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Facts
The assessee, a doctor, had her residential premises searched. A section 153A notice was issued. The AO treated her professional income of Rs. 12 Lakhs as salary and disallowed expenses, adding the entire amount to taxable income. The CIT(A) dismissed the appeal for non-prosecution.
Held
The Tribunal held that the proceedings under section 153A were invalid as the search warrant was not in the assessee's name and no incriminating material was found. The income was correctly treated as professional fees eligible for presumptive taxation under section 44ADA.
Key Issues
1. Validity of proceedings under Section 153A when the search warrant was not in the assessee's name and no incriminating material was found. 2. Whether the income received by the assessee was salary or professional fees eligible for presumptive taxation under Section 44ADA.
Sections Cited
139(1), 44ADA, 153A, 144, 148A, 194J, 192, 132, 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K
PER WASEEM AHMED, ACCOUNTANT MEMBER:
These appeals filed by the assessee are against the order passed by the ld. CIT(A)-2, Panaji both dated 19/12/2024 for the assessment years 2018-19 and 2019-20.
The facts in brief are that the assessee is an individual and a doctor by profession. She is daughter of Shri Nara Suryanarayan Reddy who is a managing partner in the firm namely M/s Sree Raghavendra Enterprise and M/s Indian Minerals & granite company. For the year under dispute, the assessee filed return of income as per section 139(1) of the Act declaring total income at Rs. 1,17,60,980/- which included professional income declared u/s 44ADA of the Act, income from house property and income from other sources.
A search under section 132 of the Act was carried out as on 12th 3. March 2020 in connection with M/s Sree Raghavendra Enterprise group including the residential premises of the assessee in the impugned search.
In consequence to the search, the proceeding under section 153A of the Act was initiated in case of the assessee by requiring the assessee to file return u/s 153A of the Act. The assessee stated that the return filed u/s 139(1) of the Act should be treated as return filed in response to notice issued u/s 153A of the Act. The assessee further furnished various details such as copy of income computation, balance sheet, income & expenditure accounts, receipt & payment account, capital account, Fixed Assets schedule, unsecured loan confirmation etc.
The AO found that the assessee has not filed return in response to a notice issued under section 153A of the Act, therefore, in absence of return, the AO proceeded to frame the assessment in accordance with the provision of section 144 of the Act.
The AO noticed that the assessee is working with Dr. Jayachandran & Co Hospital Chennai as Gynaecologist and received an amount of Rs. 12 Lakh for the year on fixed sum basis. The impugned . amount was treated as professional receipt and income on the same was offered at Rs. 6 Lakh in accordance with the provisions of section 44ADA of the Act.
The AO noted that the amount received on fixed monthly basis as consideration for working in the said hospital, hence the said amount is in the nature of salary and not a professional receipt. The AO from the income & expenditure account further observed that there is an expenditure claimed by assessee amounting to Rs. 6 lakhs to earn professional income. Therefore, the AO disallowed the assessee’s claim and brought the entire amount of Rs. 12 lakhs to the taxable income.
The aggrieved assessee preferred an appeal before the learned CIT(A). The assessee with the appeal filed statement of facts, explaining the facts and argument against the view taken by the AO.
However, the learned CIT(A) dismissed the appeal of the assessee without going into the merit by holding that the assessee is not keen to pursue to the appeal. The view of the learned CIT(A) was based on the fact that there were two notices issued during the appellate proceedings to which the assessee failed to submit response.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR for the assessee respectfully submits that the order passed by the ld. CIT(A) is erroneous in law and on facts as the same having been passed in clear violation of the principles of natural . justice. Despite a specific request for adjournment made by the assessee, the ld. CIT(A) proceeded to pass the order without granting a hearing, thereby denying the assessee a fair opportunity to present her case.
The learned AR further argued that the notice issued under section 153A of the Act is void ab initio as the assessee was not the person searched. Consequently, all proceedings initiated pursuant to such notice are illegal and should have been quashed. Furthermore, even in the absence of the above, the ld. CIT(A) failed to note that no incriminating material was found during the search, making the assessment under section 153A unjustified, especially since a valid return had already been filed prior to the search.
It is also submitted that assuming, without conceding, that there was escapement of income, the proper recourse would have been proceedings under section 148A of the Act, and not under section 153A of the Act, rendering the present assessment procedure invalid.
Without prejudice to the above, the learned AR argued that he addition of Rs. 6,00,000/- by the AO is wholly unjustified as the assessee is a consultant gynecologist and not a salaried employee, as erroneously assumed. Moreover, both the AO and the ld. CIT(A) ignored the applicability of section 44ADA, which is relevant to the assessee’s professional income. The TDS on the consultation fees was rightly deducted under section 194J by M/s Dr. Jayachandran & Co Hospital and not under section 192, reaffirming the professional nature of the income.
In light of the above submissions, the learned AR humbly prayed that the impugned additions be deleted, and the assessment be set aside.
On the contrary, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the material available on record. The facts of the issue on hand have been elaborately discussed in the processing paragraph, therefore we are not inclined to repeat the same for the shake of brevity.
17.1 At the outset, we find it pertinent to address the foundational issue regarding the jurisdictional validity of the assessment proceedings initiated under section 153A of the Act. The assessee has contended that she is not a "person searched" within the meaning of section 153A of the Act. This assertion is supported by documentary evidence – specifically, the search Panchnama placed at page 41 of the paper book – which clearly reveals that the warrant of authorization was issued in the name of her father, Shri Nara Suryanarayan Reddy, and not in her individual capacity. Though the residential premises were covered in the course of the search conducted on 12th March 2020, such inclusion does not, in itself, make the assessee a person in respect of whom valid jurisdiction under section 153A of the Act can be assumed, unless her name appears on the search warrant. Therefore, the very initiation of proceedings under section 153A of the Act is against the assessee is vitiated and void ab initio.
17.2 Further, even assuming without conceding that the proceedings under section 153A were validly initiated, it remains an undisputed fact that no incriminating material was found during the search that pertaining to the assessee or supporting any variation from the original return of income filed under section 139(1) of the Act. The law is well settled that in cases where assessments have attained finality prior to the date of search, no addition can be made under section 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 under section 143(2) of the Act was already expired on 30th September 2019 whereas the search was conducted as on 12th March 2020. Hence, the validity of the proceedings under section 153A of the Act on this count also is vitiated.
17.3 On the merits of the assessment, we note that the AO has erroneously treated the sum of Rs. 12,00,000/- received by the assessee from Dr. Jayachandran & Co Hospital, Chennai, as salary income, thereby disallowing the benefit of section 44ADA which allows for presumptive taxation of professional receipts. The 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 under section 194J of the Act and not under section 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.
17.4 Therefore, in our considered opinion, the 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 of Rs. 12,00,000/- to taxable income, coupled with the disallowance of claimed expenditure, is arbitrary and contrary to the settled legal position.
17.5 We also observe that the ld. 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.
17.6 In view of the above detailed discussion, we hold that the proceedings under section 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.
In the result appeal of the assessee is hereby allowed. an appeal by the assessee for A.Y. 2019-20
At the outset, we note that the issues raised by the assessee in the captioned appeal for the AY 2019-20 is identical to the issue raised by the assessee in 2018- 19. Therefore, the findings given in shall also be applicable for the assessment year 2019-20. The appeal of the assessee for the A.Y. 2018-19 has been decided by us vide paragraph No. 18 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2018- 19 shall also be applied for the assessment years 2019-20. Hence, the grounds of appeal filed by the assessee are hereby allowed.
In the result appeal of the assessee is hereby allowed.
In the combined result, both the appeals of the assessee are hereby allowed.
Order pronounced in court on 24th day of April, 2025