Case Details:

Pramod Lele vs. ITO

Appeal No.:

ITA No. 4306/Mum/2019

Order pronounced by:

ITAT Mumbai

Date of order:

12-08-2021

In Favour of:

Assessee

Assessment Year:

2015-16

The assessee is an individual who is carrying on the business of Management Consultancy services. The Ld. AO alleged that the gross receipts of the assessee engaged in the profession had exceeded Rs. 25 Lakhs u/s 44AA (1) of the Act, “Management Consultancy” also falls under the said section and accordingly tax audit was mandatory in case of the assessee. Since, the assessee failed in complying the requirement of tax audit, penalty u/s 271B of the Act is leviable.

The claim of assessee that he has not rendered any professional services rather engaged in management consultancy services and therefore requirement of tax audit arises only on gross receipts exceeding Rs. 1 crore, was rejected by the Ld. A.O. and imposed penalty u/s 271B of the Act. The decision of the A.O. was upheld by the Ld. CIT(A).

The Revenue opined that since the clients had deducted TDS u/s 194J of the Act while making payment of management consultancy fees to the assessee, the assessee is to be treated as one engaged in the profession of management consultancy and not in the business of rendering management consultancy.  Further, the Revenue is of the view that the assessee is covered in the expression “Technical Consultancy” as mentioned in section 44AA of the Act.

In this regard, we hold that at what rate of tax the clients deduct TDS while making payment is of no relevance to determine the character of receipt in the hands of the assessee recipient and for determining the status of the assessee as to whether he is engaged in business or in profession. The assessee plead that though he is a qualified Chartered Accountant but had not practised Chartered Accountancy and is engaged merely in the business of rendering Management Consultancy Services.

The fact of assessee rendering Management consultancy services is not disputed by the Revenue. The only dispute is whether the receipts from rendering management consultancy services would be treated as business receipt or professional receipt so as to determine applicability of provisions of section 44AA read with section 44AB of the Act.

It could be safely concluded that the expression “Technical Consultancy” would mean rendering of technical services by the assessee. The expression “Management Consultancy” could not be brought within the ambit of technical consultancy. Hence, we hold that the provisions of section 44AA (1) of the Act cannot be made applicable to the assessee in the instant case. Hence, the assessee is not liable to get his accounts audited u/s 44AB of the Act.

The assessee had entertained the bonafide plea that the receipts earned by him for rendering management consultancy services is only a business receipt and not professional receipt. This bonafide plea of the assessee has not been doubted by the Revenue but the Revenue had only tried to take different stand by giving different interpretation to the provisions of section 44AA of the Act and classifying receipts thereon as professional receipts so as to make the assessee eligible for getting accounts audited u/s 44AB of the Act. This becomes debatable issue. Hence, the bonafide plea of the assessee coupled with different interpretation given by the Revenue thereby making the issue debatable, would constitute reasonable cause within the meaning of Section 273B of the Act and hence in any case, the assessee would be protected by immunity provided in section 273B of the Act.

Thus, no penalty u/s 271B of the Act could be levied in the facts of the instant case.