2018 (2) TMI 102 - AT - Income Tax

Penalty proceedings u/s 271B - assessee has failed to get its accounts audited under the provisions contained u/s 44AB - bonafide belief of assessee as claimed the exemption u/s 11 - Held that - Bare perusal of the provisions contained u/s 44AB of the Act goes to prove that the same are applicable to the person carrying on business or profession and is required to get its account mandatorily audited by an accountant. But, in the instant case, when assessee is undisputedly a charitable society and is not carrying out any business and has been claiming exemption u/s 11A of the Act, the penalty u/s 271B of the Act cannot be levied. Furthermore, when there is no computation of profits and gains of the business or profession as part of the total income, the assessee society is not amenable to section 44AB of the Act. No doubt, exemption claimed by the assessee society trust u/s 11A has not been granted by the AO and completed the assessment u/s 143 (3) but it will not burden the assessee to get its account audited with retrospective effect so long as registration u/s 12A of the Act is in operation. - Decided in favour of the assessee.

Summary

Issues involved:
1. Appeal against order passed by CIT(A) invoking Section 271B of the Income Tax Act, 1961.
2. Whether the assessee society is required to get its accounts audited as per Section 44AB of the Act.

Analysis:
1. The appellant, a charitable society, appealed against the order passed by the Commissioner of Income-tax (Appeals) levying a penalty under Section 271B of the Income Tax Act, 1961. The grounds for appeal included challenges to the legality and factual basis of the order, alleging a violation of natural justice in not providing a proper opportunity for the assessee to be heard. The appellant contended that as a charitable society not engaged in business, the provisions of Section 44AB were not applicable, and the penalty was unjustified. The appellate tribunal considered these contentions in detail.

2. The appellant society, registered under Section 12A of the Act, was penalized for failing to get its accounts audited under Section 44AB. The Assessing Officer (AO) initiated penalty proceedings based on this non-compliance. The Commissioner of Income Tax (Appeals) upheld the penalty, leading the appellant to appeal to the Tribunal. The Tribunal examined whether the society, primarily engaged in charitable activities, was obligated to comply with the audit requirements of Section 44AB, which apply to business entities.

3. The Tribunal noted that the appellant society was registered as a charitable trust under Section 12A and claimed exemption under Section 11 of the Act due to not conducting any business. The crucial issue was whether the society fell under the purview of Section 44AB, which mandates audit for business or professional entities. The provisions of Section 44AB were analyzed to determine their applicability to the appellant's situation.

4. Upon thorough examination, the Tribunal concluded that the provisions of Section 44AB, requiring audit for business entities, did not apply to the appellant charitable society. The Tribunal emphasized that as the society was not engaged in business activities and claimed exemption under Section 11, the penalty under Section 271B was unjustified. The Tribunal referenced a similar case where a penalty was not upheld for a charitable trust, supporting its decision to delete the penalty imposed on the appellant.

5. Ultimately, the Tribunal ruled in favor of the appellant, ordering the deletion of the penalty imposed under Section 271B by reversing the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals). The appeal filed by the assessee was allowed based on the finding that the society, acting in good faith and under the belief of exemption under Section 11, was not liable for the penalty. The judgment was pronounced in open court on January 25, 2018, in favor of the appellant.