Commissioner of Police Vs ITO (ITAT Chennai)
Assessee is a Police Canteen unit set up by the Government of Tamil Nadu Home Department to supply household items like groceries, consumer goods, & daily essentials to police personnel through 9 sub-canteens. The canteen procures goods & distributes them to members at cost without any profit motive, functioning purely on the principle of mutuality. It filed return declaring Nil income. In the scrutiny assessment u/s 143(3), AO accepted the concept of mutuality & accepted the Nil income, thereby acknowledging that Assessee was not carrying on any business.
However, since GST returns reflected a turnover of ₹32.33 crore, AO initiated separate penalty proceedings u/s 271B for failure to furnish tax audit report u/s 44AB. AO held that since turnover exceeded ₹1 crore, tax audit was mandatory & levied penalty of ₹1,50,000 u/s 271B. CIT(A) confirmed the penalty.
Before Tribunal, Assessee argued that its activities were mutual & not business, hence Section 44AB does not apply, as it applies only to persons “carrying on business or profession”. Once AO himself accepted mutuality & Nil income, he cannot treat the same activity as business for penalty. It was further argued that even under GST, mutuality was overridden only by a specific deeming fiction in Sec. 7(1)(aa), but income-tax law has no such deeming fiction, therefore mutuality still prevails.
