TMI Blog2005 (4) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... ws ofItaly, having its office inMilan,Italy. During the year under consideration, the assessee had earned income in the form of fees for technical services and royalty under various contracts, as consideration for rendering services, providing technology, know-how, licence and designs, etc. This is not denied by the Department. The assessee s income for the year was assessed under s. 44D r/w s. 115A of the IT Act. The AO levied a penalty under s. 271B of the Act of Rs. 1 lakh, on the ground that only persons deriving income of the nature referred to under s. 44B or s. 44BB or s. 44BBA or s. 44BBB are exempted from the provisions of s. 44AB and that all other persons are required to get their accounts audited under s. 44AB and attach audit r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as regards and in relation to the said s. 44D. These sections include s. 44AB. The exclusionary effect brought about thereby exempts the assessee from the requirement of its accounts being audited. That being so, the levy of penalty is bad in law and accordingly, it be deleted. 6. Shri O.P. Meena, the learned Departmental Representative, on the other hand, supporting the orders of the taxing authorities, has submitted that the penalty has rightly been levied. The assessee not having complied with the statutory mandate of getting its accounts audited, has attracted the levy of penalty under s. 271B. 7. We have heard the parties and have perused the material on record. The nature of a non obstante clause contained in a statutory p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies @ 52.5 per cent. Income by way of technical services received under agreements made after29th Feb., 1964, and approved by the Central Government, was also taxed at the same rate. In both cases, the taxable income was determined on a net basis, i.e., after allowing deduction in respect of cost and expenses incurred for earning the income. 10. Sec. 44D provides for a special procedure for computing income by way of royalty and for technical services received by a foreign company. The non obstante clause which commences s. 44D, pertains to this procedure. Secs. 28 to 44C are the provisions for computation of profits and gains of business or profession. 11. The non obstante clause in question provides that anything contrary to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d examination of accounts for the purpose of determining taxable income, however, is even wider. An auditor has to carry out the examination of the evidence supporting a particular item of expenditure or income. And his job does not end here. He has further to ascertain as to whether the expense is in fact allowable and if the income is actually taxable. Allowability of an item of expenditure hinges on its being reasonable or in consonance with the fair market value of similar goods or services. Such a matter depends on the subjective judgment of the AO. So too, regarding cash credits and other items, inference from facts is likely to differ from person to person. Then, there could well be cases where some bank accounts in the name of a tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims for deductions are correctly made by him; that such audit would also help in checking fraudulent practices; that it can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerable saving in the time of AOs in carrying out routine verification like checking the correctness of totals and verifying if purchases and sales are properly vouched or not; and that the time of the AO thus saved could be utilised in attending to investigation of more important aspects of a case. 17. A perusal of the provision of s. 44AB shows that it does not contain anything contrary to the provisions of s. 44D. Sec. 44D gives special provisions for computing income by way of royalties, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IT Act. Ground No. 4 states that the order of the learned CIT(A) is erroneous and needs to be quashed. 19. The contention of the assessee appears to be correct. Under the gross basis of taxation, as is the case herein, where a foreign company files a return of income without claiming any expenditure or allowances as deductible expenses, conducting a tax audit would be redundant. In the present case also, the assessee is taxable at a flat rate of 20 per cent under s. 44D r/w s. 115A. The assessee has not claimed any deductible expenses comprising expenditure or allowances. Therefore, it is justified in asserting that conducting an audit under s. 44AB would not at all be required. Moreover, in such circumstances, penalising the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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