2024 (5) TMI 1358 - AT - Income Tax

Penalty u/s 271B - assessee committed default and failed in uploading the Audit Report in the manner prescribed - non-audit of accounts when books of accounts are not maintained - Contention of assessee as the assessee is not maintaining the books of accounts then the Department can only charge penalty for the said default u/s 271A and Department cannot invoke and impose penalty u/s 271B which is meant for getting the account audited. HELD THAT - By following the ratio laid down in the case of Bisauli Tractor 2007 (5) TMI 181 - ALLAHABAD HIGH COURT we are of the considered opinion, that the Provisions of Section 271B of the Act is not attracted as the Assessee has not maintained books of account and the Assessee is liable to the recourse u/s 271A of the Act. We allow the Grounds of Appeal of the assessee and delete the order of the penalty imposed u/s 271B of the Act in all the three Appeals.

Summary

Issues Involved:

1. Whether the conditions precedent for invoking penalty u/s 271B were met.
2. Whether the assessee's failure to maintain proper books of accounts impacts the applicability of penalty u/s 271B.
3. Whether the penalty u/s 271B can be levied when books of accounts were not maintained.
4. Whether the penalty u/s 271B is justified when the audit for the preceding year was not completed.
5. Whether independent penalties for violations of Section 44AA and Section 44AB can be imposed.
6. Whether the penalty u/s 271B is valid when the assessee's turnover exceeded the threshold limit.

Summary of Judgment:

1. Conditions Precedent for Invoking Penalty u/s 271B:
The assessee argued that for penalty u/s 271B to be levied, two conditions must be met: maintaining books of accounts as per section 44AA and getting them audited u/s 44AB. The assessee contended that neither condition was met, thus penalty u/s 271B cannot be levied.

2. Impact of Failure to Maintain Proper Books of Accounts:
The assessee was not maintaining proper books of accounts as per section 44AA, and thus argued that penalty u/s 271B for not getting the accounts audited was not applicable. The audit of books was impossible, and penalty u/s 271A should only be considered.

3. Applicability of Penalty u/s 271B When Books of Accounts Were Not Maintained:
The Tribunal noted that if no books of accounts were maintained, the question of their audit does not arise. The imposition of penalty u/s 271B is erroneous in such cases, and instead, penalty u/s 271A may be applicable.

4. Penalty Justification When Audit for Preceding Year Was Not Completed:
The assessee argued that without the audit of the preceding year's accounts, the audit for the subsequent year could not be done. This was supported by various judicial pronouncements which stated that without audited accounts of the preceding year, the subsequent year's audit is not possible.

5. Independent Penalties for Violations of Section 44AA and Section 44AB:
The Tribunal noted that penalties for violations of sections 44AA and 44AB are distinct. If books of accounts are not maintained, penalty u/s 271A is applicable, and not u/s 271B, as there would be nothing to audit.

6. Validity of Penalty u/s 271B with Turnover Exceeding Threshold Limit:
The Tribunal observed that the assessee's gross turnover exceeded the threshold limit, and the assessee did not file the statutory audit report as required u/s 44AB. However, since the assessee did not maintain books of accounts, penalty u/s 271B was not applicable, and the proper recourse was penalty u/s 271A.

Conclusion:
The Tribunal allowed the appeals, holding that the provisions of Section 271B were not attracted as the assessee had not maintained books of accounts. The penalty imposed u/s 271B was deleted, and the assessee was liable for penalty u/s 271A.

Order:
The appeals in ITA No. 58/DDN/2022, 59/DDN/2022, and 60/DDN/2022 were allowed, and the penalty u/s 271B was deleted. The judgment was pronounced in open court on 27th May, 2024.