Requirement of clubbing of turnover for the purpose of section 44AB in case assessee is carrying on more than one business
CASE LAW DETAILS
Decided by: HIGH COURT OF KARNATAKA, In The case of: ACIT v. K. Satish Shetty, Appeal No.: ITA No. 22/2007, Decided on: February 22, 2008
7. For ready reference, the relevant portion of section 44AB, which deals with audit of accounts of certain persons carrying on business or profession is reproduced herein below:-
“section 44AB : – Every person
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the cast may be in business exceed or exceeds forty lakh rupees in any previous year;
(b) XX XX XX
(c) XX XX XX
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date of report of such audit in the prescribed for duly signed and verified by such accountant and setting forth such particulars as may be prescribed”
To clarify the position with regard to obtaining of audit report, it is necessary to read the definition of “business” as contained under section 2(13) of the Act, which is also reproduced for ready reference:-
“section (13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce of manufacture”
The conjoint reading of the aforesaid provisions makes it clear that every person who is carrying on business and whose sales or turnover exceed Rs. 40 lakhs in any previous year would be required to get his accounts audited by the Accountant. This does not show anywhere that in case assessee is carrying on many businesses, then the aggregate of the businesses has to be arrived at and thereafter, the same is required to be audited.
8. Subsequently, it appears that some doubts were raised with regard to the correct interpretation of the aforesaid provisions of law, the matter was clarified by the Chartered Accountants of India under the heading:-
“Individual business – Single Form No. 3 CD or consolidated form”
An assessee owns four proprietorship businesses. The aggregate annual turnover of all the concerns exceeds Rs. 40 Lakhs but individually each business turnover is below rs. 40 lakhs.. further, separate books of accounts are maintained for each business and profit and loss account and balance sheet are prepared separately.
(a) will tax audit under section 44AB be applicable?
Answer (a) The requirement of tax audit in the case of an assessee is to be determined taking into consideration the `Sales’, `turnover’ or `gross receipts’ of all the businesses carried on by him. If the agreegate annual turnover of the four proprietary concerns exceed Rs. 40 lakhs, Section 44AB would be clearly applicable.
(b)… .. ……
Therefore, from the above, it is clear that tax audit as such is conducted in respect of `an assessee’ and not in respect of particular business’.
9. Apart from the above, when the assessee was served with notice issued to him under Section 271B of the Act, he had furnished explanation and further clarification to the same. It is necessary to re-produce the same, which reads as under:-
“I am ignorant about incomplete audit report and the provision of law in this regard, omission on my part if any was not intentional. Hence, you are requested to drop penalty proceedings and oblige.”
He had proceeded to give further clarification/ explanation on 24-4-2003. The relevant portion of it reads as under:-
“This is in continuation to my submission dated 4-4-2003 submitted to you on 8-4-2003 on the above subject and in response to your notice dated 10-4-2003. For the assessment year 2001-02 I through my accountant submitted for audit the accounts of M/s. Satish Enterprises, M/s. Kyathi Motors (Workshop) Manipal and Khyathi Enterprises, Udupi. The auditors submitted the report under Section 44AB only, in respect of Satish Enterprises, the turnover in which exceeded the limit of Rs. 40 lakhs. I am ignorant of the law in this regard. Hither to my auditor used to give the report under Section 44AB only, in respect of the audit conducted by him for Satish Enterprises as and when turnover exceeded the limit of Rs. 40 lakhs. For the assessment years 1999-2000 and 2000-01 since the turnover limit did not exceed the prescribed limit, no report was obtained in respect of any of the concerns.
For Assessment year 2001-02 audit report under section 44AB was given but name of M/s. Kyathi Motors (Workship) Manipal and Khyathi Enterprises were not specifically mentioned in the report. This aspect was brought to my notice only now.
Since there is no intention on my part to defraud the revenue, the default if any on my part may kindly be condoned as it is not intentional and has occurred for the first time.”
10. Taking the cumulative effect of the explanations offered by the assessee and from a reading of the relevant provisions of section 44AB and Section 2(13) of the Act, we are of the considered opinion that the assessee was under a bonafide belief that he is required to obtain audit report only in respect of that business, the turnover of which crosses the limit of Rs. 40 lakhs for each assessment year.
11. From the conduct, behaviour and attitude of the assessee, it is clear that he was not aware that aggregate of the three businesses has to be taken into consideration for compliance of the provisions contained in section 44AB of the Act. It is also clear from the records that the was for the first time he had committed this default. It is also relevant to mention that in any case, the assessee would not have gained in any manner whatsoever, if he had included other two business for working out the aggregate provided, he would have been aware of the same.
12. No doubt, it is true that the assessee was being represented by his Chartered Accountant and he should have been little more careful and cautions in applying the legal proposition to the facts of the case. He should have added the aggregate of all the three business so as to have full compliance of section 44AB of the Act. But for the mistake or default of the Chartered Accountant, who may have also acted bonafide, being unaware of the correct interpretation of law, the assessee cannot be held responsible, even though the said Chartered Accountant acted as an agent of the assessee. Since the issue involved was complicated, thus the clarification was issued by the Chartered Accountants of India, subsequently.
13. Here, we may profitably refer to a judgment of the Supreme Court reported in 1989 (42) E.L.T.350 (SC) in the case of Gujarat Travncore Agency v. Commissioner of Income Tax. Supreme Court has held that while imposing partly, question of mens rea is not required, but the obligation cast upon the assessee has to be discharged bonafide. As mentioned herein above, a bare reading of the provisions of law makes it abundantly clear that the Assessee was required to furnish audit with regard to the business as Section 44AB does not show or contemplate that all business are required to be consolidated together for working out the aggregate of the turnover. The subsequent clarification issued by the Chartered Accountants of India cannot be pressed into service to the disadvantage of the assessee.
14. Tribunal has also placed reliance on yet another judgment of the Supreme Court. ported in (1972) ITR 83 page 27 (Hindustan Steel Limited v. State of Orissa), where it dealt with the provisions contained in Orissal Sales Tax Act. While considering the general principles, the Apex Court has held that penalty can be levied on failure of the assessee to get itself registered as a dealer under the Sales Tax Act only when it is established that he had not acted bona fide, or acted deliberately in defiance of law or was guilty of conduct contumacious, or dishonest, or in conscious disregard of his obligations. If the assessee was under a bona fide belief that it was not a dealer, then levying of penalty could not be justified. In view of the foregoing discussions, it is clear to us that assessee had acted in bona fide belief and had no dishonest intention in not obtaining audit report for all the three businesses carried on by him.
15. For all these reasons, we are of the opinion that the question of law, referred to herein above, has to be answered in favour of the assessee and against the revenue.
16. The appeal , therefore, stands disposed of accordingly.