2006 (4) TMI 192 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of section 44AF of the Income-tax Act, 1961.
2. Consequences of delayed filing of the audit report under section 44AB.
3. Interpretation of sections 44AA, 44AB, and 44AF in relation to claiming lower profits.

Issue-wise Detailed Analysis:

1. Applicability of Section 44AF:
The core issue is whether the assessee can return a business profit less than 5% under section 44AF if the audit report is filed after the specified date. The Assessing Officer (AO) determined that the assessee was liable to be assessed at 5% of the total sales turnover according to section 44AF(1) because the audit report was submitted late. The AO applied section 44AF(1) and computed the business profit at 5% of the total sales turnover, rejecting the business loss claimed by the assessee.

2. Consequences of Delayed Filing of Audit Report:
The assessee argued that the consequence of not filing the audit report within the specified time under section 44AB should be a penalty under section 271B, not the denial of the concession under section 44AF(5). The CIT(A) upheld the AO's decision, interpreting that sections 44AA(2)(iii) and 44AB(c) must be read in consonance with section 44AF(5), and concluded that the AO proceeded correctly in denying the benefit of lower profits due to late filing of the audit report.

3. Interpretation of Sections 44AA, 44AB, and 44AF:
The Tribunal analyzed the provisions of sections 44AF(1) to (5) and concluded:
- If the turnover is below Rs. 40 lakhs, the income from retail business is assessed at 5% of the total turnover (section 44AF(1)).
- If the assessee maintains books of account, gets them audited, and furnishes the audit report, they may claim lower profits than the 5% specified in section 44AF(1) (section 44AF(5)).
- The Tribunal noted that section 271B prescribes a penalty for failure to get accounts audited or furnish the audit report on time but does not mention denying the benefit of lower profits under section 44AF(5).

Conclusion:
The Tribunal concluded that the lower authorities erred in denying the benefit of section 44AF(5) due to the late filing of the audit report. The Tribunal emphasized that the intention of the Legislature was not to deny the benefit of lower profits if the audit report is filed late. The Tribunal directed the AO not to apply section 44AF(1) and allowed the appeal of the assessee, thereby permitting the assessee to claim the business loss as initially reported.

Result:
The appeal of the assessee was allowed.