7917-Wp-1333-21.Doc v. Cit

Perizad Zorabian Irani ….Petitioner V/s.Principal Commissioner of Income-Tax(Central)-1 Mumbai & Ors…Respondents ---- Dr. K. Shivram, Sr. Advocate i/b Mr. Rahul K. Hakani for PetitionerMr. Suresh Kumar for Respondents ---- CORAM : K.R. SHRIRAM &N.J. JAMADAR, JJ DATED : 9[th] MARCH 2022 P.C. : 1Petitioner is impugning an order dated 25[th] March 2021 passed byrespondent no.1 u/s 264 of the Income Tax Act 1961 (the said Act),rejecting the revision application filed by petitioner challenging the orderdated 25[th] February 2020 passed under Section 139(9) by respondent no.2treating the return of income filed by petitioner for A.Y.-2017-2018 asinvalid. The reason why return of income was treated as invalid wasbecause according to respondent, petitioner failed to get her accountsaudited u/s 44AB though her gross receipts / turnover after includingremuneration received from partnership firm was more than the thresholdlimit of Rs.50,00,000/-. 2Petitioner is an individual deriving her income under the heads salary,income from house property, business / profession and income from othersources. Petitioner is an Actor by profession. Petitioner also is a partner in two partnership firms namely M/s Zorabian Sales and Marketing and M/sZorabian Foods. 3On or about 25[th] October 2017, petitioner filed her return of incomefor A.Y.-2017-2018 under Section 139(1) of the Act declaring total incomeof Rs.1,75,88,360/-. Out of this total income, a sum of Rs.1,09,65,411/- wasdeclared under the heads of business and profession. Out ofRs.1,09,65,411/-, petitioner derived a sum of Rs.8,45,220 as net incomefrom petitioner’s acting profession and Rs.1,01,20,191/- as remunerationreceived as working partner from the firm M/s Zorabian Sales andMarketing. 4On 27[th] June 2019, petitioner received a notice from respondent no.2alleging defect in the return on the ground that petitioner failed to get heraccounts audited in accordance with provisions of Section 44AB of the Act.Petitioner replied to the said notice and explained that she was not requiredto get her account audited under Section 44AB,by letter dated 3[rd] July 2019.This explanation of petitioner was rejected and order dated 25[th] February2020 came to be passed by respondent no.2 treating the return of incomefiled by petitioner as invalid due to non auditing of accounts as requiredunder Section 44AB of the Act. 5On or about 3[rd] February 2021, petitioner filed revision applicationunder Section 264 of the Act impugning the order passed by respondentno.2. Petitioner made detailed submissions with the application.Respondent No.1 issued a notice dated 17[th] March 2021 thereby calling upon petitioner to show cause why revision application under Section 264should not be rejected. By a letter dated 22[nd] March 2021, petitionerresponded to the show cause notice. On 25[th] March 2021, respondent no.1passed order dismissing the revision application, rejecting petitioner’ssubmissions and upholding the order of respondent no.2. While doing so,respondent no.1 has relied upon decision of ITAT Kolkata in Amal GanguliVs. DCI, which had been reversed by the High Court in Sagar Dutta Vs. CIT, IT Appeal No.150 of 2009 dated 17[th] February 2014. 6It is this order of respondent no.1, which is impugned in this petition. 7Section 44AB of the Act reads as under: “44AB. Every person:- (a) …………….(b) carrying on profession shall, if his gross receipts in professionexceed fifty lakh rupees in any previous year; or(d)……….. (e)………… get his accounts of such previous year audited by an accountantbefore the specified date and furnish by that date the report of suchaudit in the prescribed form duly signed and verified by suchaccountant and setting forth such particulars as may be prescribed.…………………...” IT Appeal No.150 of 2009 dated 17[th] February 2014. 6It is this order of respondent no.1, which is impugned in this petition. 7Section 44AB of the Act reads as under: “44AB. Every person:- (a) …………….(b) carrying on profession shall, if his gross receipts in professionexceed fifty lakh rupees in any previous year; or(d)……….. (e)………… get his accounts of such previous year audited by an accountantbefore the specified date and furnish by that date the report of suchaudit in the prescribed form duly signed and verified by suchaccountant and setting forth such particulars as may be prescribed.…………………...” 8Dr. Shivram submitted that the provisions of Section 44AB are notapplicable to the facts of the present case because: (a) the business iscarried on by the partnership firm and not the assessee, (b) becoming thepartner of partnership cannot be construed as carrying on business, (c)partners’ remuneration cannot be construed as total sales turn over or grossreceipts in business, (d) partners’ remuneration does not arise out ofcarrying on profession, (e) partners’ remuneration cannot be construed as gross receipts from profession and (f) Section 44AB is not applicable whereassessee is carrying on a profession as well as business simultaneously indifferent field. 9Mr. Suresh Kumar, per contra reiterated the finding of respondentno.1 and respondent no.2 and relied upon the order of ITAT in AmalGanguli. Mr. Suresh Kumar submitted that the order of ITAT in AmalGanguli has not been entirely reversed by the High Court and only thepenalty order was set aside because the Assessing Officer had not obtainednecessary approval before issuing penalty order. Mr. Suresh Kumarsubmitted that the Hon’ble Court remanded the matter to the AssessingOfficer for passing the penalty order after obtaining necessary approval fromthe competent authority. Thus, the claim of petitioner that judgment of ITATin Amal Ganguli has been reversed, is not correct. 10The provision applicable to petitioner is clause (b) of Section 44ABwhich provides, every person carrying on profession shall, if his grossreceipts in profession exceed fifty lakh rupees in any previous year, get hisaccounts of such previous year audited by an accountant before thespecified date and furnish by that date the report of such audit in theprescribed form duly signed and verified by such accountant and settingforth such particulars as may be prescribed. Profession is defined underSection 2(36) of the Act as under: “Profession includes vocation”. Theincome earned by petitioner as remuneration received as working partner orpartners’ remuneration, cannot be held as carrying on profession as well as 10The provision applicable to petitioner is clause (b) of Section 44ABwhich provides, every person carrying on profession shall, if his grossreceipts in profession exceed fifty lakh rupees in any previous year, get hisaccounts of such previous year audited by an accountant before thespecified date and furnish by that date the report of such audit in theprescribed form duly signed and verified by such accountant and settingforth such particulars as may be prescribed. Profession is defined underSection 2(36) of the Act as under: “Profession includes vocation”. Theincome earned by petitioner as remuneration received as working partner orpartners’ remuneration, cannot be held as carrying on profession as well as business simultaneously in different field. That is because the provisions ofSection 44AB(a) which says “every person carrying on business shall, if histotal sales, turnover or gross receipts, as the case may be, in business exceedor exceeds one crore rupees in any previous year” and clause (b) of Section44AB which says “every person carrying on profession shall, if his grossreceipts in profession exceed fifty lakh rupees in any previous year”, aremututally exclusive, i.e., the former dealing with the assessee carrying onbusiness and later dealing with the profession. None of the clauses underSection 44AB envisages the situation where the assessee is carrying on boththe profession as well as business. In a matter which is similar to thismatter at hand, where the scope of Section 44AD of the Act came up forconsideration, is the judgment of Madras High Court in Anandkumar Vs.Assistant Commissioner of Income Tax1. In that case, the assessee was anindividual and a partner in some partnership firms. The assessee filed hisreturn of income of assessment year under consideration admitting a totalincome of Rs.43,53,066/-. The assessment was selected for scrutiny and itwas finalised under Section 143(3) of the Act, disallowing the claim madeby the assessee under Section 44AD of the Act. While filing the return ofincome, the assessee had applied the presumptive rate of tax at 8% underSection 44AD and returned Rs.4,68,240/- as income from the remunerationand interest received from the partnership firm. The Assessing Officer didnot agree with the assessee and opined that Section 44AD is available only for an eligible assessee engaged in an eligible business and that the assesseewas not carrying on business independently but only as partner in the firm.The Assessing Officer further held that the assessee did not have anyturnover and receipts on account of remuneration and interest from thefirms cannot be construed as gross receipts mentioned in Section 44AD ofthe Act. This was challenged by the assessee before Commissioner ofIncome Tax (Appeals), who rejected the appeal and later before the ITAT,which also rejected the assessee’s challenge to the findings of the AssessingOfficer. Before the High Court, counsel for the Revenue submitted that theassessee was not doing any business but the firm was carrying on businessin which the assessee is a partner and, therefore, the condition that it shouldarise from an eligible business was not satisfied. The submissions thereon ofthe Revenue are totally contrary to the submissions made in the case athand where, the Revenue is wanting to add the income received asremuneration from the partnership firm as professional income. The MadrasHigh Court while upholding the contentions of Revenue observed that theassessee should establish that he is an eligible assessee engaged in aneligible business and such business should have a total turn over or a grossreceipt. Admittedly, the assessee who was an individual in that case was notcarrying on any business and the remuneration and interest received by theassessee from the partnership firm cannot be termed to be a turn over of theassessee (individual). The court concluded that the Revenue was right in itscontention that remuneration and interest from the partnership firm cannot be treated as gross receipt of the assessee. We respectfully agree with theview expressed by the Hon’ble Madras High Court. In fact, in the case at hand, petitioner’s case is the same thatpetitioner’s remuneration from the partnership cannot be treated as gross receipt in profession. 11In the circumstances, in our view petitioner’s stand that she was not required to get her accounts audited under Section 44AB, is correct. 12Petition, therefore, is allowed in terms of prayer clauses (a) and (b) which read as under: “(a) that this Hon’ble Court be pleased to issue a writ of certiorari or awrit in the nature of certiorari or any other appropriate writ, order ordirection under Article 226 of the Constitution of India calling for therecords of petitioner’s case and after examining the legality andvalidity thereof quash and set aside the impugned orders dated 25[th]March 2021 (Exhibit A) and 25[th] February 2020 (Exhibit B) passed byrespondent no.1 and respondent no.2 respectively and/or allow theclaim of petitioner. (b) that this Hon’ble Court may be pleased to issue a writ ofmandamus or a writ in the nature of mandamus or any otherappropriate writ, order or direction under Article 226 of theConstitution of India ordering and directing respondent no.2 to treatthe return of income dated for A.Y.2017-2018 filed by petitioner as avalid return of income.” 13Petition disposed. (N. J. JAMADAR, J.) (K.R. SHRIRAM, J.)