2025 (8) TMI 147 - AT - Income Tax

Additions under Sections 68 and 69A upheld for unexplained credits in dissolved firm's bank account

The ITAT Surat upheld additions under sections 68 and 69A to a dissolved firm due to unexplained credit entries in its bank account. The continued ... Addition u/s 68/69A - additions to dissolved firm - credit transactions in bank account unexplained - HELD THAT:- The active operation of bank account post the purported dissolution proves continued existence of the firm for all intent and purpose. If business is carried on under the same PAN/bank account, the entity is liable to explain credits, even if it claims to have been dissolved. In the instant case, assessee failed to discharge the burden of proof by furnishing satisfactory explanation for credits. The Hon’ble Supreme Court in case of CIT vs. P. Mohankala [2007 (5) TMI 192 - SUPREME COURT] has held that if assessee fails to provide satisfactory explanation and supporting evidence for credits, addition u/s 68 of the Act is justified. Decided against assessee. ISSUES: Whether additions under section 69A of the Income-tax Act, 1961 can be made to a dissolved firm for unexplained cash and credit entries in its bank account post dissolution.Whether the assessee's claim of business conversion and filing returns under a new PAN absolves it from explaining transactions in the bank account of the dissolved firm.Whether the failure to disclose a bank account and associated transactions in the return of income of the successor firm justifies addition under section 69A.Whether judicial precedents concerning dissolution and successor entities apply to the facts of continued financial activity under the dissolved firm's PAN and bank account. RULINGS / HOLDINGS: Additions under section 69A were upheld as the appellant failed to provide 'specific details regarding the source of funds, ledger A/c. and other supporting evidences' for cash and credit entries totaling Rs. 6,29,89,197/- in the bank account of the dissolved firm.The appellant's assertion that the business was converted and transactions were recorded under a new PAN was rejected because 'mere assertion... without any supporting documentary evidence would in no way prove' the claim, and the impugned bank account was not disclosed in the successor firm's return or balance sheet.The failure to disclose the HDFC bank account number 50200024762393 in the successor firm's return of income and balance sheet was held to justify the addition under section 69A as unexplained money.The precedents relied upon by the appellant were distinguished on facts, as in this case 'there are credit entities and cash deposits... well after 12 long years of its dissolution' and 'no application was made to close the PAN, nor was the bank account closed,' indicating continued business activity under the dissolved firm's name. RATIONALE: The legal framework applied includes section 69A of the Income-tax Act, 1961, which permits addition of unexplained money where the assessee fails to satisfactorily explain the source of credits in bank accounts.The court relied on the principle that 'if a dissolved entity continues to carry out financial transactions in its own name, then the dissolution becomes a matter of form and not substance,' thereby attracting tax liability despite claimed dissolution.The Hon'ble Supreme Court precedent in CIT vs. P. Mohankala was applied, affirming that failure to provide satisfactory explanation and evidence for credits justifies addition under section 68 (analogous to section 69A).The court distinguished prior case law concerning dissolution and successor entities on the ground that those cases involved complete cessation of business and proper transfer of assets and liabilities, unlike the instant case where the dissolved firm's bank account was actively used without disclosure.