2023 (11) TMI 445 - AT - Income Tax

Revision u/s 263 - As per CIT assessee was required to get its accounts audited as having a turnover of more than Rs. 1 crore , which it had not done - As assessee found that the most appropriate provision would be sec.44AD and accordingly, had estimated the profit @ 8% of its total receipts - AO has not conducted any enquiry or verification regarding why the assessee had not got its accounts audited nor had verified whether in the business of assessee, sec. 44AD would be applicable and how the assessee had claimed deduction of remuneration paid to partners. Nothing was enquired by the AO and he has simply accepted the returned income without such necessary enquiry - HELD THAT - It is precise and clear that the turnover of the assessee during the year was more that Rs. 1 crore and as per the dictate of the provision specifically sec.44AB of the Act, such assessee has to get its accounts audited. In this case, in spite of assessee having turnover of more than Rs. 1 crore, it had failed to get the accounts audited. If we agree with the submission of the AR, then in that case in every situation where the assessee has turnover of more than Rs. 1 crore, they will not get their accounts audited and would simply rely on sec.44AD and offer 8% of receipts as taxable income, when in fact the financial statute specifies a particular action that has to be strictly followed. Alternatively going by this version of AR, sec. 44AB in the applicable case scenario would be redundant as if non-existent in the Act while simply applying sec. 44AD of the Act and this certainly is not the intent of the legislature regarding the Act. The intention and purpose of the legislator in incorporating sec. 44AB in the statute cannot be nullified and withdrawn by substituting the provisions of sec.44AD. The assessee has not only failed to get its accounts audited, but while taking benefit and recourse u/sec. 44AD, it had even deducted the remuneration paid to partners, which is not allowable as deduction u/sec. 44AD of the Act. We are inconformity with the submissions of the DR that the mandatory requirement of sec.44AB, has to be complied wherever such situation arises as per the said provisions. That, there were also no enquiry or verification on any of these aspects by the AO and he has simply accepted the returned income. Therefore, no infirmity with the order passed by the PCIT invoking jurisdiction u/sec. 263 - Decided against assessee.

Summary

Issues involved:
The judgment involves the assumption of revisionary jurisdiction by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 for the assessment year 2014-15.

Assumption of revisionary jurisdiction:
The assessee, engaged in car rental services, had its turnover exceeding Rs. 1 crore, necessitating the audit of accounts under section 44AB. However, the assessee did not get its accounts audited and instead estimated profit at 8% of total receipts under section 44AD. The Principal Commissioner found the assessment to be erroneous and prejudicial to the revenue as the Assessing Officer did not conduct any inquiry regarding the non-audit of accounts and the deduction of partner remuneration. The Principal Commissioner invoked jurisdiction under section 263, which was upheld by the ITAT. The ITAT rejected the argument that since relief was granted in a subsequent assessment year, the assessment should not be considered erroneous, emphasizing that each year must be adjudicated separately.

Compliance with statutory provisions:
The ITAT held that the mandatory requirement of getting accounts audited under section 44AB must be complied with when the turnover exceeds Rs. 1 crore. The ITAT emphasized that relying solely on section 44AD without adhering to the audit requirement would render section 44AB redundant. The ITAT also noted that deduction of partner remuneration under section 44AD was not allowable. The ITAT disagreed with the contention that two possible views existed, reiterating that the principles of res judicata do not apply to income tax proceedings.

Conclusion:
The ITAT dismissed the appeal of the assessee, upholding the Principal Commissioner's order invoking jurisdiction under section 263. The ITAT emphasized the importance of complying with statutory provisions and conducting proper inquiries in income tax assessments.