2009 (2) TMI 207 - HC - Income Tax

Penalty u/s 271B audit report assessee has tree concerns - but audit report u/s 44AB was obtained only for one concern - For other two business he had not obtained audit reports on the ground that individually from these two businesses, he had not exceeded the total turnover of Rs. 40,00,000/- for the relevant AY, as contemplated u/s 44AB AO levied the penalty u/s 271B CIT(A) confirmed the penalty ITAT deleted the penalty held that - A bare reading of the provisions of law makes it abundantly clear that the Assessee was required to furnish audit with regard to his business as S. 44AB does not show or contemplate that all business are required to be consolidated together for working out the aggregate of the turnover. - The subsequent clarification issued by the Chartered Accountants of India cannot be pressed into service to the disadvantage of the Assessee - it is clear to us that assessee had acted in bonafide belief and had no dishonest intention in not obtaining audit report for all the three businesses carried on by him penalty not imposable

Summary

Issues:
- Interpretation of Section 44AB of the Income Tax Act, 1961 regarding audit report requirements for multiple businesses.
- Applicability of penalty under Section 271B for failure to obtain audit reports for all businesses.
- Consideration of bonafide belief and lack of willful default in imposing penalties.

Interpretation of Section 44AB:
The High Court analyzed the case involving three businesses of the assessee and the requirement of audit reports under Section 44AB of the Income Tax Act, 1961. The court highlighted that the provision mandates audit if the total sales or turnover exceed Rs. 40 lakhs for any business in a previous year. The court emphasized that the aggregate turnover of all businesses must be considered for audit requirements, not individual turnovers. The court referred to the definition of "business" under Section 2(13) to clarify the scope of audit obligations for a person carrying on multiple businesses.

Applicability of Penalty under Section 271B:
The court delved into the penalty imposed under Section 271B for the assessee's failure to obtain audit reports for two of the three businesses. The Revenue levied a penalty of Rs. One Lakh, which was challenged by the assessee. The court noted the sequence of events where the assessee's explanation and subsequent appeals led to the Tribunal's decision to allow the appeal, concluding that no penalty should be imposed. The court examined the conduct of the assessee, the role of the Chartered Accountant, and the lack of intentional default in complying with audit requirements.

Consideration of Bonafide Belief and Lack of Willful Default:
The court extensively discussed the bonafide belief of the assessee regarding the audit report requirements and the absence of deliberate non-compliance. The court emphasized that the assessee's ignorance of the law and the first-time occurrence of the default played a crucial role in the decision. Reference was made to legal principles emphasizing that penalties should not be imposed if the assessee acted in good faith and without deliberate defiance of the law. The court cited relevant judgments, including one by the Supreme Court, to support the conclusion that the penalty should not be upheld due to the assessee's bonafide belief and lack of dishonest intention.

Conclusion:
Based on the detailed analysis of the facts, legal provisions, and precedents, the High Court ruled in favor of the assessee, setting aside the penalty imposed by the Revenue. The court highlighted the importance of bonafide belief, lack of willful default, and the interpretation of audit requirements under Section 44AB in reaching this decision. The appeal was disposed of accordingly, favoring the assessee against the Revenue.