2017 (11) TMI 1493 - AT - Income Tax

Penalty u/s 271B - reasonable cause for not getting its accounts audited u/s 44AB - purchase and sale of the security exceeded to 40 Lacs rupees - bonafide belief on the basis of Accounting standards issues by ICAI - Held that - the said method was followed by the assessee as per the relevant guidelines laid down by the ICAI and we find merit in the contention of the learned counsel for the assessee that the belief of the assessee about the non applicability of provisions of section 44AB based on such method of disclosure as adopted by it following guidelines of ICAI was a bona fide belief. In the case of Sachinam Trust 2009 (3) TMI 186 - HIGH COURT OF GUJARAT cited by the learned counsel for the assessee, The assessee carrying on the business of financing had believed that gross receipts of interest and not gross amount of advances would constitute the basis for ascertaining the limit of ₹ 40,00,000/- so as to attract u/s 44AB and since the said belief was based on the legal opinion of eminent counsel contained in tax audit manual published by the Bombay Chartered Accountant Society, the assessee was held to have a bona fide belief which constituted the reasonable cause for not getting its accounts audited u/s 44AB. Hon ble Gujarat High Curt accordingly held that no penalty u/s 271B could be imposed on the assessee. In our opinion, the ratio of the said decision is squarely applicable to the facts involved in the present case and respectfully following the same, we cancelled the penalty imposed by the AO u/s 271B - Appeal of the assessee is allowed.

Summary

Issues:
Penalty under section 271B for failure to comply with section 44AB.

Detailed Analysis:

Issue 1: Penalty under section 271B

Facts: The assessee, a company engaged in investment in debentures and shares, treated profit/loss from securities as business income. AO imposed a penalty of ?1,00,000 under section 271B for failure to comply with section 44AB, as gross receipts exceeded ?40,00,000.

Assessee's Submission: Assessee argued that total income credited in the profit and loss account was only ?3,498, believing section 44AB was not applicable. Assessee relied on ICAI guidance note stating sale proceeds of assets held as investments do not form part of gross receipts in business.

AO's Decision: AO did not accept the assessee's belief, stating gross receipts were deliberately not disclosed to avoid section 44AB compliance. Penalty was imposed under section 271B.

CIT (A) Decision: CIT (A) confirmed the penalty, stating that even if the income was less than ?40,00,000, failure to obtain a Tax Audit Report under section 44AB attracted penalty under section 271B.

Tribunal Decision: Tribunal found the method of disclosure by the assessee, following ICAI guidelines, was not deliberate to avoid compliance. Citing a similar case, the Tribunal held the assessee's belief about non-applicability of section 44AB was bona fide, cancelling the penalty imposed by the AO and confirmed by CIT (A).

Conclusion: The Tribunal allowed the assessee's appeal, cancelling the penalty under section 271B, based on the assessee's bona fide belief and method of disclosure following ICAI guidelines.

This detailed analysis covers the issues involved in the legal judgment, including the facts, submissions, decisions of the authorities, and the final decision of the Tribunal, providing a comprehensive understanding of the case.