressal for grievances primarily centered around the assessment of bank fixed deposit interest amounting to Rs.71,998. The legal contention revolved around whether the interest income should be assessable in the hands of the dissolved partnership firm.
The appeal unfolded over several grounds, raising critical questions on the jurisdiction of the assessing officer (AO) concerning the examination of the bank FDR interest, the correct assessee for the interest income post-dissolution of the partnership firm, and alleged violations of natural justice principles due to the absence of a Show Cause Notice (SCN).
During the proceedings, the Tribunal meticulously sifted through the arguments presented by both parties. The crux of the appellant’s argument centered on the dissolution of the partnership firm on 06.05.2015, questioning the legality of assessing the interest income in the firm’s hands post-dissolution. Conversely, the Department’s stance was buttressed by the finding that the interest income continued to be received in the name of the firm, with no concrete evidence to demonstrate the dissolution’s notification to the relevant authorities or the discontinuation of the firm’s fixed deposit accounts.
Furthermore, a significant point of contention was the appellant’s failure to file the original return for AY 2016-17, triggering the application of sections 132 and 153A of the Income Tax Act, 1961. This led to a broader examination of the appellant’s entire income for the AY 2016-17 as undisclosed income owing to the non-filing of the return.
The Tribunal’s analysis extended to judicial precedents and statutory provisions, eventually concluding that the firm’s dissolution did not exempt it from tax liabilities accruing due to interest income. Moreover, the appellant’s plea concerning the jurisdiction over the assessment year as an unabated year was also dismissed, aligning with the principles laid out in the landmark judgment of CIT vs. Kabul Chawla.
Ultimately, the Tribunal dismissed the appeal, upholding the additions made by the AO. It highlighted the absence of any contravention of natural justice principles, dismissing the appellant’s grounds challenging the assessment and procedural violations.
The verdict reinforces the doctrine that the dissolution of a firm does not per se nullify its tax obligations for operations carried out and income generated till the date of dissolution. This case serves as a pivotal reference point for similar disputes involving the interpretation of income tax liabilities of dissolved entities.
