2023 (11) TMI 232 - AT - Income Tax

Defective return - Rectification u/s 154 for invalidating the return filed by the Assessee - non audit of books of accounts u/s 44AB - order u/s 139(9) as passed treating the return as invalid return stating that Tax Payer has shown gross receipt or income under the head profit and gains of Business or Profession more than Rs. 1 Crore, however Part A of the Profit and Loss Account and/or Balance Sheet have not been filed and/or the books of accounts have not been audited. HELD THAT - If the order passed by the AO u/s 139(9) of the Act contains apparent mistake then it is curable u/s 154 of the Act. Since there is no defect in the ITR filed by the assessee, therefore it is a valid Income Tax Return. It is imperative to mention that the gross receipt of the assessee from the business carried out by the assessee was not more than to Rs. 1 Crore, therefore the assessee was not required to get his accounts audited u/s 44AB. In this regard reference is drawn towards the Guidance Note on Tax Audits under section 44AB of the Act issued by ICAI and on perusal of Para 5.13 of the Guidance note it is apparent that the Sales proceeds of Fixed Assets would not form part of gross receipts in business for the purposes of section 44AB of the Act. As decided in Y.K. Patel Securities (P) Ltd. 2023 (6) TMI 1327 - ITAT MUMBAI there is merit in the submission of the assessee that it is not required to get its accounts audited u/s 44AB - Accordingly, we are of the view that the defect notice issued by CPC u/s 139(9) of the Act is not in accordance with law and accordingly, we quash the said defect notice, meaning thereby, the return of income filed by the assessee should be considered as valid return. As defect notice issued by CPC u/s 139(9) of the Act is not in accordance with law and accordingly, we quash the said defect notice, meaning thereby, the return of income filed by the assessee should be considered as valid return. Accordingly, we direct the AO/CPC to treat the return of income filed by the assessee as valid return and process the same in accordance with law. Thus the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Applicability of Section 154 for rectification of an order passed under Section 139(9).
2. Validity of the return treated as defective under Section 139(9) due to non-audit under Section 44AB.

Summary:

1. Applicability of Section 154 for Rectification of an Order Passed under Section 139(9):
The assessee filed an application for rectification under Section 154 of the Income Tax Act, 1961, claiming a mistake of law in the order passed by the DCIT, CPC, Bangalore on 01.03.2019, which invalidated the return filed for AY 2017-18. The AO rejected the application, stating, "this is not the mistake apparent from record and due to invalid return for the AY 2017-18, the application for rectification u/s 154 filed by the assessee is hereby rejected." The CIT(A) upheld this decision, stating, "the rectification application filed by the appellant u/s 154 of the Income Tax Act, 1961 before the Ld. AO has no legal validity, as the assessee has moved application u/s 154 of IT Act, 1961 against the return which has been declared invalid and defective and nonest u/s 139 (9) of IT Act, 1961."

2. Validity of the Return Treated as Defective under Section 139(9) Due to Non-Audit under Section 44AB:
The assessee argued that the gross receipts from the business were less than Rs. 1 crore, hence not requiring an audit under Section 44AB. The DCIT, CPC, Bangalore had treated the return as invalid, stating, "Tax Payer has shown gross receipt or income under the head 'profit and gains of Business or Profession' more than Rs. 1 Crore, however Part A of the Profit and Loss Account and/or Balance Sheet have not been filed and/or the books of accounts have not been audited." The assessee contended that the gross receipts were Rs. 69,43,977/-, which is below Rs. 1 crore, and the other receipts of Rs. 74,58,325/- were "Profit on Sales of Fixed Assets," not part of gross business receipts for Section 44AB purposes. The Tribunal noted that similar issues were decided by ITAT Mumbai in Y.K. Patel Securities (P) Ltd. vs. ADIT-CPC, Bangalore, where it was held that the defect notice issued by CPC under Section 139(9) was not in accordance with law, and the return should be considered valid.

Conclusion:
The Tribunal quashed the defect notice issued by CPC under Section 139(9), stating, "the return of income filed by the assessee should be considered as valid return." The Tribunal directed the AO/CPC to process the return in accordance with law, allowing the appeal of the assessee. The judgment concluded, "In the result, the appeal of the assessee is allowed."