Provisions of Section 44AB not Applicable to Income which are Treated as Income from Other Sources: ITAT [Read Order]

The Visakhapatnam bench of the Income Tax Appellate Tribunal (ITAT) held that the provision of Section 44AB of the Income Tax Act, 1961 is not applicable to income which is treated as income from other sources.

The assessee, Sree Krishna Educational Society is registered under Societies Registration Act to run an educational institution. The assessee filed its return of income declaring NIL income after claiming exemption under Section 10(23C) of the Income Tax Act.

The Assessing Officer 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 Income Tax Act and the assessee has not filed any report under Section 44AB of the Income Tax Act.

Therefore, the Assessing Officer initiated penalty proceedings under Section 271B of the Income Tax Act, and a show cause notice was issued and served on the assessee.

In response, the assessee submitted that the assessing officer has assessed the income under income from other sources during the scrutiny assessment proceedings and hence it is not required to be audited under Section 44AB of the Income Tax Act.

After carefully considering the submissions of the assessee, the assessing officer was not convinced and rejected the assessee’s reply and proceeded to levy a penalty of Rs. 1,42,260/- under Section 271B of the Income Tax Act.

The Authorized Representative argued that the assessee filed its return of income declaring it as income from other sources. The Centralized Processing Centre (CPC) while processing the return under Section 143(1) of the Income Tax Act has also considered the income of the assessee as income from other sources.

It was further submitted that since the income of the assessee has been consistently treated as income from other sources, the provisions of section 44AB of the Income Tax Act which are applicable to the Profit & Gains of Business or Profession cannot be applied.

The two-bench member consisting of Duvvuru RL Reddy (Judicial member) and S Balakrishnan (Accountant member) held that since the income had 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 Income Tax Act are not applicable.

Therefore, there was no hesitation to delete the penalty of Rs. 1,42,260/- levied by the Assessing Officer. Thus, the appeal of the assessee is allowed.

To Read the full text of the Order CLICK HERE

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