Tax Audit provisions do not apply to items of other income shown in Profit & Loss Account when business turnover is Nil – ITAT
ABCAUS Case Law Citation:
ABCAUS 3761 (2023) (06) ITAT
Important Case Laws relied upon:
Bajrang Oil Mills vs. ITO, 295 ITR 314
Ghai Construction vs. State of Maharashtra (2009) 184 Taxman 52
In the instant case, the appellant assessee had challenged the order passed by the CIT(A) in upholding the order of the Assessing Officer (AO) and holding that the assessee was liable to Tax Audit u/s 44AB of the Income Tax Act, 1961 (the Act).
The assessee was a Private Limited company engaged in manufacturing. The assessee filed return of income under Section 139(1) of the Act declaring total income of approx. Rs. 5 crores. However, the gross receipt/turnover from business was Rs. Nil as per the item, no.1 of the Schedule Profit & Loss of ITR-6.
The Centralised Processing Centre (CPC) issued notice under Section 139(9) of the Act intimating defects in the return of income on the ground that tax audit report u/s 44AB of the Act was no appended alongwith the ITR.
The assessee responded the notice issued under Section 139(9) of the Act submitting the fact that tax audit was not applicable to the Company.
However, The CPC passed an order under Section 139(9) of the Act holding that the ITR filed was invalid on the ground that tax payer had shown gross receipt of income under the head Profits and Gains of Business or Profession more than Rs.1 crore but the books of accounts had not been audited.
Before the Tribunal, the assessee submitted that its gross income taxable under the head business income was nil as during the year under consideration the turnover of the income was nil and there were no manufacturing activities at the relevant A.Y.
It was submitted that the company had income under the head other income which included interest income, dividend income, rent, profit on sale of fixed asset and profit on sale of investment. Therefore, since the assessee did not have the turnover more than Rs. 1 Crore under the head business income, tax audit under Section 44AB of the Act was not applicable in the case.
It was further submitted that the CPC had erred in considering other income which were taxable under specific other heads under the Income Tax Act and was offered to tax accordingly in the return of income as turnover for the purpose of Section 44AB.
It was prayed that the order of CPC under Section 139(9) holding the company be struck down and the CPC/Jurisdictional Assessing Officer be directed to process the income tax return field by the Company.
The case of the Department was that since the assessee, in Profit & Loss account had computed the income from business including the income earned from the sale of fixed asset. Therefore, the assessee should have filed tax audit under Section 44AD of the Act.
The Tribunal observed that the actual business turnover of the assessee was nil during the A.Y. Whereas Section 44AB is related to the business of a person whose total sales turnover or gross receipts exceeds Rs. 1 crores.
The Tribunal opined that in the relevant year, manufacturing activities in the assessee Company were not operational, there was no sales, no turnover or gross receipt in relation to business carried out by the assessee Company and, therefore, Section 44AB of the Act will not be attracted in the present assessee’s case.
The Tribunal opined that the decisions of Hon’ble High Court relied by the assesseee were applicable in assessee’s case.
Accordingly, the appeal of the assessee was allowed.
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