2012 (7) TMI 430 - AT - Income Tax

Penalty u/s 271B - Failure to get its accounts audited - income as Business income instead of capital gain claimed by the assessee - exceeding the monetary limit of Rs.40.00 lakh prescribed u/s 44AB - Held that - The requirement to gets the accounts audited and furnish audit report has arisen because of the change in the head under which income from sale of shares was offered by the assessee. As the assessee declared income from sale of shares under the head Capital gains and the acceptance by the Revenue of income from sale of shares as capital gain in the immediately preceding year constituted a bona fide ground for the assessee to entertain a belief that such income was liable to be taxed under the head capital gain and not as business income. Once this view is accepted then failure of the assessee to get its account audited and furnish the audit report constitutes reasonable cause for default - deletion of penalty - in favour of assessee.

Summary

Issues:
- Imposition of penalty under section 271B of the Income Tax Act, 1961 for failure to get accounts audited and furnish audit report.
- Interpretation of sections 44AB and 271B in relation to the requirement of audit when income is declared under different heads.
- Application of section 273B regarding waiver of penalty for failure if reasonable cause is proven.

Analysis:
1. Imposition of Penalty under Section 271B:
The appeal in question arose from the Commissioner of Income-tax (Appeals) upholding a penalty of Rs.1,00,000 imposed by the Assessing Officer under section 271B of the Income Tax Act, 1961. The penalty was imposed in relation to the assessment year 2006-2007 due to the assessee's failure to get accounts audited and furnish the audit report as required by section 44AB. The Tribunal was tasked with reviewing the imposition of this penalty.

2. Interpretation of Sections 44AB and 271B:
The Tribunal analyzed the provisions of sections 44AB and 271B to determine the applicability of the audit requirement when income is declared under different heads. It was established that section 44AB mandates audit when total sales, turnover, or gross receipts exceed a specified limit for a person 'carrying on business'. The Tribunal clarified that if the income is not from 'carrying on business', the audit requirement of section 44AB is not triggered. In this case, the assessee declared income from the sale of shares as capital gains, but the Assessing Officer assessed it as business income. The Tribunal noted that in previous years, similar income declared as capital gains was accepted by the department, indicating a consistent treatment. Therefore, the Tribunal set aside the CIT(A)'s order and directed a fresh decision by the AO.

3. Application of Section 273B for Waiver of Penalty:
Section 273B provides for the waiver of penalty if a reasonable cause is proven for the failure to comply with relevant sections like 271B. The Tribunal considered the change in the treatment of income by the Revenue as a reasonable cause for the failure to get accounts audited and furnish the audit report. The acceptance of similar income as capital gains in previous years by the Revenue was deemed a bona fide ground for the assessee to believe in the treatment of income. Consequently, the Tribunal accepted the reasonable cause for the failure and overturned the penalty, deleting the imposition.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of consistent treatment of income by tax authorities and the requirement to establish a reasonable cause for failures to comply with statutory provisions to avoid penalties under the Income Tax Act, 1961.