2020 (9) TMI 291 - AT - Income Tax

Revision u/s 263 - TDS u/s 194A - non deduction of tds on such interest expenses - provisions of section 44AB applicability on assessee - TDS liability where assessee is liable to get its accounts audited - HELD THAT - In the case of a person carrying on business, if the total sales, turnover or gross receipt in business in the previous year relevant to the assessment year exceeds ₹ 1 crore, then he is covered by the provisions of compulsory audit u/s 44AB. Even in a case of an individual carrying on business as a sole proprietor, it is necessary to comply with the provisions of section 44AB only in respect of his business income; it would not be necessary to comply with the provisions of section 44AB in respect of his other income as explained in Ghai Construction v. State of Maharashtra 2007 (4) TMI 763 - BOMBAY HIGH COURT The term gross receipts is not defined in the Act. It will include all receipts whether in cash or in kind arising from carrying on of the business which will normally be assessable as business income under the Act. The Guidance Note on Tax Audit u/s 44AB of the Income Tax Act, 1961 (Revised 2013 edition), issued by the Institute of Chartered Accountant of India, New Delhi, mentions inter alia that the following items, relevant in the instant case, would not form part of gross receipts in business for purposes of section 44AB. Dividends on shares except in the case of an assessee dealing in shares, Income by way of interest unless assessable as business income and Share of profit of a partner of a firm in the total income of the firm excluded from his total income u/s 10(2A) once, the above items which appear in the capital account of the appellant are excluded, then the gross receipts from business carried on by it shall not exceed the monetary limits specified u/s 44AB during the financial year 2013-14 relevant to the assessment year 2014-15. As a consequence, the appellant would not be liable to deduct tax u/s 194A - we set aside the order u/s 263 passed by the Pr. CIT. - Decided in favour of assessee.

Summary

Issues:
1. Assessment u/s 263 of the Income Tax Act 1961.
2. Applicability of section 194A r.w.s. 40(a)(i) on interest expenses.
3. Interpretation of provisions of section 44AB regarding compulsory audit.
4. Exclusion of certain items from gross receipts for the purpose of section 44AB.

Analysis:
1. The appeal pertains to the assessment year 2014-15 and challenges the order passed by the Principal Commissioner of Income Tax -2, Thane under section 263 of the Income Tax Act. The issue arose when the assessee received unsecured loans and paid interest without details of tax deducted at source (TDS) on such interest expenses. The Principal Commissioner set aside the assessment order, citing the need for a de novo order after providing the assessee with a hearing opportunity.

2. The assessee argued that as a partner in various firms, the provisions of section 194A r.w.s. 40(a)(ia) do not apply since he does not exceed the turnover limit specified under section 44AB. The Departmental Representative supported the Principal Commissioner's order. The Tribunal analyzed the capital account and income sources of the appellant, concluding that the appellant did not exceed the monetary limits specified under section 44AB during the relevant financial year. Therefore, the appellant was not liable to deduct tax under section 194A.

3. The Tribunal referred to the provisions of section 44AB, emphasizing that in the case of an individual carrying on business as a sole proprietor, compliance with section 44AB is necessary only concerning business income, not other income. Citing a Bombay High Court case, the Tribunal clarified that gross receipts include all business-related receipts assessable as business income under the Act.

4. The Tribunal highlighted that certain items, such as dividends on shares and partner's share of profit in a firm, should be excluded from gross receipts for the purpose of section 44AB. By excluding these items from the appellant's capital account, the gross receipts from the business did not exceed the monetary limits specified under section 44AB. Consequently, the appellant was not required to deduct tax under section 194A. Based on these findings, the Tribunal set aside the Principal Commissioner's order under section 263.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the correct interpretation of the provisions of section 44AB and the exclusion of specific items from gross receipts for determining tax liability under section 194A.