S. 143(3) Assessment – Disallowance of expenditure – Business income – Entries in the books of account is not conclusive- Alternative remedy – No deduction of expenses claimed either by assessee or unit holders – Addition made by AO wholly without jurisdiction – Writ petition maintainable – Assessment order quashed. [S. 10(23FBA), 28(i), 37(1), 115UB, 144B, 246A, Art. 226]
The assessee, a SEBI registered Category II AIF with pass-through status u/s 115UB, filed NIL return for A.Y. 2022–23. It had incurred expenses of ₹118.99 Cr but claimed no deduction of the same, nor were they claimed by unit holders. The only income earned was short-term capital gains of ₹0.99 Cr, claimed exempt u/s 10(23FBA). The AO disallowed ₹103.15 Cr (excluding management fee of ₹15.84 Cr allowed) holding expenses to be non-genuine and added the same under “business income,” issuing demand and penalty notice u/s 274.The High Court held that: , though alternative remedy before CIT(A) was available, writ jurisdiction is maintainable where the order is wholly without jurisdiction , the AO erred in relying on accounting treatment to disallow expenses never claimed as deduction, as settled by Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363( SC) , Taparia Tools Ltd. v. JCIT (2015) 372 ITR 605 / 55 taxmann.com 361( SC) and United Commercial Bank v. CIT (1999) 240 ITR 355( SC) book entries are not conclusive for taxability; since no deduction was claimed, there was no basis to add back such expenses. Accordingly, the impugned assessment order, demand notice and penalty notice were quashed. (WP No. 2684 of 2025, dt. 9-9-2025 (AY .2022–23)
Kedaara Capital Fund II LLP v. NFAC (Bom)(HC) www.itatonline.org
[Coram : Hon’ble Shri Justice B. P. Colabawalla,
Hon’ble Shri Justice Amit Satyavan Jamsandekar]