Section 44ad(5) clarification

A friend's father, being a senior citizen, runs a small retail shop and declared income u/s 44AD @ more than 8% and his total income is less than the limit meant for senior citizens but more than the limit for normal citizens. The AO has served him an order of penalty for not getting his accounts audited. First, obviously, neither condition of 44AD(5) is satisfied. The declared income u/s 44AD is @ more than 8% and his total income does not exceed the limit for senior citizens. However, the AO says only one condition is sufficient and has taken the view that the term "the maximum amount which is not chargeable to income-tax " means the basic exemption limit meant for normal citizens and that the limit for senior citizens does not apply for the purposes of this section. Hence the penalty for not submitting an audit report. I am convinced that, firstly, both conditions as stated in 44AD(5) must be satisfied. Even if the declared income u/s 44AD were less than 8%, 44 AA and 44AB will not apply so long as the total income is less than the limit meant for the concerned assessee, in this case, a senior citizen. I would like to know if the AO's view regarding the term "the maximum amount which is not chargeable to income-tax " in this case has any merit whatsoever.