2001 (1) TMI 963 - AT - Income Tax

Summary

Issues: Interpretation and applicability of section 44AB, Reasonable cause for not having accounts audited under section 44AB, Legal basis for levy of Income-tax

Interpretation and applicability of section 44AB:
The appeal challenged the deletion of a penalty under section 271B by the learned CIT(A) related to the interpretation and applicability of section 44AB. The Assessing Officer initiated penalty proceedings as the assessee's turnover exceeded the threshold under section 44AB. The assessee argued that its income was not taxable under section 10(23D), thus not liable for tax audit under section 44AB. The Assessing Officer contended that the provisions of section 44AB applied to business turnover, regardless of tax liability. The learned CIT(A) acknowledged that section 44AB technically applied to the assessee but found reasonable cause for not auditing accounts, leading to the cancellation of the penalty.

Reasonable cause for not having accounts audited under section 44AB:
The learned CIT(A) found a reasonable cause for the assessee not having audited accounts under section 44AB, despite acknowledging the technical applicability of the section. The Revenue appealed this decision, arguing that even for income exempt under section 10, the provisions of section 44AB should apply to verify exemption claims. The tribunal considered the legal basis for levy of Income-tax, emphasizing that the charge of income-tax is in respect of "total income" as defined in the Act. It concluded that section 44AB does not apply to incomes excluded from total income under Chapter III, thus upholding the cancellation of the penalty.

Legal basis for levy of Income-tax:
The tribunal analyzed the legal basis for the levy of Income-tax, highlighting that the charge is in respect of "total income" computed under the Act. Section 44AB operates when there is a computation of profits and gains of business or profession as part of total income. Incomes excluded from total income under Chapter III, like the assessee's income under section 10(23D), are not subject to the provisions of section 44AB. Therefore, the tribunal held that the assessee was not required to obtain an audit report under section 44AB, supporting the decision to cancel the penalty under section 271B.

In conclusion, the appeal challenging the deletion of the penalty under section 271B based on the interpretation and applicability of section 44AB was dismissed, emphasizing that the assessee was not liable for audit under section 44AB due to its income being exempt under section 10(23D) and not forming part of the total income.