In a Partnership firm of father and son, father has retiremd and son continues the firm as a proprietor without communicating the fact to the bank. AO want to assessee the income as income of firm and not of Individual partner.

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In a Partnership firm of father and son, father has retiremd and son continues the firm as a proprietor without communicating the fact to the bank. AO want to assessee the income as income of firm and not of Individual partner.

Query]

Ours was a partnership firm up to AY 2018-19 with father and son as a partner. The father has retired from the firm and the firm becomes a proprietory firm. However, no change was communicated to the bank. Resultantly, the account was operated as it is with son as a signatory mentioning it as a partner.  Due to old age of the father, the business was managed by the son (not a partner in a firm). The case is selected scrutiny assessment and the IT Authorities want to assess it as a firm. Our turnover is not liable for GST as we were dealing in food grains and no GST registration was ever taken. Please guide.

Opinion:

  1. In your case, the firm consisting of father and his son is dissolved.

2.The son continues to sign the bank account as partner due to non communication of the retirement of the father.

3. The AO is doubting the dissolution of the firm or retirement of the partner and so actually assessing the income as income of the Firm and not that of Individuals.

4.Substance over forms is relevant in all the income tax proceeding. If the mistake is bona fide, law doesn’t provide for punishment for such honest or inadvertent mistake or omissions.

5.If the fact of retirement of son is genuine and real then there must be some other evidences of the relevant period to establish that the firm was in fact dissolved and it has become the became the sole proprietor of the son.

6.Such evidences need to be submitted or established before the AO.

7.An affidavit by the son as well father confirming the fact must also be submitted. Affidavit of the father that he does not have any right, title or interest whatsoever over the assets of the firm & he is liable for payment of any of the liabilities of the firm may also be incorporated in the affidavit.

8. Other evidences like confirmation or affidavit from other legal heirs of father may also be given confirming the fact that the said business is transferred to the son after retirement of the father form the firm will be added evidence.

9. AO after due verification of the facts, truth and correctness may accept the contention and may accept the income as that of individual as against firm’s income.

 

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