2016 (8) TMI 858 - AT - Income Tax

Penalty u/s 271B - threshold limit for getting its account audited u/s 44AB - Business activity or professional activity - receipts from the pathological laboratory have to be considered as business receipts - Held that - Without first holding that the assessee was a professionally qualified medical doctor the Revenue cannot avoid the conclusion that the receipts from the pathological laboratory have to be considered as business receipts, as for earning professional receipts holding of a professional qualification would be sine qua non. The threshold limit for getting accounts audited in the case of business receipts admittedly for the year under consideration have been set by the statute at Rs. one crore. The occasion for imposing penalty under section 271B did not arise. In such a situation, where the assessee does not hold any professional medical qualification, we do not see how it can be held that the assessee is carrying on a profession as the venture carried on with the help of technically qualified people necessarily would fall in the category of carrying on business wherein the statutory threshold for getting accounts audited has been fixed at Rs. one crore. Accordingly, we find that in the facts of the present case, considering the claim of the assessee put forth before the Commissioner of Income-tax (Appeals) stated to have been identically made before the Assessing Officer also, we hold that the penalty under section 271B wherein the gross receipts were only ₹ 42 lakhs. Accordingly, examining the issue from all angles, we find that in the facts of the present case, the penalty imposed under section 271B deserves to be quashed. As not only on facts, it could not have been imposed but even otherwise considering the explanation of the assessee in the facts of the present case, it should have been quashed on the grounds of reasonable cause. - Decided in favour of assessee

Issues:
1. Confirmation of penalty under section 271B by Commissioner of Income-tax (Appeals).
2. Applicability of section 44AB to the assessee despite not being a professional.
3. Adequacy of explanation provided by the assessee.
4. Failure of the Commissioner of Income-tax (Appeals) to address material issues raised by the assessee.
5. Interpretation of section 271B and section 44AB of the Income-tax Act, 1961.
6. Determination of whether the assessee was carrying on a business or a profession.

Issue 1: Confirmation of penalty under section 271B by Commissioner of Income-tax (Appeals):
The assessee challenged the penalty imposed under section 271B by the Assessing Officer, which was confirmed by the Commissioner of Income-tax (Appeals). The penalty was imposed due to the non-audit of the assessee's accounts. The Tribunal noted that the Commissioner of Income-tax (Appeals) mechanically confirmed the penalty order without addressing material issues raised by the assessee, leading to the filing of the present appeal.

Issue 2: Applicability of section 44AB to the assessee despite not being a professional:
The Assessing Officer invoked section 44AB of the Income-tax Act, 1961, requiring the assessee to explain why the accounts were not audited, considering professional receipts received. The Tribunal observed that the assessee, not being a professionally qualified medical doctor but running a pathological laboratory with technicians, did not meet the criteria for professional receipts. The Tribunal held that without a professional qualification, the receipts should be considered as business receipts, with a statutory threshold for audit set at Rs. one crore.

Issue 3: Adequacy of explanation provided by the assessee:
The Tribunal analyzed the explanation provided by the assessee, emphasizing that the Revenue did not rebut the claim of the assessee regarding her lack of professional medical qualification. The Tribunal found no reason to reject the claim and concluded that the penalty under section 271B was not justified due to the nature of the receipts and the absence of a professional qualification.

Issue 4: Failure of the Commissioner of Income-tax (Appeals) to address material issues raised by the assessee:
The Tribunal highlighted that crucial issues raised by the assessee, such as the non-consideration of the reply filed and the claim of not being a doctor, were not addressed by the Commissioner of Income-tax (Appeals). This failure to address material issues led to the quashing of the penalty imposed under section 271B.

Issue 5: Interpretation of section 271B and section 44AB of the Income-tax Act, 1961:
The Tribunal provided a detailed interpretation of section 271B, which imposes penalties for failure to audit accounts, and section 44AB, which mandates audits for certain business and professional entities based on specified thresholds. The Tribunal clarified the application of these sections in the context of the case.

Issue 6: Determination of whether the assessee was carrying on a business or a profession:
The Tribunal examined whether the assessee's activities constituted a business or a profession, considering the nature of the venture and the absence of a professional medical qualification. By analyzing the statutory requirements and the explanation provided by the assessee, the Tribunal concluded that the penalty under section 271B was not warranted, as the receipts were categorized as business receipts.

In conclusion, the Tribunal allowed the appeal of the assessee, quashing the penalty imposed under section 271B, citing lack of justification based on the nature of receipts and the absence of a professional qualification.

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