2020 (3) TMI 136 - AT - Income Tax

Penalty u/s 271B - Provisions of section 44AB - when the assessee has done the share trading in intraday segment and some of the transactions are delivery based transactions - HELD THAT - There is no dispute regarding the delivery based transactions of shares to the tune of ₹ 53,498.90. We have verified the computation of the turnover in respect of intraday non-delivery based transactions and the positive and negative differences of these speculative transactions given in the above table. Therefore, by taking the aggregate of the positive and negative differences as well as the turnover of the delivery based transactions, the total turnover of the assessee comes to ₹ 3,15,280.69. Hence, when the turnover of the assessee is less than the threshold limit provided under section 44AB, then the assessee is not required to get its books of account audited in terms of section 44AB of the IT Act and consequently the penalty provision of section 271B is not attracted. Even otherwise, when this issue of turnover is a debatable issue and the assessee has claimed this turnover as ₹ 3,15,280.69 if computed in terms of the Guidance Note of ICAI, then the said explanation of the assessee would be regarded as reasonable and bonafide as per the provisions of section 273B and consequently no penalty under section 271B is leviable. Accordingly, the penalty levied under section 271B is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Dismissal of appeal by CIT (A) in limine
2. Interpretation of turnover for audit under section 44AB
3. Applicability of penalty under section 271B for failure to audit accounts

Issue 1: Dismissal of appeal by CIT (A) in limine
The appellant contested the CIT (A)'s non-speaking order, arguing that the turnover did not necessitate account auditing as per ICAI guidance notes. The appellant highlighted the failure to consider turnover meaning and the assertion that business did not fall under Sec. 44AD, thus not requiring audit under Sec. 44AB. The appellant reserved the right to modify the grounds of appeal.

Issue 2: Interpretation of turnover for audit under section 44AB
The AO assessed the appellant's share trading turnover at ?2,43,62,720, leading to a penalty under Sec. 271B for not auditing accounts. The appellant argued that only positive and negative differences from speculative intraday transactions should constitute turnover as per ICAI guidance. The dispute centered on whether speculative transactions' total value should be considered turnover for audit purposes.

Issue 3: Applicability of penalty under section 271B for failure to audit accounts
The AO imposed a penalty for not auditing accounts due to the assessed turnover exceeding the threshold. The CIT (A) upheld the penalty, emphasizing that non-delivery based intraday transactions were speculative and required audit. The Tribunal considered the ICAI guidance, determining turnover based on positive and negative differences, and found the appellant's turnover below the audit threshold. Consequently, the penalty under Sec. 271B was deemed unwarranted, and the appeal was allowed on 13/01/2020.

This judgment clarifies the turnover interpretation for audit under Sec. 44AB, emphasizing the ICAI guidance on speculative transactions. It underscores the importance of determining turnover accurately to avoid penalties under Sec. 271B, providing relief to the appellant based on a reasonable and bonafide explanation supported by relevant guidance.