2008 (9) TMI 585 - HC - Income Tax

Appeal to High court competency of appeal Monetary limit fixed by CBDT Circular No bar for appeal where substantial question of law has been raised

Summary

Issues Involved:
1. Limitation for imposing penalty under section 271B.
2. Applicability of penalty under section 271A versus section 271B.
3. Reasonable cause for not auditing accounts under section 44AB.
4. Characterization of receipts from BPCL as commission or profit.
5. Applicability of precedent cases.

Detailed Analysis:

1. Limitation for Imposing Penalty under Section 271B:
The Tribunal held that the penalty for the assessment year 1991-92 was barred by limitation as per section 275(1)(c) of the Act. However, this finding was deemed erroneous. The court clarified that the period of limitation should be considered from the end of the financial year in which the proceedings for penalty initiation were completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or Appellate Tribunal is received by the Commissioner, whichever is later. The penalty order dated September 23, 2002, was within the permissible period, thus not barred by limitation.

2. Applicability of Penalty under Section 271A versus Section 271B:
The Tribunal's decision that only penalty under section 271A is applicable if no accounts are maintained, and not under section 271B, was reversed. The court noted that the assessee admitted to maintaining certain accounts such as party-wise registers for credit sales, pucca books of cash sales, and purchase registers. Hence, the requirement for auditing under section 44AB was applicable, making the imposition of penalty under section 271B justified.

3. Reasonable Cause for Not Auditing Accounts under Section 44AB:
The Tribunal accepted the assessee's claim of a bona fide impression that auditing was not required since the commission did not exceed forty lakhs. However, the court found this reasoning flawed, emphasizing that ignorance of the law is no excuse. Section 44AB mandates auditing if the turnover exceeds forty lakhs, regardless of the nature of receipts. The Tribunal's finding of reasonable cause was deemed perverse and arbitrary.

4. Characterization of Receipts from BPCL as Commission or Profit:
This issue was deemed irrelevant to the requirement under section 44AB. The court stated that whether the receipts were commission or profit did not affect the necessity for auditing when the turnover exceeds forty lakhs.

5. Applicability of Precedent Cases:
The Tribunal's reliance on the decision in H. Ajitbhai and Co. v. Asst. CIT was found to be contrary to the Madhya Pradesh High Court's decision in Bharat Construction Co. v. ITO. The court clarified that the Tribunal's interpretation was erroneous, and the correct legal position was that penalties under section 271B are applicable when accounts are maintained but not audited as required.

Conclusion:
The appeal was allowed, setting aside the Tribunal's order and restoring the order of the Commissioner of Income-tax (Appeals), Hubli. The court answered all substantial questions of law in favor of the Revenue, confirming the imposition of penalty under section 271B for failure to audit accounts as required under section 44AB.