Tax return valid despite Rs. 1 crore sales proceeds from fixed assets not requiring section 44AB audit

ITAT Jaipur allowed the assessee's appeal, quashing the defect notice issued under section 139(9) treating the return as invalid. The AO incorrectly determined that audit under section 44AB was required as gross receipts exceeded Rs. 1 crore. However, ITAT held that sales proceeds from fixed assets don't constitute gross receipts for section 44AB purposes, referencing ICAI guidance and Y.K. Patel Securities precedent. Since actual business receipts were below Rs. 1 crore, no audit was required. The tribunal directed AO/CPC to treat the return as valid and process accordingly.

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Issues Involved:
1. Applicability of Section 154 for rectification of an order passed under Section 139(9).
2. Validity of the return treated as defective under Section 139(9) due to non-audit under Section 44AB.

Summary:

1. Applicability of Section 154 for Rectification of an Order Passed under Section 139(9):
The assessee filed an application for rectification under Section 154 of the Income Tax Act, 1961, claiming a mistake of law in the order passed by the DCIT, CPC, Bangalore on 01.03.2019, which invalidated the return filed for AY 2017-18. The AO rejected the application, stating, "this is not the mistake apparent from record and due to invalid return for the AY 2017-18, the application for rectification u/s 154 filed by the assessee is hereby rejected." The CIT(A) upheld this decision, stating, "the rectification application filed by the appellant u/s 154 of the Income Tax Act, 1961 before the Ld. AO has no legal validity, as the assessee has moved application u/s 154 of IT Act, 1961 against the return which has been declared invalid and defective and nonest u/s 139 (9) of IT Act, 1961."

2. Validity of the Return Treated as Defective under Section 139(9) Due to Non-Audit under Section 44AB:
The assessee argued that the gross receipts from the business were less than Rs. 1 crore, hence not requiring an audit under Section 44AB. The DCIT, CPC, Bangalore had treated the return as invalid, stating, "Tax Payer has shown gross receipt or income under the head 'profit and gains of Business or Profession' more than Rs. 1 Crore, however Part A of the Profit and Loss Account and/or Balance Sheet have not been filed and/or the books of accounts have not been audited." The assessee contended that the gross receipts were Rs. 69,43,977/-, which is below Rs. 1 crore, and the other receipts of Rs. 74,58,325/- were "Profit on Sales of Fixed Assets," not part of gross business receipts for Section 44AB purposes. The Tribunal noted that similar issues were decided by ITAT Mumbai in Y.K. Patel Securities (P) Ltd. vs. ADIT-CPC, Bangalore, where it was held that the defect notice issued by CPC under Section 139(9) was not in accordance with law, and the return should be considered valid.

Conclusion:
The Tribunal quashed the defect notice issued by CPC under Section 139(9), stating, "the return of income filed by the assessee should be considered as valid return." The Tribunal directed the AO/CPC to process the return in accordance with law, allowing the appeal of the assessee. The judgment concluded, "In the result, the appeal of the assessee is allowed."

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