Shroff Engineering Private Limited, Vadodara V. The Dy.CIT, CPC, Bangalore Present Juridiction DCIT, Circle-2(1)(1), Vadodara

ITA 173/AHD/2023

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Shroffs Engineering Pvt. Ltd., a company engaged in manufacturing pumps and compressors, appealed against the orders of the CIT(A) and the CPC, which had declared their income tax return invalid due to non-compliance with the tax audit requirements under Section 44AB of the Income Tax Act, 1961. The company argued that their gross receipts from business were nil and thus not liable for a tax audit. The CPC had erroneously considered other incomes, such as profit on the sale of fixed assets, as business turnover for the purpose of Section 44AB. The Tribunal found merit in the company's arguments, referencing decisions from the Hon'ble Rajasthan High Court and the Hon'ble Bombay High Court, and allowed the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129288 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 22-05-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 16-03-2023
• Other Referred Cases: Bajrang Oil Mills vs. ITO, Ghai Construction vs. State of Maharashtra
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 44AD; 44AB

Judgement Text

ITA No.173/Ahd/2023 Assessment Year: 2018-19 Page 1 of 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.173/Ahd/2023 Assessment Year: 2018-19 Shroffs Engineering Pvt. Ltd., vs. Dy. Commissioner of Income Tax, Moti Khadki, CPC, Bangalore, Kalali Village, Kalali, Present Jurisdiction: Vadodara – 390 012. Circle 2(1)(1), Vadodara. [PAN – AAECS 0956 J] (Appellant) (Respondent) Assessee by : Ms. Amrin Pathan & Shri Bhavin Marfatia, ARs Revenue by : Shri Atul Pandey, Sr. DR Date of hearing : 23.05.2023 Date of pronouncement : 26.05.2023 O R D E R This appeal is filed by the Assessee against order dated 16.01.2023 passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2018-19. 2. The Assessee has raised the following grounds of appeal :- “1. The Ld. CIT(A) has erred on law and facts by upholding the order of the AO and holding that the Appellant was liable to Tax Audit u/s.44AB of the Income Tax Act, 1961. The ld. CIT(A) has failed to appreciate that Section 44AB is applicable only when Gross Receipts/Turnover from Business exceeds INR 1 Crore and in the instant case Gross Receipts/Turnover from Business is NIL. Further it is important to note that there is no income under the head “Profit & Gains from Business and Profession” for the year under consideration. 2. Without prejudice to the above grounds, the Ld. CIT(A) has further erred in law and facts while upholding action of AO treating the return of income as invalid. The appellant had submitted sufficient documents/ clarifications countering actions of the AO treating return as defective and thus invalid. The ld. CIT(A) has failed to appreciate the documents produced and erred in dismissing the said ground.” 3. The assessee is a Private Limited Company engaged in manufacturing of pumps and compressors in India. The assessee filed return of income under Section 139(1) of the Income Tax Act, 1961 declaring total income of Rs.5,15,84,246/- ITA No.173/Ahd/2023 Assessment Year: 2018-19 Page 2 of 4 comprising of business income of Rs. Nil and capital gain of Rs.5,93,19,656/- within the due date i.e. 03.10.2018 and claimed refund of Rs.18,97,560/-. The gross receipt/turnover from business was Rs. Nil as per the item, no.1 of the Schedule Profit & Loss of ITR-6. The Centralised Processing Centre (CPC) has issued notice under Section 139(9) of the Act dated 28.02.2019 intimating defects in return of income on the ground that tax audit was appended alongwith the ITR. Further notice under Section 139(9) was issued on 06.12.2019 on similar ground. The assessee responded the notices issued under Section 139(9) of the Act submitting the fact that tax audit was not applicable to the Company. The CPC passed an order under Section 139(9) of the Act on 13.01.2020 holding that the ITR filed is invalid on the ground that tax payer has shown gross receipt of income under the head Profits and Gains of Business or Profession more than Rs.1 crore but the books of accounts have not been audited. 4. Being aggrieved by the order under Section 139(9) of the Act, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that the assessee’s gross income taxable under the head business income is nil as during the year under consideration the turnover of the income was nil and there was no manufacturing activities at the relevant A.Y. The company had income under the head other income which include interest income, dividend income, rent, profit on sale of fixed asset (Rs.6,11,71,925/-) and profit on sale of investment. The assessee since has not had the turnover more than Rs.1 Crore under the head business income, therefore, tax audit under Section 44AB of the Act was not applicable in the present assessee’s case. The Ld. AR further submitted that the CPC has erred in holding that the return of income filed by the Company as invalid under Section 139(9) of the Act on the ground that tax audit under Section 139(9) was not done. The Company did not have business turnover above Rs.1 crore and hence Section 44AB of the Act was not applicable in the present case. The CPC has erred in considering other income which is taxable under specific other heads under the Income Tax Act and is offered to tax accordingly in the return of income as turnover for the purpose of Section 44AB. The Ld. AR further submitted that the order of CPC under Section 139(9) holding the company be struck down and the CPC/Jurisdictional Assessing Officer be directed to process the income tax return field by the Company ITA No.173/Ahd/2023 Assessment Year: 2018-19 Page 3 of 4 and grant the refund sought by the company alongwith interest due to the company under the provisions of Income Tax Act, 1961. 6. The Ld. DR submitted that since the assessee in Profit & Loss account has computed the income from business including the income earned from the sale of fixed asset. Therefore, the assessee should have filed tax audit under Section 44AD of the Act. Therefore, CPC has rightly rejected the return of income of the assessee stating therein that it is invalid. The Ld. DR relied upon the order of CIT(A). 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the actual business turnover of the assessee was nil during the A.Y. Section 44AB is related to the business of a person whose total sales turnover or gross receipts exceeds Rs.1 crores. In the relevant assessee’s case, manufacturing activities in the assessee Company was not operational in the present A.Y, there was no sales, no turnover or gross receipt in relation to business carried out by the assessee Company and, therefore, Section 44AB of the Act will not be attracted in the present assessee’s case. Therefore, the decisions relied by Ld. AR in respect of Hon’ble Rajasthan High Court in case of Bajrang Oil Mills vs. ITO, 295 ITR 314 (Rajasthan) and decision of Hon’ble Bombay High Court in case of Ghai Construction vs. State of Maharashtra (2009) 184 Taxman 52 (Bombay) are applicable in assessee’s case. Appeal of the assessee is thus allowed. 8. In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on this 26 th day of May, 2023. Sd/- (SUCHITRA KAMBLE) Judicial Member Ahmedabad, the 26 th day of May, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File ITA No.173/Ahd/2023 Assessment Year: 2018-19 Page 4 of 4 By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad