Digital Marketing Business Carried Out via Computers cannot be Treated as Profession, is a 'Business': Madras HC Restores Audit Exemption u/s 44AB(a) [Read Order]

The court clearly clarified that digital marketing is the business for persons who carry out the said activities.Merely because digital marketing carried on the business through computers, it cannot be treated as a profession, said the Madras High Court while restoring the audit exemption under Section 44AB(a) of Income Tax Act, 1961 to a digital marketing business.

Justice Krishnan Ramasmay observed that the use of computers or digital tools does not transform a business into a profession. It was observed that, “Digital Marketing is the business for persons who carry out the said activities. Merely because it is carried on through computers, it cannot be treated as a profession.”

The petitioner, Vajra Global Consulting Service LLP, engaged in digital marketing services, challenged the assessment order on the grounds that its turnover for the financial year 2020-21 was below ₹5 crores and that cash transactions, both receipts and payments were below 5% of the turnover.

As per the amended first proviso to Section 44AB(a), an audit is not required if these two conditions are met. The petitioner claimed it had filed its return accordingly and provided the necessary financial disclosures, but the Department had treated the activity as a "profession", thereby attracting mandatory audit regardless of turnover.

During the hearing, counsel for the petitioner submitted that the Income Tax Department had wrongly categorized digital marketing as a ‘profession’ merely because the work was carried out through computers. This misclassification, it was argued, led to an incorrect denial of audit exemption.

It was further submitted that all transactions were conducted digitally, without exceeding the 5% cash threshold on either side, and appropriate evidence was furnished with the return of income. Despite this, the assessing authority proceeded to issue an assessment order without proper application of mind or appreciation of facts.

On the other hand, the Department contended that the petitioner carries on the business of Digital Marketing through computers and therefore, it comes under the category of profession.

However, during the course of the hearing, thVajra Global Consulting Service LLP vs Assistant Director of Income Taxe Department acknowledged that if the Court was inclined to view digital marketing as a business, the matter could be remanded back for fresh adjudication.

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The Court examined the provisions of Section 44AB(a) along with its first proviso, which exempts businesses from compulsory audit if their turnover is below ₹5 crore and their cash transactions (receipts and payments) are limited to less than 5% of the total amount.

It noted that the Income Tax Department had not disputed the petitioner’s turnover figures or the digital mode of receipts and expenses, and that evidence was available on record to support the claim. The core issue is around the classification of digital marketing as a profession or a business.

For that issue, the court clearly clarified that digital marketing is the business for persons who carry out the said activities. Also, the cash transactions, both on the aspect of receipts and payments in cash below 5% of the turnover, which is below Rs.5 Crores as per the proviso to Section 44 AB (a), the said assessee is not required to file an audit report and they are exempted. In this case too, the transactions were below the threshold, thus exempted from Section 44AB(a).

The bench also stated that there was a non-application of mind by the respondent authority, which failed to properly consider the nature of the petitioner’s operations and the evidence placed before it.

Accordingly, the High Court set aside the impugned Income tax order, and remanded the matter for fresh consideration.

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