2024 (9) TMI 1679 - AT - Income Tax

Disallowance of expenses claimed as deduction under the head business income - expenditures are not liable as deduction because no business was carried on by the assessee - HELD THAT - This aspect is already dealt by us by holding that the lower authorities had indeed assessed the business income reported by the assessee and accordingly their findings got nullified. Hence, once the fact of business conducted by the assessee is accepted, the assessee would be automatically entitled for business expenditure as deduction. Hence, the assessee succeeds on this ground on merit. Accordingly, the Ground raised by the assessee is allowed. Invalid approval granted u/s 153D - Approval u/s 153D of the Act has been granted by the ld. Addl. CIT in the instant case before us in a mechanical manner without due application of mind, thereby making the approval proceedings by a high ranking authority, an empty ritual. Such an approval has neither been mandated by the provisions of the Act nor endorsed by any decisions. Hence, we find lot of force in the arguments advanced by the Ld. AR in support of the ground raised in the appeal of the assessee.

2025 (1) TMI 175 - AT

1. ISSUES PRESENTED and CONSIDERED

The legal judgment considered the following core issues:

Whether the invocation of Section 153C by the Assessing Officer (AO) was valid in the absence of requisite jurisdictional facts and a valid satisfaction note.
Whether the approval under Section 153D was granted in a mechanical manner without due application of mind, thereby affecting the validity of the assessment.
Whether the disallowance of expenditures claimed by the assessee was justified given the contention that no genuine business activities were conducted.
Whether the deletion of commission income from the assessee's hands was appropriate, considering the income was assessed in the hands of an entry operator.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Invocation of Section 153C

Relevant legal framework and precedents: Section 153C of the Income-tax Act, 1961 allows the AO to assess or reassess the income of any other person (other than the person searched) if any incriminating material is found during the search.
Court's interpretation and reasoning: The Tribunal noted that the AO invoked Section 153C based on a satisfaction note that lacked jurisdictional ingredients, which is a mandatory requirement for a valid invocation.
Key evidence and findings: The Tribunal observed that the satisfaction note did not draw any adverse inference against the seized material related to the assessee.
Application of law to facts: Since the satisfaction note was deemed invalid, the invocation of Section 153C was considered without authority of law.
Treatment of competing arguments: The assessee argued that the invocation was arbitrary and mechanical, which the Tribunal found persuasive.
Conclusions: The Tribunal concluded that the invocation of Section 153C was invalid due to the lack of a valid satisfaction note.

Issue 2: Approval under Section 153D

Relevant legal framework and precedents: Section 153D requires that no order of assessment or reassessment shall be passed by the AO without the prior approval of the Joint Commissioner.
Court's interpretation and reasoning: The Tribunal emphasized that the approval process is a quasi-judicial function requiring due application of mind.
Key evidence and findings: The Tribunal found that the approval was granted on the same day for multiple cases, indicating a lack of due diligence.
Application of law to facts: The Tribunal held that the approval was mechanical and lacked the necessary application of mind, rendering the assessment void.
Treatment of competing arguments: The Revenue argued that the Addl. CIT was involved from the inception, but the Tribunal found this insufficient to justify the mechanical approval.
Conclusions: The Tribunal concluded that the approval under Section 153D was invalid due to lack of application of mind, quashing the assessment.

Issue 3: Disallowance of Expenditures

Relevant legal framework and precedents: Business expenditures are deductible under the Income-tax Act if incurred wholly and exclusively for business purposes.
Court's interpretation and reasoning: The Tribunal noted that the AO accepted the business income declared by the assessee, contradicting the claim of no business activity.
Key evidence and findings: The Tribunal found that the lower authorities failed to prove that the expenditures were not genuine.
Application of law to facts: The acceptance of business income implied the acceptance of business activities, warranting the allowance of related expenditures.
Treatment of competing arguments: The Revenue's argument of no business activity was undermined by the AO's own acceptance of the business income.
Conclusions: The Tribunal allowed the deduction of business expenditures as the business activity was acknowledged by the AO.

Issue 4: Deletion of Commission Income

Relevant legal framework and precedents: Income should be assessed in the hands of the rightful owner as per the Income-tax Act.
Court's interpretation and reasoning: The Tribunal found that the commission income was already assessed in the hands of the entry operator, not the assessee.
Key evidence and findings: The CIT(A) directed the AO to take remedial action against the entry operator, confirming the deletion in the assessee's case.
Application of law to facts: The Tribunal upheld the CIT(A)'s decision to delete the commission income from the assessee's assessment.
Treatment of competing arguments: The Revenue did not dispute this issue in the present appeal.
Conclusions: The Tribunal concluded that the deletion of commission income was appropriate as it was assessed in the hands of the entry operator.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The approval granted u/s 153D of the Act is mechanical in nature... hence search assessment framed in the hands of the assessee deserves to be quashed on this count."
Core principles established: Approval under Section 153D must involve a judicious application of mind; mere procedural compliance is insufficient.
Final determinations on each issue: The Tribunal quashed the assessment due to invalid invocation of Section 153C and mechanical approval under Section 153D. It allowed the deduction of business expenditures and upheld the deletion of commission income.

In summary, the Tribunal's judgment emphasized the necessity of due process and application of mind in tax assessments, particularly under Sections 153C and 153D of the Income-tax Act. The Tribunal's decision reflects a commitment to ensuring that procedural requirements are not mere formalities but integral to fair and just assessments.

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