2022 (10) TMI 24 - AT - Income Tax

Levy of penalty u/s. 271B - assessee has failed to get his books audited and furnish Audit Report u/s. 44AB - Scope of words may and shall - HELD THAT - Parliament has used the words may and not shall , thereby making their intention clear in as much as that levy of penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act namely penalty not to be imposed in certain cases . A careful reading of Section 273B encompasses that certain penalties shall be imposed in cases where reasonable cause is successfully pleaded. It is seen that penalty imposable u/s 271B is also included therein. By the said provisions, the Parliament has unambiguously made it clear that no penalty shall be imposed, if the assessee proves that there was a reasonable cause for the said failure . As noticed, if the statutory provision shows that the word shall has been used in Section 271B, then the imposition of penalty would have been mandatory. Section 271B as extracted above further throws light on the legislative intent as it specifically provides that no penalty shall be imposed if the assessee proves that there was reasonable cause for the said failure . Jurisdictional High Court in the case of Sachinam Trust . 2009 (3) TMI 186 - HIGH COURT OF GUJARAT also held that the appropriate expression to be considered for deciding the applicability of the provisions of section 44AB would be the term 'gross receipts', the assessee, carrying on the business of financing, bona fidely believed that gross receipts of interest, and not gross amount of advances, would constitute the basis for ascertaining the limit of Rs. 40 lakhs so as to attract section 44AB, the assessee could be said to have a reasonable cause for not getting its accounts audited under section 44AB, and as such no penalty could be imposed on the assessee. In the facts of the present case, it is seen that the explanations offered by the assessee have been ignored by the Assessing Officer as well as Ld. CIT(A) on the ground that the Guidance Note issued by the ICAI is not binding on the Income Tax Authorities whereas the Hon ble Supreme Court and Co-ordinate Bench of the Tribunal recognizes the same and applicable in the case of the assessee. We have no hesitation in deleting the penalty levied u/s. 271B of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the turnover in speculative transactions involving derivatives is defined under Section 44AB of the Income Tax Act.
2. Whether the total turnover/gross receipts of Rs. 82,26,82,172/- should be considered as turnover for the purpose of Section 44AB.
3. Whether the guidance note issued by the Institute of Chartered Accountants of India (ICAI) should be considered for determining the turnover.
4. Whether the penalty under Section 271B for failure to get accounts audited is justified.

Detailed Analysis:

Issue 1: Definition of Turnover in Speculative Transactions Involving Derivatives
The appellant argued that the turnover for speculative transactions involving derivatives is not explicitly defined under Section 44AB of the Income Tax Act. The appellant relied on the "Guidance Note on Tax Audit u/s. 44AB of the Income Tax Act, 1961" issued by the ICAI, which provides specific methods to determine turnover for different classes of transactions, including speculative and derivative transactions. The appellant believed that the total turnover from derivatives, equity shares, and mutual funds, amounting to Rs. 48,43,374/-, did not exceed the Rs. 1 crore threshold specified under Section 44AB, hence no audit was required.

Issue 2: Consideration of Total Turnover/Gross Receipts
The Commissioner of Income Tax (Appeals) and the Assessing Officer (A.O.) held that the turnover/gross receipts of Rs. 82,26,82,172/- should be considered as the turnover for the purpose of Section 44AB. They argued that the term "turnover" is not defined in Section 44AB, and thus, the normal meaning of "turnover" should be applied. The A.O. rejected the appellant's reliance on the ICAI guidelines, stating that these guidelines are not binding for Income Tax proceedings and that the CBDT has not issued any notification endorsing the ICAI's method for computing turnover.

Issue 3: Relevance of ICAI Guidance Note
The appellant contended that the ICAI's guidance note should be considered authoritative as it is published by a recognized body of accountants. The appellant cited the Supreme Court's judgment in CIT vs. Punjab Stainless Steel Industries, which acknowledged the ICAI's guidance note for interpreting the meaning of turnover. Additionally, the appellant referred to the jurisdictional High Court's decision in ITO vs. Sachinam Trust, which supported the use of ICAI's guidelines for determining gross receipts in the context of Section 44AB.

Issue 4: Justification of Penalty Under Section 271B
The appellant argued that the penalty under Section 271B should not be imposed as the failure to get accounts audited was based on a bona fide belief supported by the ICAI's guidance note. The appellant emphasized that Section 271B uses the term "may" rather than "shall," indicating that the imposition of penalty is discretionary and not mandatory. The appellant also highlighted Section 273B, which states that no penalty should be imposed if the assessee proves there was a "reasonable cause" for the failure. The Tribunal noted that the explanations offered by the appellant were ignored by the lower authorities, and recognized the validity of the ICAI's guidance note as per the Supreme Court and Tribunal precedents.

Conclusion:
The Tribunal concluded that the appellant had a reasonable cause for not getting the accounts audited, as the turnover calculated based on the ICAI's guidance note did not exceed the threshold specified under Section 44AB. Consequently, the penalty levied under Section 271B was deleted, and the appeal filed by the appellant was allowed.