2007 (8) TMI 496 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 44AF of the Income-tax Act, 1961.
2. Consequences of late filing of audit report under Section 44AB.
3. Interpretation of Section 44AF(5) in conjunction with Sections 44AA and 44AB.
4. Penalty under Section 271B for failure to file audit report on time.

Detailed Analysis:

1. Applicability of Section 44AF of the Income-tax Act, 1961:
The primary issue is whether the assessee, a dealer in automobile spare parts and owner of a commercial complex, can return a business profit of less than 5% under Section 44AF if the accounts are audited after the specified date. Section 44AF(5) allows an assessee to claim lower profits if they maintain books of account and get their accounts audited by the specified date. In this case, the assessee failed to meet the specified date, leading the Assessing Officer to determine the profits at 5% of the total sales turnover as per Section 44AF(1).

2. Consequences of Late Filing of Audit Report under Section 44AB:
The assessee contended that the consequence of default under Section 44AB is not the denial of the concession under Section 44AF(5) but a penalty under Section 271B. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, stating that the assessee did not meet the conditions stipulated under Section 44AB, thereby justifying the assessment at 5% of the turnover.

3. Interpretation of Section 44AF(5) in Conjunction with Sections 44AA and 44AB:
The Tribunal examined whether the benefit of claiming lower profits under Section 44AF(5) can be denied if the audit report is filed after the specified date. The Tribunal noted that Section 44AF(5) allows for lower profits if books of account are maintained and the audit report is furnished as required under Section 44AB. However, Section 44AF does not explicitly state that late filing of the audit report would lead to the denial of claiming lower profits.

4. Penalty under Section 271B for Failure to File Audit Report on Time:
The Tribunal highlighted that the consequence of not filing the audit report on time is a penalty under Section 271B, not the denial of the benefit under Section 44AF(5). The Tribunal cited a precedent where the courts held that filing an audit report is procedural, and the benefit of exemption cannot be denied solely due to late filing.

Conclusion:
The Tribunal concluded that the lower authorities erred in denying the benefit of Section 44AF(5) to the assessee. The Tribunal directed the Assessing Officer not to apply the provisions of Section 44AF(1) and allowed the assessee's appeals, emphasizing that the late filing of the audit report should only attract a penalty under Section 271B and not lead to the denial of claiming lower profits.

Result:
The appeals of the assessee were allowed.