2025 (5) TMI 338 - AT - Income Tax

Assessment u/s 153A - As argued assessee was not the person searched within the meaning of section 153A - HELD THAT - The law is well settled that in cases where assessments have attained finality prior to the date of search no addition can be made u/s 153A in the absence of incriminating material unearthed during the search. In the present case the year under consideration i.e. A.Y. 2018-19 is an unabated assessment as the time limit to issue notice u/s 143(2) was already expired on 30th September 2019 whereas the search was conducted as on 12th March 2020. Hence the validity of the proceedings u/s 153A of the Act on this count also is vitiated. Disallowing the benefit of presumptive taxation u/s 44ADA - AO has erroneously treated the sum received by the assessee from Hospital as salary income thereby disallowing the benefit of section 44ADA which allows for presumptive taxation of professional receipts. AO s assumption that a fixed monthly payment necessarily implies an employer-employee relationship is legally and factually incorrect. It is pertinent to note that the assessee is a qualified consultant gynecologist and for rendering the professional services received fee which is evident from the deduction of tax at source on the payments received by the assessee as the deduction was made u/s 194J and not u/s 192 (salary). Further there is no evidence brought on record by the revenue to establish any employer-employee relationship between the assessee and the hospital such as control supervision or eligibility for employment benefits. In such circumstances the income must be rightly classified as professional receipts. Assessee having opted for presumptive taxation under section 44ADA of the Act was entitled to offer 50% of gross professional receipts as income. There is no material on record to discredit the applicability of this provision in her case. The AO s rejection of the claim and addition of the entire amount to taxable income coupled with the disallowance of claimed expenditure is arbitrary and contrary to the settled legal position. CIT(A) erred in dismissing the appeal without adjudicating it on merits merely citing non-compliance with hearing notices. An appellate authority is expected to dispose of appeals judiciously by addressing issues raised and evaluating them on facts and law which was not done in this case. We hold that the proceedings u/s 153A are invalid in the absence of a valid search warrant in the name of the assessee. The assessment is also in the absence of incriminating material found during the search is not sustainable being unabated assessment year. We further hold that the income received by the assessee from Dr. Jayachandran Co Hospital was in the nature of professional fees and not salary hence eligible for presumptive taxation under section 44ADA of the Act. Accordingly we hereby set aside the finding of the ld. CIT(A) and quash the assessment order. Hence the ground of appeal of the assessee is hereby allowed.

Summary

The core legal questions considered by the Tribunal in these appeals concern the validity of assessment proceedings initiated under section 153A of the Income Tax Act, the nature of income received by the assessee from a hospital (whether salary or professional fees), the applicability of presumptive taxation under section 44ADA, and the procedural propriety of the appellate authority's dismissal of the appeal without adjudication on merits.

Regarding the jurisdictional validity of the assessment under section 153A, the Tribunal examined whether the assessee qualifies as a "person searched" within the meaning of the provision. The search warrant and authorization were issued in the name of the assessee's father, who was the managing partner of the firm under investigation. Although the residential premises of the assessee were searched, the Tribunal held that mere inclusion of premises does not confer jurisdiction under section 153A unless the individual's name appears on the search warrant. Consequently, the initiation of proceedings against the assessee under section 153A was held to be vitiated and void ab initio.

Even assuming the validity of proceedings under section 153A, the Tribunal noted the absence of any incriminating material found during the search relating to the assessee. The law is settled that additions under section 153A require discovery of incriminating evidence. Since the assessment year 2018-19 was an unabated assessment year with the time limit for issuing a notice under section 143(2) already expired prior to the search, the proceedings under section 153A lacked validity on this ground as well.

On the substantive issue of classification of income, the Assessing Officer (AO) treated the sum of Rs. 12,00,000 received by the assessee from Dr. Jayachandran & Co Hospital as salary income, disallowing the benefit of presumptive taxation under section 44ADA. The AO's reasoning was based on the fixed monthly payment structure, which was presumed to indicate an employer-employee relationship. The Tribunal rejected this view, emphasizing that a fixed payment does not ipso facto establish salary income. The assessee, a qualified consultant gynecologist, received fees for professional services, supported by the fact that tax was deducted at source under section 194J (fees for professional services) and not under section 192 (salary). No evidence was presented by the Revenue to demonstrate any employer-employee relationship, such as control, supervision, or entitlement to employment benefits. Therefore, the income was rightly classified as professional receipts.

Applying section 44ADA, which permits a presumptive taxation scheme for professionals, the Tribunal held that the assessee was entitled to declare 50% of gross professional receipts as income. The AO's addition of the entire amount to taxable income and disallowance of expenses was deemed arbitrary and contrary to settled legal principles.

The Tribunal also addressed the procedural conduct of the learned Commissioner of Income Tax (Appeals) [CIT(A)], who had dismissed the appeal on grounds of non-compliance with hearing notices without adjudicating the substantive issues. The Tribunal observed that an appellate authority is duty-bound to dispose of appeals judiciously by considering the facts and law rather than dismissing appeals summarily. The CIT(A)'s action was therefore found to be erroneous.

In conclusion, the Tribunal quashed the assessment orders passed under section 153A, held the proceedings invalid for want of jurisdiction and absence of incriminating material, and upheld the assessee's claim for presumptive taxation under section 44ADA. The appeals were allowed accordingly.

For the subsequent assessment year 2019-20, the Tribunal applied the same reasoning and findings as for the year 2018-19, allowing the appeal on identical grounds.

Significant holdings include the following verbatim legal reasoning: "The very initiation of proceedings under section 153A of the Act is against the assessee is vitiated and void ab initio" and "The AO's assumption that a fixed monthly payment necessarily implies an employer-employee relationship is legally and factually incorrect." The Tribunal established the principle that inclusion of residential premises in a search does not confer jurisdiction under section 153A unless the person's name is on the search warrant. It also reinforced that presumptive taxation under section 44ADA applies to professional fees even if received on a fixed monthly basis, absent evidence of an employer-employee relationship.

Final determinations were that the assessment proceedings under section 153A were invalid, the income received by the assessee was professional in nature and eligible for presumptive taxation, and the CIT(A)'s dismissal of the appeal without merit adjudication was improper. Both appeals were allowed, setting aside the impugned orders.