2016 (9) TMI 11 - AT - Income Tax

Penalty u/s 271B - Failure to get the books of accounts audited u/s 44AB - illness of the assessee - Held that - We are of the considered opinion that due to the illness of the assessee, he could not maintain proper books of accounts for the financial year 2009-10 relevant to assessment year 2010-11, which are essential for audit u/s 44AB of the Act. Therefore, the question that the books of accounts could be audited during the period in which the assessee attended personally before him cannot be said as irrelevant. Because the essential books of accounts required for audit could not be maintained due to illness of the assessee, hence there was no books of accounts, which could be produced before Chartered Accountants for getting them audited. Therefore, the contention of the AO is misplaced. Further, the ld. Authorized Representative of the assessee has relied in the case of ITO vs. Gayatri Coal Supply Company (1997 (6) TMI 76 - ITAT PATNA ), wherein it was held that the illness of Chartered Accountant constituted a reasonable cause and hence penalty u/s 271B could not be levied, whereas in the instant case, the assessee was himself ill due to which he could not maintain essential books, hence same constitutes a reasonable cause. Penalty deleted - Decided in favour of assessee.

Summary

Issues:
1. Imposition of penalty u/s 271B for failure to get books of accounts audited.

Analysis:
The appeal was filed against the order of the Commissioner of Income-tax (Appeals) regarding the imposition of a penalty of ?1 lakh under section 271B for not getting the books of accounts audited. The assessee had shown gross receipts far below the actual turnover, triggering the requirement for audit under Section 44AB of the Income-tax Act, 1961. The Assessing Officer (AO) issued a show cause notice for the penalty, which the assessee claimed was due to health issues leading to hospitalization. The AO, however, was not convinced by the explanation and levied the penalty. The CIT(A) upheld the penalty, stating that the assessee failed to provide a reasonable cause for non-compliance.

The assessee argued that the failure to maintain proper books of accounts was due to critical health conditions preventing him from routine work. The authorized representative contended that the assessee had audited books in the previous year, demonstrating compliance. The assessee presented medical evidence supporting the health issues and argued against being penalized twice for the same failure. Various case laws were cited to support the argument that illness can constitute a reasonable cause for non-compliance with audit requirements.

After considering the arguments and evidence presented, the Tribunal found that the assessee's health issues were genuine and hindered the maintenance of proper books of accounts for the relevant period. The medical reports and communications with tax authorities supported the claim of illness affecting the audit process. Relying on precedents where illness was considered a reasonable cause, the Tribunal concluded that the penalty under section 271B should be canceled. The appeal was allowed, and the penalty was revoked.

In conclusion, the Tribunal ruled in favor of the assessee, canceling the penalty imposed under section 271B due to the genuine health issues preventing the maintenance and audit of books of accounts. The decision highlighted the importance of considering reasonable causes for non-compliance and the impact of extenuating circumstances on fulfilling statutory requirements.