2012 (7) TMI 648 - AT - Income Tax

Levy of penalty u/s 271B - non compliance with the provisions of sec 44AB - Held that - No penalty shall be levied if the assessee proves that there was a reasonable cause for the failure on his part in compliance with the provisions of the Act. There is no dispute regarding the fact that this is the first year during which the assessee carried out the share trading activity and the assessee is not highly qualified or educated person to have the knowledge of all the relevant provisions of law and it is not the case of persistent default but due to inadvertence and bonafide belief and having lack of knowledge, the assessee could not comply with the provisions of sec 44AB - assessee is entitled for the benefit of sec. 273B - in favour of assessee.

Summary

Issues Involved:
- Penalty u/s 271B of the Income Tax Act for not filing tax audit report u/s 44AB
- Reasonable cause for failure to comply with provisions of the Act

Analysis:
- The appeal was against the penalty order under section 271B of the Income Tax Act for the Assessment Year 2007-08. The assessee, an individual, admitted income from share trading and F&O transactions but did not file the tax audit report. The Assessing Officer initiated penalty proceedings as the transactions exceeded Rs. 2 crores, requiring a tax audit report u/s 44AB. The assessee contended being an undergraduate and new to trading, believed no audit was needed with only Rs. 33.33 lacs income. The penalty was upheld by the Commissioner of Income Tax(Appeals), leading to the appeal. The assessee argued lack of knowledge and bonafide belief for not filing the report, which was dismissed by the authorities. The Assessing Officer imposed a penalty of Rs. 1 lakh.

- The key contention was whether the failure to file the audit report was due to a reasonable cause as per section 273B of the Act. The section provides that no penalty shall be levied if a reasonable cause is proved for the failure to comply with the Act's provisions. The Tribunal noted it was the assessee's first year of share trading, lacked expertise, and mistakenly believed no audit was required with lower income. The Tribunal found the explanation reasonable and bonafide, considering the subsequent compliance with the audit in the following year. Therefore, the penalty under section 271B was deemed unwarranted and deleted. The Tribunal emphasized the discretionary nature of the penalty under section 271B and the importance of considering the facts and circumstances of each case before imposing it.

- The Tribunal highlighted that the Assessing Officer's power to direct the payment of penalty under section 271B is discretionary and should be exercised judiciously. The Tribunal referred to section 273B, which relaxes the penalty provision if a reasonable cause is established for the failure to comply with the Act. In this case, the Tribunal found the assessee's lack of knowledge, bonafide belief, and inadvertence as reasonable causes for not filing the tax audit report. The Tribunal considered the assessee's compliance in the subsequent year and concluded that the penalty was not justified. Therefore, the appeal by the assessee was allowed, and the penalty under section 271B was deleted.