TaxTMI 
TaxTMI 
2026 (6) TMI 1457
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....d not in duplication of the same income in the hands of a single assessee? 2. Whether the Hon'ble ITAT was correct in Law in holding that consolidation of Financial Statements of two independent partnership firms is permissible for Income Tax purpose, despite absence of any statutory recognition under the Income Tax Act, 1961? 3. Whether the Hon'ble ITAT erred in law in holding that there was no loss to the revenue as both firms were subject to the same rate of tax, ignoring that taxability must be determined in accordance with law and not or consideration of revenue neutrality?" 3. This is a strange case where there are two Permanent Account Numbers (PANs) issued under different names of the partnership firms having same partners, same profit sharing ratio and same partners' remuneration and return od income is filed by only one firm by consolidation of balance sheet and profit and loss account of both the firms. 4. Brief facts of the case are that: 4.1 The assessee is engaged in the business of running a cotton ginning factory at Manavadar of Junagadh District. The assessee-M/s. Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) is having same partners ....
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....ing of fact that there was no escapement of income. It was noticed by the CIT(A) that reopening exercise was undertaken for A.Y. 2013-14 and the proceedings under section 147 of the Act were initiated on the same issue of non-filing of the return by the respondent-assessee-M/s. Kanji Ambabhai Cotton Industries. However, the same were dropped by the Assessing Officer in absence of any escapement of income for the said year. 4.7 The CIT(A) also observed that the additions made by the Assessing Officer cannot be sustained as the same had already been disclosed by M/s. Kanji Ambabhai & Co. in its return of income for the year under consideration. The Assessing Officer could not have ignored the same and simply relied upon the information available with him. Despite the fact that the assessee has submitted entire set of Books of Accounts before the Assessing Officer, no omission or escapement of income was found by the Assessing Officer and all transactions done in the name of M/s. Kanji Ambabhai Cotton Industries were duly incorporated into the consolidated accounts in the name of M/s Kanji Ambahbai and Co. and there is no loss of revenue to the Income Tax Department. 4.8 The CIT....
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....e applicable legal position. At the outset, we note that findings of the assessing officer to the effect that no audit report has been prepared in the name of M/s Kanji Ambabhai Cotton Industries (AAIFK1676L), is factually incorrect. The separate audits were undertaken for both the firms, that is, M/s Kanji Ambabhai Cotton Industries (AAIFK1676L), and M/s Kanji Ambabhai & Co. (AACFK2391J), in fact, separate books of accounts were maintained for both the partnership firms, therefore, concept of separate legal entity, and separate legal person, have been maintained by both the partnership firms. Hence, the provisions of sub-section 31 of section 2 of the Income Tax Act, 1961, which recognizes a partnership-firm, as a separate legal entity, have been maintained. However, in both the partnership - firms, as noted above, since, there were similar partners, having similar profit sharing ratio, having similar remuneration, hence, for the purpose of convenience, at the end of the financial year, combined their net profit of both the partnership firm to offer for tax. Therefore, having prepared separate books of accounts for both the partnership firm, separately, at the end of the year, the....
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....irm is not a legal entity distinct from partners, in real sense, while recognising the commercial relaxations that allow firms to sue/be sued and to be assessed for tax. A partnership firm is a separate unit of assessment even though not a "person" in the corporate sense; therefore amounts may legitimately be assessed in the hands of the firm and/or the partners depending on the true nature of the transactions. If both firms are genuine commercial concerns, profit-sharing ratios and partners' remuneration truly are the same, and the entries between firms were bona fide and tax has been offered on the consolidated profit, then there is no escapement of income. 14. We find that both the partnership firms, claimed to be one and profit & loss account for both the firms are prepared separately. Audited profit & loss account for both the firms are separately prepared. Such audit reports can also be found from portal. However, at the year end, they prepared consolidated profit and loss account and offer the tax on consolidated profit, and that does not mean that both the trusts did not follow the concept of separate person. The payment of income tax on the consolidated profit....
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....well settled Law that when an assessee has all the possible evidence in support of its claim, they cannot be brushed aside based on surmises." 4.11 The Tribunal, thereafter, referred to the findings arrived at by the CIT(A) in Paragraph 17 as well as the submissions made by the assessee to arrive at a findings of fact that there is no loss of revenue caused in view of the consolidated balance sheet and Profit and Loss account prepared by the assessee and income is offered to tax in the return filed by the M/s. Kanji Ambabhai and Co.: "17. Therefore, we find that the Id. CIT(A) has considered the above documents and evidences in the right perspective and deleted the addition made by the assessing officer. The Id. CIT(A) noticed in the light of the above facts, documents and evidences that a perusal of the assessment order shows that the assessing officer has started from the returned income (vide return filed in response to notice u/s148 of the Act) of Rs.1,74,130/-, which is the income declared by M/s Kanji Ambabhai & Co (PAN: AACFK2391J) for the AY 2017-18. This has been specially mentioned by the assessee inthe submission dated 06.03.2025 as follows: "As evid....
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....nitiated and dropped in the case of the assessee on identical facts and circumstances. Therefore, ld. CIT(A) held that the additions made by the assessing officer cannot sustain, since the additions tantamount to double addition. The assessing officer has simply relied and reproduced the information available with him and despite the facts that the entire set of books of accounts were produced before him, the assessing officer has not identified any omission or escapement of income. Therefore, ld. CIT(A) observed that all the transactions done in the name of M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) has been duly incorporated in the consolidated accounts in the name of M/s Kanji Ambabhai & Co. (AACFK2391J) and there is no loss of Revenue to the income tax department. As such, even if the i.e. M/s Kanji Ambabhai Cotton Industries (PAN: AAIFK1676L) is considered as a separate firm, the additions made cannot sustain, as profit having been declared in the consolidated accounts of M/s Kanji Ambabhai & Co.(AACFK2391J). Therefore, based on these facts and circumstances of the case, the learned CIT(A) deleted the addition. 18. We note that how to do the business, how ....
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....on" for the purposes of the Act, that is, a firm is a recognized unit of assessment, have been maintained and respected by the assessee, however, for the purpose of convenience, at the year end, a consolidated profit and loss account was prepared where profit of both the partnership firms gets accumulated and on such consolidated profit, the assessee made the payment of taxes. We also note that the similar issue has been arisen in assessment year (A.Y.) 2013-14 wherein the reassessment proceedings were dropped. Hence, we find that considering the above facts and circumstances of the case, there is no escapement of income and no loss to the revenue. 19. On a careful reading of the order of ld. CIT(A) and the findings thereon, we do not find any valid reason to interfere with the decision and findings of the ld. CIT(A) in holding that there is no escapement of income and no loss to the revenue. Hence, we sustain the order of the ld. CIT(A) and reject the grounds raised by the revenue." 5. Learned Senior Standing Counsel Mr. Maulin Yajnik for the appellant-Revenue submitted that it is not in dispute that there are two separate Firms having two separate Permanent Account Nu....