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Section 44AB of income tax act case and penalty provision

Whether for the purpose of attracting section 44AB, receipt of an assessee by way of sale or trading business and receipt for doing job work can be clubbed for the purpose of finding out whether limit of 40 lakh prescribed for attracting provisions of section 44AB is made out and whether the penalty under section 271B could be imposed on the assessee for holding a bona fide belief that receipt from job work is not to be aggregated in computing the limit of Rs. 40 lakh?

Facts of the case: - the assessee was under a bona fide belief that three expressions are related to three types of business activities which are as under.
-          Total sales
-          Turnover
-          Gross receipts

He was in belief that these are to be considered as independent criteria and does not overlap the other. Accordingly, he was not liable statutorily to have his accounts audited under section 44AB, unless the total sales or turnover or gross receipts other than the sale or turnover independently has exceeds Rs. 40 lakh.
As his total receipts from business and job work did not exceed Rs. 40 lakh during the year, he believed that he was not liable for statutory audit under section 44AB.

The assessing officer rejected the connection of the assessee and purpose to impose penalty under section 271B for failure to get his accounts audited under section 44AB of income tax act.
Held: - the expression total qualifies all three expressions which are sales, turnover and gross receipts. Where the assessee is engaged in the business to undertake job work, the raw material being provided by the manufacturer, the assessee has to relate his receipt to labour charges.

The limit of Rs. 40 lakh for audit applies to the aggregate of total of all three aspects. Accordingly the assessee is liable to audit under section 44AB of income tax act.
However the assessing officer cannot impose penalty under section 271B for the reasons given as under.
-          If it appears to the assessing officer that return is not accompanied by auditor’s report under section 44AB, he is required to serve a notice to the assessee under section 139(9) before rejecting the return. The assessee may get his accounts audited, submit the report under section 139(9) (bb) and (d). The return becomes valid and no penalty can be imposed.

-          Where assessee objection as to his liability to get his accounts audited under section 44AB is over ruled, his reason for non-compliance cannot be considered to be not bona fide. The fact that ultimately, on the analysis of the provision, the successive authorities or the count may come to the conclusion that the objection raised by the assessee about the requirement to the company with the provision of the act are not sustainable, does not make the objection raised by the assessee to be not bona fide or groundless. Hence, no penalty can be imposed [Bajrang oil mills vs. ITO (2007) 163 Taxman 154(Raj.)

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