Remuneration From Partnership Not ‘Gross Receipt’ For Purpose Of Audit Under Section 44AB Of Income Tax Act: Bombay High Court

The Bombay High Court has declared in the case of Perizad Zorabian Irani Versus PCIT And Ors., that the remuneration received from a partnership firm cannot be considered as a gross receipt in profession for the purposes of the Income Tax Act, 1961’s Section 44AB obligatory audit.

Justices K.R. Shriram and N.J. Jamadar ruled that none of the clauses under Section 44AB contemplate a situation in which an assessee engages in both profession and business.

Perizad Zorabian Irani, the petitioner/assessee, filed her income tax return under Section 139(1) of the Income Tax Act. The Assessing Officer (AO) declared the Assessee’s income tax return inadmissible due to a lack of auditing of the accounts as required by Section 44AB of the Act. The Assessee appealed the AO’s decision to the Principal Commissioner of Income Tax (PCIT). The PCIT denied the request for modification and maintained the AO’s decision. The Assessee appealed the PCIT’s decision to the Bombay High Court.

Before the High Court, the Assessee’s counsel, Perizad Zorabian Irani, argued that the Assessee’s compensation as a partner could not be regarded as gross earnings from profession for the purposes of Section 44AB of the Act. It also claimed that Section 44AB did not apply when an assessee was engaged in both a profession and a business in different domains at the same time.

According to Section 44AB (b) of the Income Tax Act, anyone who is engaged in a profession and whose gross receipts in that profession exceed fifty lakh rupees in any previous year must have his previous year’s accounts audited by an accountant and submit the audit report by the given date. Section 44AB (a) states that any person conducting business whose total sales, turnover, or gross receipts in the previous year exceeded one crore rupees must have his previous year’s accounts audited by an accountant and submit the audit report by the stipulated date.

The terms of Section 44AB (a) and 44AB (b) are mutually exclusive, according to the High Court, and none of the clauses under Section 44AB contemplate a situation in which an assessee is engaged in both profession and business.

The High Court relied on the Madras High Court’s decision in the matter of Anand kumar against Assistant Commissioner of Income Tax (2020), which found that the Petitioner’s/pay Assessee’s from a partnership firm could not be considered a gross receipt in profession. As a result, the Assessee Perizad Zorabian Irani was not required to have her finances audited under Section 44AB, according to the High Court.

The High Court granted the Assessee’s writ petition and ordered the revenue authorities to regard the Assessee’s income tax return as valid.

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