2016 (6) TMI 55 - AT - Income Tax

Penalty u/s 271B - failure to get accounts audited u/s 44AB - Held that - We find force in the arguments of the assessee for the reason that the requirement of audit u/s 44AB of the Act applies, when the turnover as per the books of accounts exceeds ₹ 40 lakhs. In the present case on hand, on perusal of the facts available on record, we find that the total turnover as per books of accounts of the assessee is less than ₹ 40 lakhs. Therefore the A.O. was not correct in levying the penalty u/s 271B of the Act. The CIT(A) without appreciating the facts properly, confirmed the penalty levied by the A.O. Therefore, we set aside the order passed by the CIT(A) and direct the A.O. to delete the penalty levied u/s 271B of the Act. - Decided in favour of assessee Penalty u/s 271(1)(c) - addition made on estimation basis - Held that - No penalty can be levied for concealment of income u/s 271(1)(c) of the Act when additions are made on estimation basis. In the present case on hand, the A.O. has estimated the gross profit on unaccounted turnover and also made additions towards unexplained investments in building on estimation basis. The assessee has admitted the additional income during the course of survey proceedings and paid the taxes. The assessee also explained the reasons before the A.O. and requested for immunity from the penalty proceedings. Therefore, when the addition is made on estimation basis and assessee has admitted the additional income to buy peace and to cooperate with the department for smooth completion of the assessment proceedings, the A.O. was not correct in levy of penalty u/s 271(1)(c) of the Act. The CIT(A) without appreciating the facts, confirmed the penalty levied by the A.O. and also enhanced the penalty in respect of unexplained investments in the building. Therefore, we set aside the order passed by the CIT(A) and direct the A.O. to delete the penalty levied u/s 271(1)(c) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Penalty under Section 271B of the Income Tax Act for failure to get accounts audited under Section 44AB.
2. Penalty under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Penalty under Section 271B of the Income Tax Act for failure to get accounts audited under Section 44AB:

The assessee, engaged in the business of trading in textiles, was subjected to a survey operation under Section 133A of the Income Tax Act, 1961. During the survey, it was found that the assessee did not disclose the true sales in the books of accounts. The total sales for the assessment year 2008-09 were determined to be ?45,70,398, whereas the assessee had declared sales of ?35,94,342 in the return of income. Consequently, the Assessing Officer (A.O.) issued a show cause notice under Section 271B for failure to get the accounts audited as required under Section 44AB, since the turnover exceeded ?40 lakhs. Despite the assessee's contention that the turnover as per the books was below ?40 lakhs, the A.O. levied a penalty of ?22,851.

Upon appeal, the CIT(A) confirmed the penalty, agreeing that the turnover exceeded ?40 lakhs and thus attracted the provisions of Section 44AB. However, the Tribunal found merit in the assessee's argument that the turnover as per the books of accounts was less than ?40 lakhs. Since the unaccounted turnover was not recorded in the books due to the absence of necessary sales bills, the requirement for audit under Section 44AB did not arise. The Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the penalty levied under Section 271B.

2. Penalty under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars of income:

In another case, the assessee, also engaged in the textile business, admitted unaccounted turnover and additional income during a survey operation. The A.O. made additions for unaccounted turnover, unexplained investments in construction, and a cash gift, subsequently initiating penalty proceedings under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars.

The CIT(A) confirmed the penalty for unaccounted turnover and cash gift and enhanced the penalty for unexplained investments. The assessee contended that the additions were made on an estimation basis and that the income was surrendered to buy peace and cooperate with the department. The Tribunal found that the A.O. made additions on estimation and that the assessee had explained the sources for the investments and cash gift. Since the additions were based on estimation and the income was admitted during the survey, the Tribunal held that no penalty under Section 271(1)(c) was warranted. The Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the penalty.

Conclusion:

In both cases, the Tribunal allowed the appeals filed by the assessees, deleting the penalties levied under Sections 271B and 271(1)(c) of the Income Tax Act. The Tribunal emphasized that penalties cannot be levied when the turnover as per the books is below the threshold for audit and when additions are made on an estimation basis.