2021 (12) TMI 1257 - AT - Income Tax

Penalty levied u/s 271B - assessee not got her accounts audited u/s 44AB - HELD THAT - We do not find any discussion on the aspect of provisions of section 273B of the Act which provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure to comply with the law. In the present case, we find that the profit loss account of the assessee submitted before us does not have any gross receipts, turnover. The cost of the project is shown as work-in-progress. The assessee follows project completion method. Therefore, the claim of the assessee was that she was under a bonafide belief that provisions of section 44AB of the Act does not apply and hence, no audit under section 44AB of the Act was got done. We find that this is a reasonable cause which has resulted into failure of the assessee to comply with the law - we find that penalty under section 271B of the Act cannot be levied for the reason that there was a failure on the part of the assessee to obtain tax audit report because of a bonafide belief that there is no turnover, gross receipts, etc. The revenue could not show that the belief of the assessee was malafide. We find that in the present case, the assessee has shown the cost of the project as work-in-progress. Therefore, whenever the assessing officer would like to examine the income earned by the assessee, naturally, he will have to examine the composition of total work in progress also. He would be entitled to further considering the allowability or disallowability of expenses included in work in progress for the reason that the assessee would be claiming deduction of the same in the year in which project is complete. In view of this, we reverse the orders of the lower authorities and direct the learned assessing officer to delete the penalty levied under section 271B - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty under section 271B for failure to get accounts audited under section 44AB.

Analysis:
1. The appellant, engaged in construction business, filed an appeal against the penalty levied under section 271B for the assessment year 2012-13. The assessing officer disallowed expenses and imposed the penalty due to the non-audit of accounts under section 44AB.

2. The appellant contended that as per the project completion method, no sales were made during the year, and all expenses were shown as work-in-progress. The appellant argued that since there were no sales turnover or gross receipts, a tax audit was not necessary, leading to a bonafide belief that no penalty should be imposed.

3. The assessing officer rejected the appellant's contentions, emphasizing the advances received and joint venture agreements entered into during the year. The penalty was upheld by the Commissioner of Income-tax (Appeals), prompting the appellant to file the current appeal.

4. During the appeal, the appellant reiterated that the project completion method was followed, resulting in no turnover or gross receipts for the year. The appellant cited previous decisions in their favor, where similar circumstances led to the deletion of penalties under section 271C.

5. The departmental representative supported the penalty, citing the failure to audit accounts without reasonable cause. A decision from the Bangalore Bench was referenced to justify the penalty imposition.

6. The Tribunal analyzed the facts and considered the appellant's bonafide belief in not requiring a tax audit under section 44AB due to the absence of turnover or gross receipts. The Tribunal noted the lack of gross receipts in the profit & loss account and the reasonable cause for non-compliance with the law.

7. The Tribunal found that the appellant's failure to obtain a tax audit report was due to a bonafide belief, and there was no malafide intent. The Tribunal highlighted the assessing officer's ability to verify expenses when the project is complete, supporting the appellant's claim.

8. Consequently, the Tribunal reversed the lower authorities' orders and directed the assessing officer to delete the penalty of &8377; 1,50,000 levied under section 271B, allowing the appeal of the appellant.