LEYLAND AUTOMOBILES v. INCOME TAX OFFICER
[Citation -2007-LL-0816-2]

Citation 2007-LL-0816-2
Appellant Name LEYLAND AUTOMOBILES
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 16/08/2007
Assessment Year 2001-02, 2002-03
Judgment View Judgment
Keyword Tags profits and gains of business or profession • filing of audit report • procedural in nature • benefit of exemption • written down value • business profit • sales turnover • specified date • total turnover • business loss • retail trader • interest paid
Bot Summary: For the assessee to claim a lower profit than 5 per cent as envisaged under s. 44AF(1), he should maintain books of account and other documents stipulated under s. 44AA and should have got his accounts audited by an accountant, and should have furnished a report to the AO before the specified date being 31st day of October of the relevant assessment year. The CIT(A) should have noted that the only conditions for showing lower profits and gains were maintenance of accounts under s. 44AA(2) and furnishing of audit report under s. 44AB. It is not stipulated that the assessee should get his accounts audited by an accountant before the specified date and furnish by that date the report of that audit. Of s. 44AB and hence for the delay in getting the accounts audited under s. 44AB, the penalty provided under s. 271B was the only consequence and nothing else. 7th April, 2006 in the assessee s own case reported as Leyland Automobiles vs. ITO 103 TTJ 438 Ed. has held as under: 6.... The moot point in this appeal is whether the assessee can be denied the benefit of sub-s. of s. 44AF on claiming lower profits and gains than the profits and gains as specified in sub-s. to s. 44AF by keeping and maintaining such books of account and documents and getting the same accounts audited but furnishing the report of such audit beyond the date specified in s. 44AB of the IT Act, 1961. If the assessee is doing the retail business and is maintaining such books of account and other documents as required under sub-s. of s. 44AA and gets its accounts audited and furnishes a report of such audit as required under s. 44AB, notwithstanding anything contained in the sub-ss. To of s. 44AF, such assessee may claim lower profits and gains than the profits and gains specified in sub-s. of s. 44AF. In other words, if a retail trader wants to claim a lower profit than 5 per cent of the turnover as mentioned in s. 44AF(1), then such assessee has to maintain the books of account and other documents as required under s. 44AA and get its accounts audited and furnish a report of such report as required under s. 44AB of IT Act, 1961. Nowhere in s. 44AF right from sub-s. to sub-s. it is mentioned that the assessee will be denied the benefit of claiming lower profits and gains than the profits and gains as specified in sub-s. of s. 44AF, if it furnishes the audit report beyond the due date as mentioned in s. 44AB. Thus, it is clear that it is not the intention of the legislature to altogether deny the benefit of lower profits if the assessee maintains books of account and gets them audited and furnishes a report as required under s. 44AB though belatedly.


These appeals have been preferred by assessee M/s Leyland Automobiles, Kadappakkada, Kollam, for asst. yrs. 2001-02 and 2002-03 against appellate order dt. 22nd Sept., 2005 of CIT(A)-III, Trivandrum. At time of hearing there was no representation on behalf of assessee. However, we find that this issue is covered by order of Tribunal in IT Act, 1961 No. 18/Coch/2005 in case of very same assessee and hence, we proceed to hear ex parte qua assessee. brief facts of case are that assessee is dealer in Automobile Spare Parts and also owns commercial complex which was let to various tenants. appellant is assessed to income-tax by ITO, Ward-II, Kollam. According to AO there was only one issue to be addressed in this case, viz., whether assessee can return business profit less than 5 per cent under s. 44AF, if assessee has his accounts audited after specified date. Sec. 44AF(5) states explicitly that . . . assessee may claim lower profits and gains than profits and gains specified in sub-s. (1) (of s. 44AF), if assessee keeps and maintains such books of account and other documents as required under sub-s. (2) of s. 44AA and gets its accounts audited and furnishes report of such audit as required under s. 44AB . Sec. 44AB states that Every person . . . (c) carrying on business shall, if profits and gains from business are deemed to be profits and gains of such person under s. 44AD or 44AE or 44AF, as case may be, and has claimed his income to lower than profits or gains so deemed to be profits and gains of his business, as case may be, in any previous year, . . . get his accounts of such previous year audited by accountant before specified date and furnish by that date report of such audit in prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed . In addition, specified date for such report is 31st day of October of relevant assessment year, according to explanatory notes to section. For assessee to claim lower profit than 5 per cent as envisaged under s. 44AF(1), he should maintain books of account and other documents stipulated under s. 44AA and should have got his accounts audited by accountant, and should have furnished report (Form 3CBB) to AO before specified date being 31st day of October of relevant assessment year. In instant case, specified date was 31st Oct., 2001 and 31st Oct., 2002. assessee had furnished audit report dt. 15th Feb., 2002 only on 27th March, 2002 for asst. yr. 2001-02 and audit report dt. 6th March, 2003 only on 31st March, 2003 for asst. yr. 2002-03, very much after specified date. In this connection CBDT vide Circular No. 3 dt. 9th Feb., 2001, [(2001) 165 CTR (St) 25] has specifically allowed relaxation, extending specified date only for asst. yr. 1998-99 to any date before completion of assessment. No such relaxation exists for later years. From this it is abundantly clear that for assessee to claim lower profits under s. 44AF(5), it has to satisfy conditions stipulated under s. 44AB. In instant case, assessee has failed in satisfying statutory requirements for claiming benefit under s. 44AF(5). No exemption is provided by CBDT vide its instructions for relevant assessment years. By observing as above, AO was of view that assessee was liable to be assessed at 5 per cent of total sales turnover in accordance with provisions of s. 44AF(1). Thus he determined profits from business at 5 per cent on total sales turnover of Rs. 13,58,264 which worked out to Rs. 67,913 for asst. yr. 2001-02 and on total sales of Rs. 10,92,362 which worked out to Rs. 54,618 for asst. yr. 2002-03 by applying provisions of s. 44AF(1) of IT Act, 1961. Aggrieved by orders of AO, assessee moved matter in p p e l before first appellate authority. It was contended that consequence of default contemplated under s. 44AB is not denial of concession provided under sub-s. (5) of s. 44AF, but penalty under s. 271B of Act. It was further contended that nowhere under s. 44AF it is provided that if audit report is not filed within specified time, provisions of this s. 44AF(1) would automatically have to be applied. It was also argued that Board s Circular No. 3 dt. 9th Feb., 2001 does not provide for application of provisions of s. 44AF in case default in any other assessment year. After considering facts and circumstances of case and submissions of assessee, CIT(A) came to conclusion that sub-cl. (2)(iii) of s. 44AA and cl. (c) of s. 44AB have to be read in consonance with s. 44AF(5) and when so read, it becomes obvious that AO has proceeded on 44AF(5) and when so read, it becomes obvious that AO has proceeded on correct basis. CIT(A) further held that sub-s. (5) of s. 44AF provided that assessee may claim lower profits and gains than profits and gains specified in sub-s. (5) of s. 44AF subject to satisfaction of conditions specified therein. words "profits and gains" do not include losses. appellant has claimed business loss for both assessment years which cannot be allowed under s. 44AF(5) of Act. AO was justified in computing net income from retail business at 5 per cent of turnover ignoring loss claimed by appellant in facts and circumstances of case. In view of above conclusion, learned CIT(A) upheld order of AO by dismissing appeal of assessee. Aggrieved by order of CIT(A), assessee is in second appeal before Tribunal with following common effective grounds of appeal: "2. CIT(A) has erred in confirming order of ITO, Ward-II, Kollam, disallowing business loss returned by appellant and estimating business income at 5 per cent of turnover of appellant under s. 44AF of IT Act. CIT has went wrong in applying provisions of s. 44AF on ground that audit report under s. 44AB was not filed within time specified under provisions of that section. CIT(A) should have noted that only conditions for showing lower profits and gains were maintenance of accounts under s. 44AA(2) and furnishing of audit report under s. 44AB. It is not stipulated that assessee should get his accounts audited by accountant before specified date and furnish by that date report of that audit. There is no mandatory requirements that such report should be furnished before specified date. CIT(A) should have noted that there is no differentiation in s. 27IB between assessee s falling under cl. (a), cl. (b) and cl. (c) of s. 44AB and hence for delay in getting accounts audited under s. 44AB, penalty provided under s. 271B was only consequence and nothing else." learned Departmental Representative submitted that reiterated contents of orders of authorities below as his submissions (which has already been extracted elsewhere of this order). He further submitted that assessee cannot be exonerated from application of s. 44AF when it has not complied with conditions mentioned in s. 44AF(5) of IT Act, 1961, if it wanted to avail option provided under that sub-section. We have heard submissions of learned Departmental Representative and considered facts and materials on record. On identical issue this Tribunal in ITA No. 18/Coch/2005 dt. 7th April, 2006 in assessee s own case [reported as Leyland Automobiles vs. ITO (2006) 103 TTJ (Coch) 438 Ed.] has held as under: "6. . . . moot point in this appeal is whether assessee can be denied benefit of sub-s. (5) of s. 44AF on claiming lower profits and gains than profits and gains as specified in sub-s. (1) to s. 44AF by keeping and maintaining such books of account and documents and getting same accounts audited but furnishing report of such audit beyond date specified in s. 44AB of IT Act, 1961. Sec. 44AF(1) to (5) read as under: 44AF. (1) Notwithstanding anything to contrary contained in ss. 28 to 43C, in case of assessee engaged in retail trade in any goods or merchandise, sum equal to five per cent of total turnover in previous year on account of such business or, as case may be, sum higher than aforesaid sum as declared by assessee in his return of income shall be deemed to be profits and gains of such business chargeable to tax under head Profits and gains of business or profession : Provided that nothing contained in this sub-section shall apply in respect of assessee whose total turnover exceeds amount of forty lakh rupees in previous year. (2) Any deduction allowable under provisions of ss. 30 to 38 shall, for purpose of sub-s. (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed: Provided that where assessee is firm, salary and interest paid to its partners shall be deducted from income computed under sub-s. (1) subject to conditions and limits specified in cl. (b) of s. 40. (3) written down value of any asset used for purpose of business referred to in sub-s. (1) shall be deemed to have been calculated as if t h e assessee had claimed and had been actually allowed deduction in respect of depreciation for each of relevant assessment years. (4) provisions of ss. 44AA and 44AB shall not apply insofar as they relate to business referred to in sub-s. (1) and in computing monetary limits under those sections, total turnover or, as case may be, income from said business shall be excluded. Notwithstanding anything contained in foregoing provisions of this section, assessee may claim lower profits and gains than profits and gains specified in sub-s. (1), if he keeps and maintains such books of account and other documents as required under sub-s. (2) of s. 44AA and gets his accounts audited and furnishes report of such audit as required under s. 44AB. careful study of various sub-sections of s. 44AF will lead to following conclusions: (i) If assessee s turnover is more than Rs. 40 lakhs, provisions of sub-s. (1) shall not be applicable, otherwise, i.e., if turnover is below Rs. 40 lakhs income from profits and gains of business or profession from retail trade of assessee will be assessed at 5 per cent of total turnover in previous year. (ii) Once income from retail business of assessee is computed at 5 per cent of total turnover, it would be deemed that provisions of ss. 30 to 38 had already been given full effect to. (iii) If assessee is doing retail business and is maintaining such books of account and other documents as required under sub-s. (2) of s. 44AA and gets its accounts audited and furnishes report of such audit as required under s. 44AB, notwithstanding anything contained in sub-ss. (1) to (4) of s. 44AF, such assessee may claim lower profits and gains than profits and gains specified in sub-s. (1) of s. 44AF. In other words, if retail trader wants to claim lower profit than 5 per cent of turnover as mentioned in s. 44AF(1), then such assessee has to maintain books of account and other documents as required under s. 44AA and get its accounts audited and furnish report of such report as required under s. 44AB of IT Act, 1961. Now we have to look into consequences that would follow if assessee maintains such accounts and gets same audited but files said audit report beyond due date specified in s. 44AB. There is nothing mentioned in s. 44AB as to what is consequence if such audit report is not filed within specified date mentioned therein. However, in s. 271B of IT Act, 1961 consequences of failure to get accounts audited are mentioned, which reads as under: 27IB. If any person fails to get his accounts audited in respect of any previous year or years relevant to assessment year or furnish report of such audit as required under s. 44AB, AO may direct that such person shall pay, by way of penalty, sum equal to one-half per cent of total sales, turnover or gross receipts, as case may be, in business or of gross receipts in profession, in such previous year or years or, sum of one hundred thousand rupees, whichever is less. combined reading of ss. 4AF(5), 44AB and 271B leads to conclusion that if assessee fails to furnish audit report as required under s. 44AB (which has been incorporated in sub-s. (5) of s. 44AF) it may be liable to levy of penalty as mentioned in s. 271B of IT Act, 1961. Nowhere in s. 44AF [right from sub-s. (1) to sub-s. (5)] it is mentioned that assessee will be denied benefit of claiming lower profits and gains than profits and gains as specified in sub-s. (1) of s. 44AF, if it furnishes audit report beyond due date as mentioned in s. 44AB. Thus, it is clear that it is not intention of legislature to altogether deny benefit of lower profits if assessee maintains books of account and gets them audited and furnishes report as required under s. 44AB though belatedly. Otherwise it would have specified/mentioned in section itself to that effect. Further on many occasions various Courts have held that filing of audit report is only procedural in nature and assessee cannot be denied benefit of exemption claimed by it, to quote example is decision in case of CIT vs. A.N. Arunachalam (1994) 122 CTR (Mad) 87: (1994) 75 TAXMAN 529 (Mad). In view of above discussions, we are of considered opinion that lower authorities went wrong in totally denying benefit of sub-s. (5) of s. 44AF to assessee in this case. Hence, we direct AO not to apply provisions of s. 44AF(1) of IT Act, 1961 as it is not remedy for non/late filing of audit report as required under s. 44AB of Act, before specified date. In this view of matter we allow appeals of assessee." In result, appeals of assessee are allowed. *** LEYLAND AUTOMOBILES v. INCOME TAX OFFICER
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