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Income Tax Appellate Tribunal, B BENCH, MUMBAI
Before: SHRI AMARJIT SINGHSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 05/02/2025 Date of Order – 11/02/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 18/10/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2022-23.
In this appeal, the assessee has raised the following grounds: –
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“1. On the facts and circumstances of the case and in law, the order passed by the AO is bad in law. 2. On the facts and circumstances of the case and in law, the AO erred in holding that section 44AB of the act is applicable to the Assessee.”
The sole grievance of the assessee is against the rejection of its return of income under section 139(9) on the basis that the books of accounts were not audited under section 44AB of the Act by the assessee even though the assessee has claimed income under the head “Profits and Gains of Business or Profession” of more than INR 1 crore.
The brief facts of the case are that the assessee filed its return of income on 07/11/2022, declaring a business loss of INR 18,62,318. Subsequently, notice under section 139(9) dated 14/12/2022 was issued intimating the assessee that its return of income is defective on the basis that the assessee has not audited its books of accounts under section 44AB of the Act even though its gross receipt is more than INR 1 crore. The assessee’s rectification application against the notice issued under section 139(9) of the Act was rejected by the Assessing Officer (“AO”). The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that the sundry credit balances, which were written back by the assessee during the year under consideration, qualify as business receipts and are treated as income from business or profession under the Act. The learned CIT(A) further held that since the liability arose out of a business transaction, its reversal is considered a business receipt and is taxable under section 28 as part of the profits and gains from business or profession. Thus, it was held that since the assessee in the present case has adjusted his
Bellona Estate Developers Ltd. 3 business loss in the returned income (sundry credit balance written back), the same proves that the returned income is the business income of the assessee, and since the said amount was more than INR 1 crore, the assessee was required to get its accounts audited under section 44 AB of the Act. Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Authorised Representative (“learned AR”), by referring to the financial statement of the assessee, forming part of the paper book, submitted that the revenue from operations during the year under consideration was Nil and, therefore, the assessee did not get his accounts audited as per the provisions of section 44AB of the Act. The learned AR further submitted that since during the year under consideration, the interest expenses amounting to INR 160,60,99,934 of earlier years payable to the lenders were waived, the impact of the same was given in the books by reversing these interest expenses and was disclosed as “Other Income” in the audited financials.
On the other hand, the learned Departmental Representative vehemently relying upon the impugned order submitted that the sundry credit balance written back is the business income of the assessee and, therefore, should have been considered for the purpose of determining the limit for having the accounts audited under section 44AB of the Act.
We have considered the submissions of both sides and perused the material available on record. As per the assessee, it had borrowed from various financial institutional lenders, which it could not repay due to diverse
Bellona Estate Developers Ltd. 4 commercial reasons. During the financial year 2021-22, the One Time Settlement Agreement was entered into with the lenders, as a result of which, the accumulated interest payable to the lenders amounting to INR 160,60,99,934 was waived off. Thus, in order to give its impact in the books of account, the assessee reversed the interest expenses booked in earlier years amounting to INR 160,60,99,934. This interest expense reversal was disclosed as “Other Income” in the audited financials and the income tax return, as it has neither resulted in turnover nor receipts. As per the assessee, in the respective years in which such interest expense was incurred, it had suo moto disallowed the same, and hence, no deduction was allowed in those years. Consequently, such write-back is not liable to tax under section 41 of the Act. Thus, as per the assessee, the interest expenses disallowed in earlier years and written back in the current yeardo not fall within the category of “total sales”, “turnover”, or “gross receipts”, for the purpose of section 44AB of the Act.
In order to decide the issue at hand, it is firstly relevant to note the provisions of section 44AB of the Act, which requires the assessee, inter- alia, carrying on business to get its account audited. Section 44AB(a) of the Act, which deals with an audit of accounts of the person carrying on business, reads as follows: -
“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—
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(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 "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) ………….. (c) ………….. (d) ………….. (e) …………. get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :”
It is undisputed that the terms “total sales”, “turnover”, or “gross receipts”, for the purpose of section 44AB, are not been defined of the Act. However, we find that some of the judicial precedents have interpreted these terms. In Bajrang Oil Mills v/s ITO, reported in (2007) 163 Taxman 154 (Raj.), the Hon’ble Rajasthan High Court held that “total sales” indicate the aggregate price of the sales of commodities carried out by the assessee in a trading business. Further, in Growmore Exports Ltd. v/s ACIT, reported in [2001] 78 ITD 95 (Mumbai), the coordinate bench of the Tribunal, observed as follows:–
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“8. …..In general, turnover is meant to be the sale proceeds of the goods sold. In other words, commercially it would mean the amount of money turned over or drawn in a business, in a given time (page 1923 of The Law Lexicon by P. Ramanatha Aiyar - 1997 edition). Since the term „turnover‟ is not specifically defined in the Act, nor specially for the purpose of section 44AB, its meaning should be taken as commercially and commonly understood - which we have already discussed above.”
Thus, the Courts have ascribed similar meaning to the terms “total sales” and “turnover” and interpreted them as the total proceeds received by a person carrying on business from the sale of goods or services. We are of the considered view that the term “gross receipts” can also be similarly interpreted to mean the aggregate of receipts from carrying on the business.
In the present case, from the statement of profit and loss account for the year ending 31/03/2022, forming part of the paper book on page 3, we find that the revenue from operations was declared as Nil. However, since during the year under consideration, the interest expenses disallowed in the earlier year were written back, the assessee declared the same as “Other Income” in its profit and loss account. There is no material available on record to show that the amount of INR 160,60,99,934 declared by the assessee as “Other Income” can be said to be “total sales”, “turnover”, or “gross receipts”, as the said amount, apart from being considered as “Business Income” for the purpose of computation of total income, does not have any attributes of “total sales”, “turnover”, or “gross receipts” from carrying on business, and rather the same was an interest expenditure of earlier years which was merely written back this year, thus was considered as income only for the purpose of computation of total income. Therefore, after thoughtful consideration of the facts and circumstances of the present
Bellona Estate Developers Ltd. 7 case, we are of the view that the amount of INR 160,60,99,934 has rightly not been considered by the assesseefor the purpose of computation of “total sales”, “turnover”, or “gross receipts”, as the said amount does not fall within the category of any of the above. Since during the year under consideration, the revenue from operations of the assessee was Nil, we are of the considered view that the assessee was not required to get its accounts audited as per the provisions of section 44AB of the Act. Accordingly, we are of the considered view that the DDIT-CPC erred in considering the return of income filed by the assessee as defective under section 139(9) on the basis that its accounts were not audited under section 44AB of the Act. Consequently, we find no merits in the impugned order in dismissing the appeal filed by the assessee and treating the action of the DDIT-CPC to be correct. As the return of income filed by the assessee was declared invalid by the DDIT-CPC at the very threshold, without examining any other aspect, we deem it appropriate to restore the return of income to the file of the AO for processing/assessment as per law. As a result, grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 11/02/2025.