2020 (1) TMI 1715 - AT - Income Tax

Penalty u/s. 271A/271B - failing to get the accounts audited as required u/s. 44AB - HELD THAT - AO in the assessment order dated 25.03.2015 at para 6 has found that assessee is not maintaining any books of account. In such a scenario penalty u/s. 271A of the Act in contravention of sec. 44AA can be only levied and not u/s 271B of the Act. We note that in Nirmal Kumar Jain 2016 (3) TMI 1454 - ITAT DELHI has held that when the AO has found during assessment that assessee is not maintaining books of account then penalty u/s 271B for not getting the books audited should not be levied. Penalty u/s 271B ought not to have been levied against the assessee and since the CIT(A) has exercised his co-terminus power to levy penalty u/s 271A of the Act for not maintaining books of account therefore we restrict the penalty. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue presented and considered in this appeal was whether the penalty imposed under sections 271A and 271B of the Income-tax Act, 1961, for the assessment year 2010-11, was justified. Specifically, the Tribunal examined the appropriateness of the penalties for non-maintenance of books of account and failure to have accounts audited as required by law.

ISSUE-WISE DETAILED ANALYSIS

1. Penalty under Section 271A of the Income-tax Act

Relevant legal framework and precedents: Section 271A of the Income-tax Act mandates the maintenance of books of account and other documents as required under section 44AA. Penalty under this section is applicable if an assessee fails to maintain such records.

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer (AO) had determined during the assessment proceedings that the assessee did not maintain any books of account. This finding was pivotal in deciding the applicability of penalties under sections 271A and 271B.

Key evidence and findings: The AO's assessment order explicitly stated that the assessee failed to maintain books of account, which was the basis for initiating penalty proceedings under section 271A.

Application of law to facts: Given the absence of maintained books, the Tribunal found that the penalty under section 271A was applicable, as the failure to maintain books was established.

Treatment of competing arguments: The assessee did not provide any substantial argument or evidence to counter the finding of non-maintenance of books of account.

Conclusions: The Tribunal upheld the penalty under section 271A but adjusted the amount based on the circumstances and precedents.

2. Penalty under Section 271B of the Income-tax Act

Relevant legal framework and precedents: Section 271B imposes a penalty for failure to get accounts audited as required under section 44AB. However, this requirement presupposes the existence of books of account.

Court's interpretation and reasoning: The Tribunal referenced precedents, including the decisions of the Hon'ble Gauhati High Court and the Hon'ble Allahabad High Court, which clarified that the penalty under section 271B cannot be levied if no books of account are maintained.

Key evidence and findings: The Tribunal relied on the AO's finding that no books of account were maintained by the assessee, which negated the applicability of section 271B.

Application of law to facts: Since the maintenance of books is a prerequisite for the applicability of section 271B, and given the AO's finding, the Tribunal concluded that the penalty under section 271B was incorrectly levied.

Treatment of competing arguments: The Tribunal considered the legal precedents which consistently held that the absence of books precludes the imposition of a penalty under section 271B.

Conclusions: The Tribunal ordered the deletion of the penalty under section 271B, as it was not applicable in the absence of maintained books.

SIGNIFICANT HOLDINGS

The Tribunal held that the penalty under section 271B should not have been levied due to the non-maintenance of books of account. It cited the legal principle that the requirement for an audit under section 44AB arises only if books of account exist. The Tribunal reduced the penalty to Rs. 25,000 under section 271A, as it was the appropriate section for the penalty given the circumstances.

Verbatim quotes of crucial legal reasoning: The Tribunal referenced the decision in Nirmal Kumar Jain, emphasizing that "where no books of account are maintained, penalty should be imposed for non-maintenance of books of account u/s. 271A and no penalty can be imposed u/s. 271B for violation of section 44AB requiring audit of accounts."

Core principles established: The decision reinforced the principle that penalties under sections 271A and 271B are distinct and depend on the maintenance of books of account. The absence of books precludes penalties under section 271B.

Final determinations on each issue: The Tribunal partially allowed the appeal, deleting the penalty under section 271B and reducing the penalty under section 271A to Rs. 25,000, thus providing relief of Rs. 1,25,000 to the assessee.