Income Tax Act, 1961 – Sections 44AB, 139(9), and 80HHC - The petitioner, filed a return of income for the assessment year 2022-23, declaring a loss of Rs. 1,842,830,407. The return was deemed defective under Section 139(9) due to the non-submission of a Tax Audit Report, which was alleged to be required because the petitioner’s gross receipts exceeded Rs. 10 crore. The petitioner contended that the "other income" of Rs. 4710.43 lakh included the unwinding of a discount on an NHAI premium, which did not constitute "gross receipts" for the purposes of Section 44AB - Whether the write-back of the NHAI premium and other exceptional items could be considered "gross receipts" under Section 44AB, necessitating a Tax Audit Report, and whether the return was valid under Section 139(9) of the Income Tax Act - HELD - The amount written back as an excess provision on NHAI premium does not constitute "gross receipts" for the purposes of Section 44AB. The write-back was an exceptional item and was not connected to the business operations of the petitioner, and therefore, did not trigger the requirement for a Tax Audit. The Court referred to the guidance note of the Institute of Chartered Accountants of India (ICAI), which clarified that such write-backs do not form part of "gross receipts." The Court also referenced the Supreme Court’s ruling in Punjab Stainless Steel Industries, which interpreted "turnover" to mean the sale proceeds from regular business activities, excluding extraordinary income - The Court quashed the order declaring the return invalid under Section 139(9) and directed the income tax authorities to process the return as valid. The petition was allowed, and the rule was made absolute, with no order as to costs

 

2024-VIL-168-GUJ-DT

 

IN THE HIGH COURT OF GUJARAT

AHMEDABAD

 

R/SPECIAL CIVIL APPLICATION NO. 5727 of 2024

 

Date: 22.07.2024

 

M/s ROHTAK PANIPAT TOLLWAY PRIVATE LIMITED

 

Vs

 

DEPUTY DIRECTOR OF INCOME TAX, CPC & ANR.

 

For Petitioner: MR DHINAL A SHAH (12077)

For Respondent: MR DEV D PATEL ADVOCATE WITH MR. VARUN K. PATEL (3802)

MRS KALPANA K RAVAL (1046)

 

CORAM

HONOURABLE MR. JUSTICE BHARGAV D. KARIA

HONOURABLE MR. JUSTICE NIRAL R. MEHTA

 

ORAL ORDER

 

(PER: HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

 

[1] Heard learned advocate Mr. Dhinal Shah for the petitioner and learned advocate Mr. Dev D. Patel for learned Senior Standing Counsel Mr. Varun Patel for the respondents.

 

[2] Rule returnable forthwith. Learned advocate Mr. Patel waives service of notice of Rule for the respondents.

 

[3] Having regard to the controversy in the narrow compass arising in this petition and with the consent of the respective learned advocates appearing for the parties, the matter is taken up for hearing.

 

[4] The brief facts of the case are that the petitioner a Private Limited company registered under the provisions of the Companies Act filed return of income for the Assessment Year 2022-23 declaring total income of loss amounting to Rs.1,84,28,30,407/-.

 

[4.1] It is the case of the petitioner that the petitioner received a notice under Section 139(9) of the Act on 14th December 2022 from the respondent No.1 – Deputy Director of Income Tax, CPC, Bengaluru raising defects namely non-submission of Tax Audit Report under Section 44AB of the Act with the Income Tax Return on the ground that Total Sales, Turnover or Gross Receipts exceed the thresholds specified under the Act i.e. Rs.10,00,00,000/- (Rupees Ten Crore) subject to the conditions specified in proviso to Section 44AB(a) of the Act.

 

[4.2] In response to the aforesaid notice, the petitioner submitted reply on 22nd December 2022 contending that there no turnover or gross receipt exceeding the prescribed limit to get Tax Audit done under section 44AB the Act and other income in the audited accounts includes Rs.4,713.55 Lakh comprising interest of Rs.3.12 Lakh and excess provision of unwinding of discount on NHAI premium written back of Rs.4,710.33 Lakh which is not the revenue from the business operations .

 

[4.3] The petitioner received Order dated 13th December 2023 stating therein that the response filed by the petitioner is not acceptable and the return of income has been deemed invalid in accordance with the provisions of Section 139(9) of the Act.

 

[5] Being aggrieved, the petitioner has preferred this petition with the following prayers:

 

“B. Your Lordships may be pleased to quash and aside the Defective Order dated 13/12/2023 and 15/12/2023 marked as Annexure – A declaring the return of Income tax filed on 02.11.2022 as invalid by the petitioner along with all the consequential and incidental proceedings,

 

C. Your Lordships may be pleased to issue a writ of certiorari or in the nature of certiorari or any other appropriate writ, orders or directions to call for the record of proceedings, look into them and be pleased to issue a writ of certiorari or any other appropriate writ, order or direction quashing the impugned Defective Order dated 13.12.2023 and Defective Order dated 15.12.2023 along with all the incidental proceedings thereby validating the return submitted on 02.11.2022 as the valid return under Section 139 of the Act.”

 

[6] Learned advocate Mr. Dhinal Shah for the petitioner submitted that on perusal of the impugned order dated 13th December 2023 passed under Section 139(9) of the Act, the return of income filed by the petitioner is declared invalid for noncompliance of the provisions of Section 44AB of the Act.

 

[6.1] It was submitted that such an order is without giving any opportunity of hearing and it is without jurisdiction and therefore, the petitioner has preferred this petition under Article 226 of the Constitution of India.

 

[6.2] Learned advocate Mr. Shah invited the attention of this Court to the audited profit and loss account for the year ended on 31st March 2022 appearing at page No.25 (Annexure : “C”) and more particularly Note No.17 (at page : 64) beings Notes to Financial Statements of the paper book, to point out that there was no revenue from operations and other income includes of Rs.4,713.55 Lakh comprising interest of Rs.3.12 Lakh and excess provision of unwinding of discount on NHAI premium written back of Rs.4,710.33 Lakh.

 

[6.3] It was submitted that the respondent No.1 has erroneously opined on the basis of other income as shown in Note No.17 and Note No.20 of the Notes forming part of the financial statement for the year ended on 31st March 2022, that the petitioner was required to obtain Tax Audit Report under Section 44AB of the Act since the petitioner has shown excess provision of unwinding of discount on National Highway Authority of India (NHAI) premium written back of Rs.4,710.43 Lakh as per Note No.17 read with Note No.20. It was pointed out that as per the said Notes, the auditor of the petitioner has stated that premium obligation under the Concession Agreement was not payable to NHAI after termination period and liability of premium obligation which was deferred by NHAI vide its sanction letter dated June 10, 2014 has been written back. It was therefore submitted that such excess provision of unwinding of discount on NHAI premium written back of Rs.4,710.43 Lakh shown as other income in the profit and loss account forming part of the total income cannot be considered as “gross receipts” in the hands of the petitioner.

 

[6.4] It was submitted that, in absence of any “gross receipt, sales, turnover,” the provisions of section 44AB of the Act would not be applicable and pursuant to the written back of excess provision of unwinding of discount on NHAI premium of Rs.4,710.43 Lakh shown as other income in the the profit and loss account and as such the return of income filed by the petitioner could not have been held to be defective / invalid under Section 139(9) of the Act.

 

[6.5] It was further submitted that as per the Guidance Note on the tax audit under Section 44AB of the Act issued by the Institute of Chartered Accountants, the exceptional items of other income shown in the profit and loss account would not be considered forming part of the gross receipts from the business for the purpose of Section 44AB of the Act so as to hold that the return of income filed by the petitioner in absence of tax audit report would be an invalid return of income.

 

[6.6] Learned advocate for the petitioner invited the attention of the Court to the Clause 12 of para 5.13 of the Guidance Note which connotes that the right back amount payable to the creditors and / or the provisions for expenses of taxes no longer required would not be falling under the “gross receipts” from the business for the purpose of applicability of Section 44AB of the Act.

 

[6.7] It was therefore submitted that there is only comprehensive income for the year, net of tax of Rs.0.47 Lakh after adjustment of loss from other income comprising of excess provision written back. It was therefore submitted that excess provision written back cannot be considered as total sales, turnover or gross receipts from the business and as such the impugned order dated 13th December 2023 holding that return of income was invalid is without jurisdiction and contrary to the provisions of the Act and the same is liable to be quashed and set aside.

 

[7] On the other hand, learned advocate Mr. Dev D. Patel appearing for the respondent submitted that the impugned order is passed on the basis of the total income shown in the profit and loss account amounting to Rs.4,713.55 Lakh comprising of interest income and excess provision written back which is more than Rs.10 Crore and hence, the petitioner must obtain Tax Audit Report as prescribed under Section 44AB of the Act.

 

[7.1] It was submitted by learned advocate Mr. Patel that Centralized Processing Centre (CPC) is established to process all efiled returns / online rectification, etc. having fully automated computerized system which functions without any human intervention. It was submitted that the impugned communication / order is generated by automated system which is having its own dynamics and the petitioner - assessee / Assessing Officer is required to meet the system requirements for compliance and there is no scope of manual intervention on a case-to-case basis at any stage of operation at CPC.

 

[7.2] It was further submitted that when the petitioner filed its original return of income on 2nd November 2022, the petitioner has shown loss of Rs.1,84,28,30,407/- after adjusting excess provision written back which was shown as Rs.4,713.55 Lakh (at page : 38 of the paper book) in the profit and loss account which is more than Rs.10 Crore and therefore, E-return filed by the petitioner was detected under the defective return criteria by the CPC and a communication for rectifying the defect in return was issued informing the petitioner that the return filed by the petitioner for Assessment Year 2022-23 is considered as defective within the meaning of Section 139(9) of the Act along with probable solution to e-file the audit report specified under Section 44AB of the Act and to enter complete details of profit and loss account and balance-sheet in Part A of the return.

 

[7.3] It was submitted that reply submitted by the petitioner is duly considered by the automated system and thereafter the order dated 13th December 2023 is passed informing the petitioner that the return is invalided under Section 139(9) of the Act and the response filed by the petitioner is not acceptable.

 

[7.4] It was submitted that as per the provisions of Section 44AB of the Act, every person whose turnover or gross receipts in business or profession is more than Rs.10 Crore, such person is required to get the accounts audited under the law before the specified date and furnish the report by an Accountant in the prescribed form, but, the petitioner, in the facts of the case, has shown other income of Rs.4,713.55 Lakh in the profit and loss account and did not obtain audit report under section 44AB of the Act and did not furnish the same before the specified date and hence the return of the petitioner is rightly considered to be invalid under Section 139(9) of the Act.

 

[7.5] It was submitted the Guidance Note issued by the Institute of Chartered Accountants of India does not have any binding implications in case of income tax proceedings and therefore, the petitioner cannot rely upon such guidance notes for not getting the accounts audited in accordance with the provisions of the Act.

 

[7.6] It was further submitted that the respondent has followed the principles of natural justice providing enough opportunity to the petitioner to rectify the defects before passing the impugned order dated 13th December 2023 invalidating the return filed by the petitioner.

 

[7.7] Learned advocate Mr. Patel therefore submits that no interference may be made while exercising the extraordinary jurisdiction under Articles 226 and 227 of the Constitution of India and this petition may be ordered to be dismissed with costs.

 

[8] Having heard the learned advocates for the respective parties and having considered the material placed on record together with the relevant provisions of the Income Tax Act, 1961, a short question which requires to be determined is whether the petitioner was liable to get the accounts audited and obtain Tax Audit Report and to file the same prior to filing of the return for the Assessment Year 2022-23 under Section 44AB of the Act or not?

 

[9] It would be therefore germane to refer the relevant provisions of the Act:

 

“Section 44AB. Audit of accounts of certain persons carrying on business or profession.

 

Every person,—

 

(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year:

 

[Provided that in the case of a person whose—

 

(a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and

 

(b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words "one crore rupees", the words "[ten] crore rupees" had been substituted:]

 

[Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or]

 

(b) carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or

 

(c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or

 

(d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or

 

(e) carrying on the business shall, if the provisions of subsection (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,

 

get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:

 

xxxxxx

 

“139. Return of income.

 

(1) Every person,—

 

(a) being a company or a firm; or

 

(b) being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribe form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :

 

xxxxx

 

(9) Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return :

 

Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return.

 

Explanation.—For the purposes of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely :—

 

(a) the annexures, statements and columns in the return of income relating to computation of income chargeable under each head of income, computation of gross total income and total income have been duly filled in;

 

(aa) [***]

 

(b) the return is accompanied by a statement showing the computation of the tax payable on the basis of the return;

 

(bb) the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report;

 

(c) the return is accompanied by proof of—

 

(i) the tax, if any, claimed to have been deducted or collected at source and the advance tax and tax on self-assessment, if any, claimed to have been paid :

 

Provided that where the return is not accompanied by proof of the tax, if any, claimed to have been deducted or collected at source, the return of income shall not be regarded as defective if—

 

(a) a certificate for tax deducted or collected was not furnished under section 203 or section 206C to the person furnishing his return of income;

 

(b) such certificate is produced within a period of two years specified under sub-section (14) of section 155;

 

(ii) the amount of compulsory deposit, if any, claimed to have been made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (38 of 1974);

 

[(ca) the return is accompanied by the proof of payment of tax as required under section 140B, if the return of income is a return furnished under sub-section (8A);]

 

(d) where regular books of account are maintained by the assessee, the return is accompanied by copies of—

 

(i) manufacturing account, trading account, profit and loss account or, as the case may be, income and expenditure account or any other similar account and balance sheet;

 

(ii) in the case of a proprietary business or profession, the personal account of the proprietor; in the case of a firm, association of persons or body of individuals, personal accounts of the partners or members; and in the case of a partner or member of a firm, association of persons or body of individuals, also his personal account in the firm, association of persons or body of individuals;

 

(e) where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance sheet and the auditor's report and, where an audit of cost accounts of the assessee has been conducted, under section 233B of the Companies Act, 1956 (1 of 1956), also the report under that section;

 

(f) where regular books of account are not maintained by the assessee, the return is accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed, and also disclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year:

 

xxxxx

 

“Section 41:

(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, -

 

(a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or

 

(b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year…...”

 

[10] The Guidance Note issued by the Institute of Chartered Accountants on tax under Section 44AB of the Act (revised 2023) provides that write back of amounts payable to creditors and / or provisions for expenses or taxes no longer required would not form part of the gross receipts in business for the purpose of Section 44AB of the Act. Para 5.13(xii) is as under:

 

“5.13 The following items would not form part of “gross receipts” in business” for purposes of section 44AB:

 

* * *

 

(xii) Write back of amounts payable to creditors and/or provisions for expenses or taxes no longer required.”

 

[11] The term “gross receipts” is not defined in the Act; however, it will include all receipts whether in cash or in kind arising from carrying on of the business which will normally be assessable as business income under the Act. Section 44AB of the Act is inserted by the Finance Act, 1984 with effect from 1st April 1985 and provides that every person carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds certain limit, then such person has to get the accounts of such previous year audited by a Chartered Accountant before the specified date and furnish by that date the return in the prescribed Form duly signed and verified by such Accountant and setting forth such particulars, as may be prescribed.

 

[12] In the instant case, on perusal of return of income filed by the petitioner, the petitioner has stated other income as Rs. 4,713.55 Lakh in Part A of the profit and loss account in the return of income in Form ITR-6 for the Financial Year 2021-22 i.e. Assessment Year 2022-23 and in Schedule BP of computation of Income from Business or Profession, the petitioner, after considering profit before tax as per profit and loss account of Rs.2,16,19,34,959/- made adjustment of depreciation and thereafter made further adjustment of Rs. 2,06,12,08,434/- and set off against the carry forward loss by computing total loss of Rs.1,84,28,30,407/-. The petitioner has shown the amount of Rs.4,71,04,33,358/- as excess provision written back as part of other income, but the same does not form part of the income by way of “turnover or gross receipts” in the profit and loss account as per Note No.17 and Note No.20 of the Notes forming part of financial statement for the year ended 31st March 2022. Therefore, it would be relevant to refer Note No.17 and Note No.20 of Notes to Financial Statements for the year ended 31st March 2022:

 

17. Other Financial liabilities	March 31, 2022 (INR in Million)	March 31, 2021 (INR in Million)
Non current
Premium obligation payable to NHAI	-	6,674.21
Deferred premium obligation (refer note 1 below)
Interest accrued on deferred premium obligation (note 1 below)	-	956.92
Total (A)	-	10,895.63
Current
Premium obligation payable to NHAI	3,982.55	-
Interest accrued on premium obligation (refer note 1 below)	1,289.82	-
Current maturities of premium obligation	-	746.21
Interest accrued on current maturities if premium obligation	-	31.33
Interest accrued and due on borrowings	1,390.46	662.31
Interest accrued on short term barring borrowings (refer note 30)	95.03	66.17
Payable towards capital goods (refer note 9(1) and 30)	588.01	588.01
Payable towards utility shifting work (refer note 30)	1.56	1.56
Employee emoluments payable	7.60	5.34
Total (B)	7,355.03	2,100.93
Total (C=A+B)	7,355.03	12,996.56

 

Note:

1. Premium obligation under the Concession Agreement has been deferred by NHAI vide its sanction letter dated June 10, 2014. According to the terms of the sanction letter company shall pay entire deferred premium and interest thereon no later than one year prior to expiry of the concession period. Amount of premium obligation which has not been deferred are payable in unequal monthly installments, in terms of the sanction letter, during the concession period. In the current year, the project has been terminated (refer note no.41) and there is no premium obligation payable to NHAI after termination period and accordingly the liability of premium obligation has been written back.

 

As per the Ministry of Road Transport & Highways policy of National Highway Authorities of India (NHAI), the company is liable to make payment of interest on Deferment of Premium at Bank Rate + 2% p.a. which is charged to statement of profit & loss amount for the year and obligation on the same has been recognised as liabilities.”

 

20. Other income	March 31, 2022 (INR in Million)	March 31, 2021 (INR in Million)
Interest income:
On deposit with banks	3.12	4.64
On income tax refund	-	0.09
Insurance claim received	-	0.13
Excess provision written back	-	6.96
Excess provision of unwinding of discount on NHAI premium written back	4,710.43	-
Total	4,713.55	11.81

 

[13] From the above Notes, it is apparent that the amount of Rs.4,710.43 Lakh as excess provision written back which is not required as there is no premium obligation payable to NHAI after termination period and the same is shown as other income in the profit and loss account, which was also reflected in the return of income.

 

[14] Thus, the petitioner did not have any turnover or sales or gross receipt by writing back of excess provision with regard to premium liability payable to NHAI which has ceased on account of termination of the Concession Agreement. The petitioner has not shown any income from business as there was a loss as shown in the return of income and written back of excess provision pertaining to liability of the premium payable to NHAI was therefore rightly has not been considered as “gross receipts” of the petitioner – assessee.

 

[15] The Hon’ble Apex Court, in the case of Commissioner of Income-tax VII, New Delhi vs. Punjab Stainless Steel Industries reported in (2014) 15 SCC 129, while considering the deduction under Section 80HHC of the Act has interpreted the word “turnover” as under:

 

“13. In ordinary accounting parlance, as approved by all accountants and auditors, the term ‘sales’, when reflected in the Profit and Loss Account, would indicate sale proceeds from sale of the articles or things in which the business unit is dealing. When some other things like old furniture or a capital asset, in which the business unit is not dealing are sold, the sale proceeds there from would not be included in ‘sales’ but it would be shown separately.

 

14. In simple words, the word “turnover” would mean only the amount of sale proceeds received in respect of the goods in which an assessee is dealing in. For example- If a manufacturer and seller of air- conditioners is asked to declare his ‘turnover’, the answer given by him would show the sale proceeds of air-conditioners during a particular accounting year. He would not include the amount received, if any, from the sale of scrap of metal pieces or sale proceeds of old or useless things sold during that accounting year. This clearly denotes that ordinarily a businessman by word “turnover” would mean the sale proceeds of the goods (the things in which he is dealing) sold by him.”

 

[16] The Hon’ble Supreme Court, in the case of Punjab Stainless Steel Industries (supra), also referred to and relied upon the Guidance Note issued by the ICAI under Section 44AB of the Act by observing that when a recognised body of Accountants, after due deliberation and consideration publishes certain material for its members, one can rely upon the same as under:

 

“17. So as to be more accurate about the word “turnover”, one can either refer to dictionaries or to materials which are published by bodies of Accountants. The Institute of Chartered Accountants of India (hereinafter referred to as the ‘ICAI’) has published some material under the head “Guidance Note on Tax Audit Under Section 44AB of the Income Tax Act”. The said material has been published so as to guide the members of the ICAI. In our opinion, when a recognized body of Accountants, after due deliberation and consideration publishes certain material for its members, one can rely upon the same. Para 5 of the said Note deals with “Sales”, “turnover” and “gross receipts”. Paras 5.2 and 5.3 of the said Note are reproduced herein below, which pertain to the term “turnover”.

 

“5.2 In the “Guidance Note on Terms Used in Financial Statements” published by the ICAI, the expression “Sales Turnover” (Item 15.01) has been defined as under:-

 

“The aggregate amount for which sales are effected or services rendered by an enterprise. The term `gross turnover’ and `net turnover’ (or `gross sales’ and `net sales’) are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts”.

 

5.3 The Guide to Company Audit issued by the ICAI in the year 1980, while discussing “sales”, stated as follows:

 

“Total turnover, that is, the aggregate amount for which sales are effected by the company, giving the amount of sales in respect of each class of goods dealt with by the company and indicating the quantities of such sales for each class separately.

 

Note (i) The term ‘turnover’ would mean the total sales after deducting there from goods returned, price adjustments, trade discount and cancellation of bills for the period of audit, if any. Adjustments which do not relate to turnover should not be made e.g. writing off bad debts, royalty etc. Where excise duty is included in turnover, the corresponding amount should be distinctly shown as a debit item in the profit and loss account.” (emphasis added)

 

The afore stated meaning given by the ICAI clearly denotes that in normal accounting parlance the word “turnover” would mean “total sales” as explained hereinabove. The said sales would definitely not include the scrap material which is either to be deducted from the cost of raw material or is to be shown separately under a different head. We do not see any reason for not accepting the meaning of the term “turnover” given by a body of Accountants, which is having a statutory recognition.

 

26. If all accountants, auditors, businessmen, manufacturers etc. are normally interpreting the term ‘turnover’ as sale proceeds of the commodity in which the business unit is dealing, we see no reason to take a different view than the view normally taken by the persons who are concerned with the said term.”

 

[17] Considering the above analysis of the word “turnover”, the Hon’ble Supreme Court, in the facts of the said case, held that the sale proceeds generated from sale of scrap material could not be included in “turnover” for the purpose of deduction under Section 80HHC of the Act.

 

[18] In view of above dictum of law, the contention of the respondent that reliance cannot be placed on the Guidance Note issued by the ICAI is contrary to the decision of the Hon’ble Apex Court wherein it is opined that the recognised body of Accountants after due deliberation and consideration when publishes certain material for its members, the same can be relied upon. Thus, the amount which was credited by the petitioner as other income in the profit and loss account as exceptional item being excess provision of unwinding of discount on NHAI premium written back of Rs.4,710.43 Lakh cannot be considered as turnover, sales or gross receipts which would attract the provisions of Section 44AB of the Act so as to obtain Audit Report by the petitioner – assessee in the prescribed form and furnish the audit report along with the return of income.

 

[19] In view of the foregoing reasons, the impugned order dated 13th December 2023 passed under Section 139(9) of the Act invalidating the return of income is not sustainable and is, accordingly, quashed and set aside. The respondent authorities are hereby directed to process the return filed by the petitioner on 2nd November 2022 for the Assessment Year 2022-23 in accordance with law. Rule is made absolute to the aforesaid extent. No order as to costs. This petition is, accordingly, disposed of.

 

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