2017 (9) TMI 369 - AT - Income Tax

Penalty levied u/s 271B - failure to get accounts audited u/s 44AB - reasonable and sufficient cause for not getting the accounts audited - Held that - Assessee claims that there is sufficient and reasonable cause for not getting its accounts audited as its books of account and other relevant documents were destroyed by natural calamity, i.e. flood on 30-06-2007 because of which it could not prepared its books of accounts to be produced to the auditor for audit of accounts. The assessee has furnished relevant documents in support of its claim that there was flood which destroyed its books of account. We find that the assessee has filed details of insurance claim made for loss of stock and other assets on account of flood on 30-06-2007. We find that the assessee claims to have maintained books of account, however those books of account were destroyed in flood because of which the assessee could not produce the books of account to the auditor to get its books of account audited u/s 44AB of the Act. In this case, the assessee has proved beyond doubt with necessary evidence that there was sufficient and reasonable cause for not getting its accounts audited u/s 44AB of the Act. Therefore, we are of the view that the AO was erred in imposing the penalty u/s 271B of the Act. The CIT(A), without appreciating the facts, simply upheld penalty levied by the AO. - Decided in favour of assessee.

Summary

Issues involved:
Penalty under section 271B for failure to get accounts audited under section 44AB of the Income-tax Act, 1961.

Analysis:

Issue 1: Penalty under section 271B
The appeal was filed against the order of the CIT(A)-35, Mumbai confirming the penalty levied by the AO under section 271B for the assessment year 2007-08. The AO initiated penalty proceedings as the assessee failed to get accounts audited under section 44AB, despite the turnover exceeding the prescribed limit. The assessee claimed a reasonable cause for not filing the audit report due to the destruction of books of account by floods. However, the AO found the explanation insufficient as the assessee failed to provide necessary evidence to substantiate the claim. The CIT(A) upheld the penalty, emphasizing that the assessee was obligated to maintain books of account once the turnover exceeded the limit under section 44AB. The appellant challenged this decision before the ITAT.

Issue 2: Reasonable cause for not getting accounts audited
The appellant argued that there was a reasonable cause for not getting the accounts audited under section 44AB, citing natural calamities that destroyed the books of account. The appellant contended that the AO erred in levying the penalty as there was a valid reason for the failure to comply with the audit requirements. The appellant also highlighted that the statement of affairs was submitted during the assessment proceedings, prepared in accordance with Accounting Standard-4. The ITAT examined the evidence presented by the appellant, including insurance claims related to the flood damage, and found merit in the appellant's claim of a reasonable cause for non-compliance.

Judgment:
The ITAT observed that the appellant had provided sufficient evidence to demonstrate a reasonable cause for not getting the accounts audited under section 44AB. The tribunal noted that the provisions of section 273B exonerate the assessee from penalties if a reasonable cause is proven. As the appellant substantiated the impact of the flood on the books of account with relevant documents, the ITAT concluded that the penalty under section 271B was unjustly imposed. Therefore, the ITAT allowed the appeal, setting aside the penalty levied by the AO and directing its deletion.

In conclusion, the ITAT ruled in favor of the appellant, emphasizing the importance of establishing a reasonable cause for non-compliance with auditing requirements under the Income-tax Act, 1961.