2023 (4) TMI 523 - AT - Income Tax

Levying penalty u/s 271B - not getting the books of accounts audited when no books of accounts have been maintained by the assessee - HELD THAT - It is pertinent to note that when the assessee did not maintain the regular books of account then the question of getting the books of accounts audited does not arise. In this regard, I find that the Coordinate Bench of the Jaipur Tribunal has dealt with the similar issue in the in the case of Shahnaz Khanam vs. ITO 2018 (5) TMI 2141 - ITAT JAIPUR wherein as held once the assessee found to have not maintaining the regular books of account as contemplated by Section 44AA of the Act the default was completed and therefore, after the default of not maintaining the books of accounts there cannot be a further default for not getting the same audited as required U/s 44AB of the Act. Hence, the penalty of levy by the AO U/s 271B is not justified and the same is deleted. Thus the imposition of penalty under section 271B is not justified and bad in law. The penalty is deleted. Decided in favour of assessee.

Issues Involved:

1. Levy of penalty under section 271B for not getting the books of accounts audited.
2. Interpretation of basic accounting principles for calculation of turnover.
3. Dismissal of appeal without considering additional legal grounds.
4. Mens rea (intention) for not getting the books audited.
5. Admission of an additional ground regarding the validity of the notice.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271B:
The primary issue revolves around the levy of penalty under section 271B for not getting the books of accounts audited. The assessee argued that no books of accounts were maintained, making it impossible to audit them. The Tribunal referenced several judicial precedents, including the jurisdictional ITAT, Jaipur in the case of Shahnaz Khanam, and the Allahabad High Court in CIT vs. S.K. Gupta and Co., which established that if no books of accounts are maintained, the penalty for not auditing them cannot be imposed. The Tribunal concluded that the penalty under section 271B was unjustified and deleted it, emphasizing that a failure to maintain books under section 44AA does not extend to a further violation under section 44AB.

2. Interpretation of Basic Accounting Principles for Calculation of Turnover:
The assessee contended that the CIT(A) misinterpreted basic accounting principles in calculating the turnover. They argued that the AO's inference was vague and lacked specific charges, making it difficult for the assessee to respond. The Tribunal noted that the AO's show cause notice did not specify the turnover, rendering it vague. The Tribunal found that the AO's notice was not clear about the specific default, thus supporting the assessee's contention and dismissing the penalty.

3. Dismissal of Appeal Without Considering Additional Legal Grounds:
The assessee raised an additional legal ground, arguing that the CIT(A) dismissed the appeal without considering it. The Tribunal acknowledged that the additional ground raised a question of pure law and did not require new facts or material for adjudication. Following the Supreme Court decision in CIT vs. NTPC, the Tribunal admitted the additional ground for adjudication on merits, emphasizing the importance of addressing all legal grounds in an appeal.

4. Mens Rea for Not Getting the Books Audited:
The assessee argued that there was no mens rea (intention) for not getting the books audited and that there was no taxable income from the business. The Tribunal considered this argument but focused primarily on the fact that no books of accounts were maintained. The Tribunal's decision to delete the penalty was based on the absence of maintained books, rendering the question of mens rea secondary.

5. Admission of Additional Ground Regarding the Validity of the Notice:
The assessee filed an application for the admission of an additional ground, challenging the validity of the notice issued by the AO. The Tribunal found that the additional ground involved a question of pure law and could be adjudicated based on existing facts and material. Citing the Supreme Court decision in CIT vs. NTPC, the Tribunal admitted the additional ground for adjudication, emphasizing the importance of addressing the validity of the notice in penalty proceedings.

Conclusion:
The Tribunal, after considering the arguments and judicial precedents, concluded that the penalty under section 271B was unjustified due to the absence of maintained books of accounts. The Tribunal admitted the additional legal ground regarding the validity of the notice and emphasized the need for clear and specific charges in penalty proceedings. The appeal was partly allowed, with the penalty deleted and certain grounds dismissed as not pressed.

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