MERCHANTS CO OP CREDIT SOCIETY LTD,LAXMESHWAR vs. INCOME TAX OFFICER WARD 1 GADAG, GADAG

Briefly stated facts of the case are assessee is a Co-operative Society registered under the Karnataka Co-operative Societies Act, 1959. The assessee has not filed the return of income under section 139(1) of the Act. As per the information available with the Department, it was observed that assessee has

On being aggrieved by the penalty order, assessee filed appeal before the learned CIT(A). Before the learned CIT(A) the assessee contested that the gross revenue / gross receipts of the assessee is only Rs.30,74,322/- which is below threshold limit prescribed under section 44AB of the Act. However, the learned CIT(A) noticed that the assessee has not offered any plausible explanation or reconciliation and therefore sustained order of the learned AO.

On being aggrieved by the order of the learned CIT(A) assessee is in appeal before us by raising the following grounds:

The impugned appellate order is bad in law, contrary to facts on record and liable to be set aside.

The Appellate Authority erred in confirming the penalty under Section 271B without awaiting final determination of the assessment proceedings. The issue of turnover or gross receipts forming the basis for applicability

The Appellate Authority failed to adjudicate the specific ground raised by the Appellant regarding the meaning and computation of “gross receipts” for the purpose of Section 44AB. The impugned order neither discusses nor records any finding on this ground, rendering the order non- speaking and in violation of Section 250(6) of the Act.

The Appellant had specifically relied upon the Guidance Note on Tax Audit issued by the Institute of Chartered Accountants of India, particularly paragraph 5.12 with page No. 17, which clarifies that in the case of financial and credit entities, gross receipts consist The aggregate of gross income by way of interest received by the money lender. The Appellate Authority has failed to consider or rebut this authoritative guidance.

The impugned appellate order has been passed mechanically, without proper appreciation of facts, statutory provisions, binding precedents and authoritative professional guidance, and is therefore liable to be quashed.

Allow your appellant to add/delete/modify the grounds of appeal.

The authorities erred in law in initiating and sustaining penalty proceedings simultaneously under Sections 271A and 271B of the Act. Section 271A applies to failure to maintain books of account, whereas Section 271B presupposes the existence of books capable of audit. Both penalties operate in mutually exclusive fields and cannot be invoked together.

The Appellate Authority has itself stated that the in cases where books are not maintained at all, the question of audit does not arise. in the Order U/s 250 of your appellant w.r.t appeal against Order U/s 271A.

The Appellate Authority misapplied the judgment in CIT v. Bisauli Tractors. The said decision, in fact, supports the proposition that penalty under Section 271B is not attracted where books of account are not maintained, and does not justify the conclusions drawn in the impugned order

The Appellate Authority failed to appreciate the settled legal position, as laid down in judicial precedents including the decision passed by Honourable ITAT, Dehradun Bench in Devendra Chadda v. Commissioner of Income Tax, that where non-maintenance of books is alleged, penalty under Section 271B is not sustainable

The impugned order suffers from patent factual errors. In paragraph 2 of the order, the Appellate Authority has incorrectly mentioned the

Further, in the same paragraph, the Appellate Authority has recorded the total receipts as ₹2,08,45,320, which is inconsistent with the figure of ₹2,92,24,777 stated in the penalty order itself, thereby vitiating the factual foundation of the appellate order.

The Appellate Authority has also erroneously attributed contentions to the Appellant which were never raised, by stating that the Appellant Invoked Section 273B. No such plea was taken in the grounds of appeal, and the finding is factually incorrect.

Set aside the impugned order passed by the Appellate Authority under Section 250 of the Income-tax Act, 1961.

To provide the copies of relied upon documents and to return the non- relied upon documents enabling appellant to file their defense submissions at the time of personal hearing;

To grant opportunity of personal hearing before the matter is decided;

Delete the penalty levied under Section 271B of the Income-tax Act, 1961.

Grant such other relief or reliefs as this Hon’ble Tribunal may deem fit in the interests of justice and equity.

All the grounds are directed against the justification of penalty levied by AO. The learned AR submitted that as per the financial statements, the gross receipts as defined in accordance with the guidance note on tax audit issued by ICAI is Rs.30,74,322/- which is below threshold limit of Rs.1 Crore prescribed under section 44AB of the Act. Further, he also submitted that books of accounts have been audited under the Karnataka Societies Registration Act and the audit report has been submitted to the learned AO. Since the provisions of section 44AB of the Act are not applicable to the assessee, no tax audit report has been furnished. He further submitted that he has furnished audited financial statement wherein the gross receipts have been disclosed in the income and expenditure account. He also submitted that the learned AO aggregated the credit in the bank statement to arrive at the gross receipts instead of the audited financial statement submitted before him. He further submitted that the credit in the bank statement includes recovery of loans from the members and cannot be considered as turnover of the assessee. He therefore pleaded that penalty levied under section 271B of the Act is unjustifiable and prayed for its deletion.

Per contra, the learned Departmental Representative [in short ‘DR’] heavily placed reliance on the orders of the Revenue authorities.

We have heard rival contentions and perused the material available on record. It is an undisputed fact that the assessee is a co-operative society registered under section 7 of the Karnataka Co-operative Societies Act, 1959, to carry out the business of providing financial assistance to its members. It was the submission of the learned AR that assessee got his books of accounts audited

44AB. 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 one crore rupees in any previous year : Provided that in the case of a person whose— (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and (b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words "one crore rupees", the words" 73[ten] crore rupees" had been substituted: [Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or] (b) carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or (c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or (d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and

From the plain reading of this above section, when the aggregate of the amount received for sales / turnover or gross receipts exceeds Rs.1 Crore in previous year assessee’s shall be governed by the section 44AB of the Act. Gross receipts is not defined in the Act, however, various judicial pronouncements have

In the result, appeal of the assessee is allowed.