Tax Tribunal Upholds Audit Requirement for Turnover Over Rs. 1 Crore; Deductions Denied u/s 44AD.

The ITAT dismissed the assessee's appeal, upholding the Principal Commissioner's order under section 263 of the Income Tax Act, 1961. The ITAT confirmed that the assessment was erroneous and prejudicial to the revenue due to the failure to audit accounts as required under section 44AB, despite a turnover exceeding Rs. 1 crore. The ITAT rejected the argument that relief in a subsequent year affected the current assessment, emphasizing the necessity of separate adjudication for each year and compliance with statutory provisions. The ITAT also clarified that partner remuneration deductions under section 44AD were not permissible.

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Issues involved:
The judgment involves the assumption of revisionary jurisdiction by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 for the assessment year 2014-15.

Assumption of revisionary jurisdiction:
The assessee, engaged in car rental services, had its turnover exceeding Rs. 1 crore, necessitating the audit of accounts under section 44AB. However, the assessee did not get its accounts audited and instead estimated profit at 8% of total receipts under section 44AD. The Principal Commissioner found the assessment to be erroneous and prejudicial to the revenue as the Assessing Officer did not conduct any inquiry regarding the non-audit of accounts and the deduction of partner remuneration. The Principal Commissioner invoked jurisdiction under section 263, which was upheld by the ITAT. The ITAT rejected the argument that since relief was granted in a subsequent assessment year, the assessment should not be considered erroneous, emphasizing that each year must be adjudicated separately.

Compliance with statutory provisions:
The ITAT held that the mandatory requirement of getting accounts audited under section 44AB must be complied with when the turnover exceeds Rs. 1 crore. The ITAT emphasized that relying solely on section 44AD without adhering to the audit requirement would render section 44AB redundant. The ITAT also noted that deduction of partner remuneration under section 44AD was not allowable. The ITAT disagreed with the contention that two possible views existed, reiterating that the principles of res judicata do not apply to income tax proceedings.

Conclusion:
The ITAT dismissed the appeal of the assessee, upholding the Principal Commissioner's order invoking jurisdiction under section 263. The ITAT emphasized the importance of complying with statutory provisions and conducting proper inquiries in income tax assessments.

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