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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2014-15. The appeal is directed against the order passed by the Pr. Commissioner of Income Tax -2, Thane [in short ‘Pr. CIT’] u/s 263 of the Income Tax Act 1961, (the ‘Act’).
Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2014-15 on 31.03.2015 declaring income of Rs.26,84,400/- and agricultural income of Rs.9,03,306/-. Assessment u/s 143(3) was completed by the Assessing Officer (AO) on 30.10.2016 determining the income at Rs.27,14,237/-.
The Pr. CIT, on perusal of records observed that the assessee has received unsecured loan of Rs.6,56,48,896/- from various parties and paid interest thereon of Rs.1,44,59,214/-, whereas no details of tax deducted at source (TDS) on such interest expenses u/s 194A r.w.s. 40(a)(i) are shown in the audit report. In response to the show-cause notice issued u/s 263 of the Act, the assessee filed a reply dated 22.03.2019. However, the Pr. CIT was not convinced with the said reply for the reason that prima facie, the assessee is engaged in the business of finance as he has earned interest income of Rs.65,51,040/-on his loans and advances, which is almost 65% of his total amount credited (Rs.1,03,59,083/-) in his capital account; the assessee was required to get his accounts audited u/s 44AB of the Act.
On the basis of the above reasons, the Pr. CIT set aside the assessment order passed by the AO u/s 143(3) dated 31.10.2016 with a direction to make a de novo order after allowing adequate opportunity of being heard to the assessee.
Before us, the Ld. counsel for the assessee submits that the appellant herein is not a proprietor of any business whose gross receipt or turnover exceeds the limit specified u/s 44AB of the Act; he is partner with various firms and receives interest and remuneration from all such firms and hence the provisions of section 194A are not applicable in his case.
The Ld. counsel further explains that as per the provisions of section 194A r.w.s. 40(a)(ia), TDS on Interest Expenses is to be made by the individual and HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monitory limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid.
On the other hand, the Ld. Departmental Representative (DR) supports the order passed by the Pr. CIT.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below.
As per the capital account as at 31.03.2014, the appellant has earned total receipts of Rs.1,03,59,083/- (Rs.2,46,40,357/- minus opening balance of Rs.1,42,81,274/-). It consists of remuneration (Rs.14,71,942/-), interest on capital(Rs.11,18,263/-), agricultural income (Rs.9,03,306/-), bank interest (Rs.9,654/-) , dividend (Rs.1,703/-) share of profit (Rs.8,05,577/-), dividend bank (Rs.60,000/-), interest income (Rs.54,32,777/-) and other income (Rs.5,55,860/-).
The provisions of section 194A were amended from June 1, 2002 to provide that an individual or a Hindu Divided Family, whose total sales, turnover or gross receipts from the business or profession carried on by him exceed the monetary limits specified u/s 44AB during the financial year immediately preceding the financial year in which the income is to be credited or paid, shall be liable to deduct income tax. In the case of a person carrying on business, if the total sales, turnover or gross receipt in business in the previous year relevant to the assessment year exceeds Rs.1 crore, then he is covered by the provisions of compulsory audit u/s 44AB of the Act.
Even in a case of an individual carrying on business as a sole proprietor, it is necessary to comply with the provisions of section 44AB only in respect of his business income; it would not be necessary to comply with the provisions of section 44AB in respect of his other income as explained by the Hon’ble Bombay High Court in Ghai Construction v. State of Maharashtra (2009) 184 Taxman 52 (Bom).
The term “gross receipts” is not defined in the Act. It will include all receipts whether in cash or in kind arising from carrying on of the business which will normally be assessable as business income under the Act. The “Guidance Note on Tax Audit u/s 44AB of the Income Tax Act, 1961” (Revised 2013 edition), issued by the Institute of Chartered Accountant of India, New Delhi, mentions inter alia that the following items, relevant in the instant case, would not form part of “gross receipts in business” for purposes of section 44AB : i. Dividends on shares except in the case of an assessee dealing in shares ; ii. Income by way of interest unless assessable as business income; iii. Share of profit of a partner of a firm in the total income of the firm excluded from his total income u/s 10(2A) of the Income Tax Act.
Once, the above items which appear in the capital account of the appellant are excluded, then the gross receipts from business carried on by it shall not exceed the monetary limits specified u/s 44AB during the financial year 2013-14 relevant to the assessment year 2014-15. As a consequence, the appellant would not be liable to deduct tax u/s 194A of the Act.
In view of the above factual scenario and position of law, we set aside the order u/s 263 passed by the Pr. CIT.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 03/09/2020.