2023 (5) TMI 1215 - AT - Income Tax

Penalty u/s 271B - AO was not satisfied with the claim of exemption for the purpose of Section 10(23C)(iiiab) r.w.r. 2BBB - AO observed that the assessee university has not audited its account as per Clause (b) of sub-section (1) of section 12A despite the fact that its total income as computed under the Act without giving effect to the provisions of Section 12 exceeds the maximum amount which is not chargeable to Income Tax in F.Y. 2017-18 - whether violation of main part of the Section 44AB confirmed? HELD THAT - Proviso of Section 44AB is not a default or charging provision rather is a beneficial provision for the any assessee whose accounts are audited under any other law other than the Act and such audited accounts if furnished with return will be considered as compliance of Section 44AB - AO has considered it to be a default Clause and erroneously introduced the default of audit u/s 12A(1)(b) to fall in the Proviso to Section 44AB. While in case there is a failure of audit for the purpose of Section 12A(1)(b) of the Act, then there is no penalty provision except that the Act provides that the concerned assessee shall not be entitled to the benefit of exempt income u/s 11 or 12. If the impugned order of CIT(A) is considered it appears that he introduced his own case as the Ld. AO had not found violation of main part of the Section 44AB for the reasons that the assessee university had gross receipts for the year under consideration above the prescribed limit of Rs. 60,00,000/- for mandatorily getting books of accounts audited as per provisions of Section 44AB of the Act but Ld. AO had taken shelter of Proviso to section 44AB and assumed as assessee University has not got the accounts audited for the purpose of Section 12A(1)(b) of the Act, this is a violation of Section 44AB of the Act. Tax Authorities below have fallen in grave error on facts and law while invoking the penalty provisions. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves issues related to the eligibility of an assessee university for exemption under Section 10(23C)(iiiab) of the Income Tax Act, imposition of penalty under Section 271B for failure to audit accounts as per Section 12A(b), and the interpretation of provisions related to business activities and profit-making.

Eligibility for Exemption under Section 10(23C)(iiiab):
The appeal was filed by the Assessee against the order of the CIT(A) regarding the exemption claimed under Section 10(23C)(iiiab) of the Act. The Assessee, a university, declared a total income of Rs. Nil for the assessment year 2018-19 and claimed exemption for a specific amount. The Assessing Officer (AO) raised concerns about the ratio of grants received by the university in relation to total receipts, which led to a dispute regarding the eligibility for the exemption.

Imposition of Penalty under Section 271B:
The AO initiated penalty proceedings under Section 271B of the Act due to the university's failure to audit its accounts as required by Section 12A(b). The Assessee argued that as a university established by an Act of the Delhi Government, it follows specific accounting practices and is not engaged in business or profession, thus exempting it from the audit requirement. However, the AO and CIT(A) upheld the penalty citing non-compliance with audit provisions.

Interpretation of Business Activities and Profit-making:
The judgment analyzed whether the university, being a local authority, can be considered engaged in business activities as defined under the Act. It was highlighted that the university's primary objective is educational, not profit-making. The Bench observed that the tax authorities failed to apply a judicious approach in their orders, especially in linking the exemption claim under Section 10(23C)(iiiab) with the audit requirement under Section 12A(b).

Conclusion:
The Tribunal found errors in the tax authorities' application of penalty provisions and interpretation of relevant sections. It was noted that the penalty imposed under Section 271B was not justified, considering the nature of the university as a non-profit educational institution. The appeal was allowed, and the penalty order was quashed. The judgment emphasized the need for a thorough examination of facts and legal provisions before imposing penalties or drawing conclusions in tax matters.