Monday, May 24, 2010

Section 44-AB ,271B and 273 B Limit & penalty (Income Tax Act,1961)

Non-corporate assessees are required to obtain a tax audit report from a chartered accountant in certain cases. The limit of Rs 40 lakh in section 44-AB of the Income-tax Act, 1961, applies in the case of every person carrying on a business and whose total receipts or turnover from such business activity exceeds this figure.

The three expressions used by the statute, namely, 'total sales', 'turnover' or 'gross receipts' though not defined under the Act, in the ordinary sense, refer to the volume of the business to which it relates.

The business, which is carried on by the assessee has to be taken in totality. The 'sales', 'turnover', and 'gross receipts' are not words of art used in relation to any individual transaction independently but have been used as 'sales', 'turnover' or 'gross receipts'. The expression 'total' qualifies all the other three expressions, namely, 'sales', 'turnover', and 'gross receipts'. Total sales indicate the aggregate sale price of commodities carried out by the assessee as a trading business.

Obviously, it would not include such transfer of immovable or movable property by way of investment. Similarly, where the assessee is not merely selling movable commodities, but relating to other trading activities, for example, where the assessee is a land developer and he is engaged in the business of acquiring land, developing it, and selling houses or purchasing or is engaged in leasing business or in the stock market, the expression 'turnover' denotes receipts from such activities.

There may be a third or residuary category, which may not be termed a trading activity, though the assessee is carrying on a business activity like job work for others, without him being the manufacturer and selling such manufactured goods. Receipts by a person from business does indicate that it refers to revenue receipts only and do not include capital receipts and certainly not the receipts, which are not relatable to business and may fall under the expression income from sources other than profits or gains from business, profession or vocation.

Whenever from the return submitted by the assessee, it appears to the assessing officer that accounts of the assessee are required to be audited under section 44-AB and, therefore, the return ought to have been accompanied with the auditor's report, before rejecting the return as an invalid return, he is required to afford an opportunity as a matter of statutory obligation under section 139(9) to the assessee to submit the auditor's report.

On receiving a such notice, an assessee can avail of such an opportunity either by submitting the auditor's report if the accounts have already been audited, and if the accounts have not been audited by then and he realises that the accounts are required to be audited, then he can in the given time get his accounts audited and submit the accounts along with the report of the auditor in terms of clauses (bb) and (d) of section 139(9). On furnishing of such s report with or without audited accounts as the case may be, the return becomes valid.

There may be yet another contingency where the assessee considers that he is not under an obligation to get his accounts audited under section 44-AB. In such an event, he may raise his objection before the assessing officer in response to a notice under section 139(9). Where such an objection is raised, it will be for the assessing officer to decide such an objection before taking any decision about validity of return.

In case the assessing officer accepts the objection, the assessing officer, in that case, will proceed with the assessment on the basis of the return already submitted before him. However, in case the objection raised by the assessee is overruled, the assessing officer will be required to call upon the assessee to comply with the provisions of section 44-AB within a reasonable time, to enable a valid return to be filed, which could be processed for a regular assessment.

The question of penalty for non-compliance cannot be inquired into without reading the provisions of sections 271-B and 273-B, as both are integrally enacted.

While section 271-B provides for consequence of non-compliance of section 44-AB, section 273-B provides immunity from penalty that arises under section 271-B.

Apparently, in terms of section 273-B, the assessing officer will be required to consider whether not getting the accounts audited by September,30 of the relevant assessment year was due to any reasonable cause, which the assessee may put forward as defence for failure to comply with the aforesaid provisions.

In either case, where the assessee raises an issue that his case does not fall within the purview of section 44-AB, before penalty could be levied, the assessing officer would be under an obligation to decide such an objection raised by the assessee.

If the objection is sustained, obviously, no occasion would arise either of filing of the auditor's report along with the return so as to complete the defective return, or to impose a penalty under section 271-B.

In the case of where the assessing officer overrules the assessee's objection and holds that the assessee is liable to get his accounts audited in terms of section 44-AB, the question to consider is whether such objection raised by the assessee as to his obligation under section 44-AB was frivolous or a plausible stand, before arriving at a conclusion whether in such a case penalty could be levied. This view has been taken by the Rajasthan High Court in Bajrang Oil Mills versus Income-tax Officer (163 TAXMAN 154).

The Supreme Court in Hindustan Steel Ltd versus State of Orissa (83 I.T.R. 26), has laid down that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

To conclude, it cannot be held that in all cases where the assessee's objections as to his obligation to get his accounts audited under section 44-AB are overruled, his defense or reasons for non-compliance are not bona fide. The fact that on an analysis of the provisions, the authorities or the court come to the conclusion that the objections raised by the assessee about the requirement to comply with the provisions of the Act are not sustainable, that would not mean that the objection raised by the assessee is not bona fide.

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