2022 (10) TMI 351 - AT - Income Tax

Penalty levied u/s. 271B - assessee not getting its account audited u/s. 44AB - consistent stand of the assessee is that he has not maintained any books of account and no question of Audit Report u/s. 44AB and consequently penalty cannot be levied u/s. 271B - HELD THAT - The imposition of penalty u/s 271B of the Act is not mandatory, rather it is discretionary, because if the assessee proves that there was a reasonable cause for the said failure, then the AO ought to have considered the same and then proceed with levying penalty. 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 . 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) and levied penalty u/s. 271B - The discretion available u/s. 273B is not exercised by the Lower Authorities. We have no hesitation in deleting the penalty levied u/s. 271B of the Act. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty u/s. 271B of the Income Tax Act, 1961 for A.Y. 2010-11.

Analysis:
1. The appellant, an individual engaged in trading shares and securities, did not file the Income Tax Return for A.Y. 2010-11. The Assessing Officer reopened the assessment upon discovering transactions with Multi Commodity Exchange exceeding Rs. 5,09,86,890. Subsequently, a penalty u/s. 271B was imposed for not auditing accounts u/s. 44AB due to turnover exceeding Rs. 40,00,000. The appellant failed to respond to notices, leading to the penalty imposition.

2. The appellant appealed to the CIT(A), arguing that without maintaining books of accounts, auditing was unnecessary, and reasonable cause existed for non-compliance. During the appeal, the Authorized Representative reiterated the appellant's position that due to being a middle-class individual, maintaining or auditing books was not feasible, emphasizing the lack of intention.

3. The Revenue supported the penalty imposition, urging the dismissal of the appeal. However, the ITAT analyzed the discretionary nature of penalty u/s. 271B, emphasizing the requirement of proving a "reasonable cause" for non-compliance. The legislative intent, as outlined in Sections 271B and 273B, highlighted the discretionary nature of penalty imposition based on reasonable cause.

4. The ITAT found that the explanations provided by the appellant were disregarded by the Lower Authorities, leading to the unjust imposition of the penalty. Consequently, the ITAT exercised its discretion and deleted the penalty u/s. 271B, citing the failure to consider the reasonable cause presented by the appellant.

5. Ultimately, the ITAT allowed the grounds raised by the appellant, leading to the allowance of the appeal against the penalty u/s. 271B. The judgment was pronounced on 07-10-2022, in favor of the appellant.