Income from other sources that is classified as income is not subject to section 44AB application
Fact and issue of the case
This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [Ld. CIT(A)-NFAC] vide DIN & Order No. ITBA/NFAC/S/250/2022-23/ 1049738450(1), dated 14/02/2023 arising out of the order passed U/s. 271B of the Income Tax Act, 1961 [the Act] for the AY 2018-19.
The facts of the case are that the assessee is a society registered under Societies Registration Act to run an educational institution. The assessee filed its return of income for the AY 2018-19 in ITR-7 on 30/10/2018 declaring NIL income after claiming exemption U/s. 10(23C) of the Act. The scrutiny assessment was completed on 7/4/202 1 vide order U/s. 143(3) r.w.s 143(3A) & 143(3B) of the Act assessing the total income at Rs. 7,56,350/-. The Ld. AO during the scrutiny proceedings noticed that the assessee had gross receipts of Rs. 2,84,51,500/- which is exceeding the statutory limit for tax audit as per section 44AB of the Act and noticed that the assessee has not filed any report prescribed U/s. 44AB of the Act. Therefore, the Ld. AO initiated penalty proceedings U/s. 271B of the Act and show cause notice dated 7/4/202 1 was issued and served on the assessee. Thereafter, one more show cause notice dated 15/07/2021 was also issued and served on the assessee. In response, the assessee submitted that the Ld. AO has assessed the income under ‘income from other sources’ during the scrutiny assessment proceedings and hence it is not required to be audited U/s. 44AB of the Act. After carefully considering the submissions of the assessee, the Ld. AO being not convinced, rejected the assessee’s reply and proceeded to levy penalty of Rs. 1,42,260/- U/s. 271B of the Act. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the NFAC.
On appeal, the NFAC confirmed the order of the Ld. AO. Aggrieved by the order of the NFAC, the assessee is in appeal before us and raised the following grounds of appeal:
The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts of the case.
The Ld. CIT(A) is not justified in deciding the appeal
The Ld. CIT(A) is not justified in sustaining the penalty of 1,42,260/- levied by the Assessing Officer U/s. 271B of the Act.
Any other grounds may be urged at the time of hearing.”
The only issue arises from the above grounds is sustenance of penalty of Rs. 1,42,260/- levied by the Ld. AO U/s. 271B of the Act.
At the outset, the Ld. AR argued that the assessee filed its return of income declaring it as income from other sources. The CPC while processing the return U/s. 143(1) of the Act has also considered the income of the assessee as income from other sources. The Ld. AO during the scrutiny assessment proceedings in his computation sheet has treated the income as income from other sources. The Ld. AR therefore pleaded that since the income of the assessee has been consistently treated as income from other sources, the provisions of section 44AB of the Act which are applicable to the Profit & Gains of Business or Profession cannot be applied in the instant case. He therefore pleaded to delete the penalty levied by the Ld. AO.
Per contra, the Ld. DR fully supported the orders of the Ld. Revenue Authorities.
Observation of the court
We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, while filing the return of income, the assessee has disclosed its income as income from other sources as demonstrated in page 6 of the paper book in Sl. No. 13(iv) of the ITR-7. Subsequently, we also find that the intimation U/s. 143(1) also considered it as income from other sources. During the scrutiny assessment proceedings, the Ld. AO also in his computation sheet which is available in page 42 of the paper book treated the income of the assessee as income from other sources. Section 44AB(a) of the Act clearly states that Every person,—(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds the prescribed limits”. In the instant case, since the income has been treated as income from other sources and not as income from profit & gains of business or profession, the provisions of section 44AB of the Act, in our considered view, are not applicable. We therefore have no hesitation to delete the penalty of Rs. 1,42,260/- levied by the Ld. AO and direct the Ld. AO accordingly.
In the result, appeal of the assessee is allowed.
Pronounced in the open Court on the 15th June, 2023.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee