2025 (1) TMI 813 - AT - Income Tax

Penalty u/s. 271B - assessee failed to get its accounts audited and failed to furnish the audit report u/s. 44AB - Assessee submitted that the first appeal filed by the assessee against quantum assessment is pending before CIT(A), and the penalty proceedings u/s 271B be kept in abeyance HELD THAT - CIT(Appeals) first adjudicate the appeal filed by the assessee against quantum assessment, and to give its conclusive finding as to the business turnover, gross receipts of sales achieved by the assessee, and whether or not the assessee falls within four corners and ambit of provisions of Section 44AB, so as to determine/adjudicated the imposition of penalty u/s 271B. It is only when there is a conclusive finding of the CIT(Appeals) on the issue of business turnover or gross receipts or sales achieved by the assessee (which is disputed by the assessee before ld. CIT(Appeals)), the appeal against penalty order u/s. 271B be adjudicated accordingly by ld. CIT(A), keeping in view the threshold limit u/s. 44AB of the Act. Thus, in the interest of justice and fairness to both the parties, the appellate order passed by ld. CIT(Appeals) is set aside and the matter is restored back to the file of ld. CIT(Appeals) to adjudicate afresh. Appeal filed by the assessee is allowed for statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the assessee was required to have its accounts audited under Section 44AB of the Income-tax Act, 1961, given the turnover/gross receipts of Rs. 5,83,35,487/-?
Whether the penalty imposed under Section 271B for failure to get accounts audited is justified when the quantum appeal regarding the nature of the assessee's business and its turnover is still pending?
Whether the principles of natural justice were breached by the Commissioner of Income-tax (Appeals) by not providing adequate opportunity for the assessee to present its case?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Requirement of Audit under Section 44AB

Relevant legal framework and precedents: Section 44AB mandates that an audit is required if the gross receipts, turnover, or total sales exceed one crore rupees. The penalty for non-compliance is governed by Section 271B.
Court's interpretation and reasoning: The Tribunal noted that the determination of whether the assessee's activities required an audit under Section 44AB was contingent upon the findings of the first appeal concerning the nature of the business and actual turnover.
Key evidence and findings: The assessee claimed to be engaged in a commission business of cash handling, which allegedly did not necessitate maintaining books of accounts or an audit. However, the gross receipts indicated otherwise.
Application of law to facts: The Tribunal recognized that the quantum appeal's outcome would directly impact the applicability of Section 44AB. Therefore, a conclusive finding on the business's nature and turnover was essential before confirming any penalty.
Treatment of competing arguments: The Tribunal acknowledged the assessee's argument that their business did not fall within the audit requirements, which needed adjudication by the CIT(Appeals).
Conclusions: The Tribunal concluded that the CIT(Appeals) must first resolve the quantum appeal to determine the necessity for an audit under Section 44AB, before addressing the penalty under Section 271B.

Issue 2: Justification of Penalty under Section 271B

Relevant legal framework and precedents: Section 271B imposes penalties for failure to comply with audit requirements under Section 44AB.
Court's interpretation and reasoning: The Tribunal emphasized that imposing a penalty without resolving the underlying issue of whether an audit was necessary was premature.
Key evidence and findings: The penalty was based on the assumption that the assessee's turnover exceeded the threshold, which was disputed by the assessee.
Application of law to facts: The Tribunal found that the penalty's justification hinged on the quantum appeal's findings, thus requiring a prior determination of the audit requirement.
Treatment of competing arguments: The Tribunal noted the assessee's pending appeal against the quantum assessment and agreed that the penalty decision should await its resolution.
Conclusions: The Tribunal set aside the penalty order and remanded the matter back to the CIT(Appeals) for fresh adjudication post-quantum appeal determination.

Issue 3: Breach of Natural Justice

Relevant legal framework and precedents: The principles of natural justice require that parties be given a fair opportunity to present their case.
Court's interpretation and reasoning: The Tribunal found that the CIT(Appeals) had not provided adequate opportunity to the assessee, issuing only one notice before dismissing the appeal.
Key evidence and findings: The lack of sufficient notice and opportunity to be heard constituted a breach of natural justice.
Application of law to facts: The Tribunal determined that the appeal should be reheard, ensuring compliance with natural justice principles.
Treatment of competing arguments: The Tribunal sided with the assessee's argument regarding the breach of natural justice and directed a fresh hearing.
Conclusions: The Tribunal set aside the appellate order and remanded the case for a fair hearing, ensuring both parties have adequate opportunity to present their arguments.

3. SIGNIFICANT HOLDINGS

"The ld. CIT(A) has to first adjudicate in the first appeal filed against quantum assessment as to what is the business turnover or gross receipt or total sales from business of the assessee, and whether or not the assessee falls within the four corner and/or ambit of tax-audit as is prescribed u/s 44AB."
"The principles of natural justice are clearly breached as proper opportunity of being heard was not granted to the assessee."
The Tribunal emphasized that the penalty under Section 271B should not be confirmed without a conclusive finding on the audit requirement as per the quantum appeal.

The final determination was to set aside the penalty order and remand the case back to the CIT(Appeals) for fresh adjudication, ensuring that the quantum appeal is resolved first and that the principles of natural justice are upheld.

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