2024 (8) TMI 554 - AT - Income Tax

Penalty u/s. 271B - not getting its accounts audited u/s 44AB - AO took the view that the main activity of the assessee is investment activity and hence, dividend income was considered as business receipts by the AO - HELD THAT - Admittedly, the only income earned by the assessee is dividend income and the same is claimed as exempt u/s. 10(34) - AO also accepted the claim of the assessee in the assessment order dt. 10-03-2015 passed u/s. 143(3) of the Act. The question as to whether the provisions of section 44AB will be applicable when the assessee has claimed its income as exempt u/s. 10 of the Act came to be considered in the case of Market Committee, Sirsa 2017 (7) TMI 920 - BOMBAY HIGH COURT as held where the income of the assessee was exempted under Section 10(20) of the Act which falls in Chapter III of the Act. There was no income of the assessee which would fall under heading profits and gains of business or profession . Once that was so, it could not be said that the provisions of Section 44AB were applicable and as a sequel thereto, penalty under Section 271B of the Act was not leviable. Thus provisions of section 44AB of the Act will not be applicable when there was no income of the assessee which would fall under the head profits and gains of business and consequently, penalty u/s. 271B of the Act was not leviable for not getting into audited the accounts of the assessee u/s. 44AB - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty under section 271B of the Income Tax Act for not getting accounts audited under section 44AB.

Analysis:
The appellant challenged the penalty imposed by the Assessing Officer (AO) under section 271B of the Income Tax Act for not getting its accounts audited under section 44AB. The appellant, who had earned dividend income and claimed it as exempt under section 10(34) of the Act, argued that since the only income during the year was dividend income, there was no requirement to audit the accounts under section 44AB. The AO considered the dividend income as "business receipts" due to the appellant's investment activity. The appellant relied on a decision by the Hon'ble Punjab & Haryana High Court, which held that section 44AB would not apply when there was no income falling under the head "profits and gains of business or profession" after claiming exemption under section 10 of the Act.

The Tribunal noted that the AO accepted the appellant's claim of dividend income as exempt in the assessment order. Citing the decision of the Hon'ble Punjab & Haryana High Court and a Mumbai Tribunal case, the Tribunal held that section 44AB is not applicable when the income is exempt under section 10 and does not fall under "profits and gains of business or profession." Therefore, the penalty under section 271B was deemed not leviable in the present case, leading to the direction to delete the penalty imposed by the AO. The Tribunal allowed the appeal filed by the assessee, setting aside the orders of the Ld.CIT(A) and directing the AO to delete the penalty of Rs. 1.50 lakhs imposed under section 271B for the relevant year.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that when income is exempt under section 10 and does not pertain to profits and gains of business or profession, the provisions of section 44AB do not apply, and consequently, the penalty under section 271B is not applicable. The decision was based on established legal precedents and interpretations of relevant sections of the Income Tax Act.