2013 (1) TMI 107 - AT - Income Tax

Penalty u/s. 271B - Failure to get accounts audited u/s 44AB - assessee contented that its entire income being tax exempt u/s.80P accordingly there being no loss to the Revenue - A.Y. 2006-07 - Held that - No reason to doubt the assessee when it states that it was under a bona fide belief that it was not required to get its accounts audited u/s. 44AB in view of its entire income being exempt u/s. 80P. Its statutory audit was completed well in time so that it was definitely in a position to obtain an additional report u/s. 44AB from a firm of Chartered Accountants i.e. were it to be in its knowledge or been so advised. In fact had its statutory auditors qualified to be Accountants under the Act they would have themselves guided the assessee properly in this regard. The same nevertheless shows the assessee s bonafides in the matter it getting its accounts audited as well as filing the return of income in time. Therefore of the view that in the facts and circumstances of the case there was sufficient cause for the AO not to levy penalty u/s. 271B for the first year (i.e. A.Y. 2006-07) in spite of the default in complying with the provision of s. 44AB which the said (former) section seeks to penalize and accordingly direct its deletion. A.Y. 2006-07 - The return for the second year (i.e. A.Y. 2007-08) was filed on 24-09-2007 even as the show-cause notice for the levy of penalty u/s. 271B for the first year (A.Y. 2006-07) stood issued to it on 13-06-2007. As such ignorance of law i.e. of it being required to get its accounts audited u/s. 44AB irrespective of the quantum and nature of its income including the tax status tax-exempt or otherwise thereof which forms the edifice of the assessee s case completely breaks down for the second year i.e. A.Y. 2007-08. Having been served with a legal notice for the levy of penalty u/s. 271B it was incumbent on the assessee to cause to comply with the provision at least for the second year and in any case seek legal opinion in its respect. Rather it could have on its own requested the AO not levy the penalty for that year (i.e. A.Y. 2006-07) explaining that the non-audit of its accounts u/s. 44AB stood caused only due to its ignorance of law acting though in good faith and for allowing it reasonable time to furnish the report there-under before the completion of assessment. Not only does it do nothing of the sort it goes ahead to file the return of income for the following year after over three months again in the same manner i.e. without getting its accounts audited and obtaining a report u/s. 44AB which it was mandatorily required to furnish. That is the assessee deliberately adopts a legal stand which is without basis so that it cannot claim to have acted in good faith or under a bona fide belief. The plea of reasonable cause would thus not obtain for the second year and the levy of penalty u/s. 271B for the assessment year 2007-08 is accordingly upheld.

Issues Involved:
1. Validity of the levy of penalty under section 271B of the Income Tax Act, 1961 for non-audit of accounts as required under section 44AB for assessment years 2006-2007 and 2007-2008.
2. Whether the assessee's belief that its entire income being exempt under section 80P(2)(a) constitutes a reasonable cause for non-compliance with section 44AB.
3. Applicability of precedents and case laws cited by both parties.

Issue-wise Detailed Analysis:

1. Validity of the levy of penalty under section 271B:

The primary issue in the appeals was the legality of the penalty imposed under section 271B due to the assessee's failure to get its accounts audited under section 44AB. The assessee's turnover exceeded the threshold limit of Rs. 40 lakhs, necessitating an audit. Despite the statutory requirement, the assessee did not submit an audit report, leading to the penalty. The Assessing Officer (AO) levied penalties of Rs. 33,438/- and Rs. 44,458/- for the assessment years 2006-2007 and 2007-2008, respectively.

2. Reasonable cause for non-compliance with section 44AB:

The assessee argued that the penalty was invalid due to several reasons:
- Penalty proceedings were initiated before the completion of the assessment.
- Delay in finalizing accounts for the preceding year prevented timely audit.
- Entire income was exempt under section 80P(2)(a), resulting in no loss to the Revenue.

The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed these contentions, emphasizing that penalty proceedings can be initiated at any time before the closure of assessment proceedings, and the penalty order was within the prescribed time. The CIT(A) also noted the lack of bona fides on the assessee's part and confirmed the levy of penalty for both years.

3. Applicability of precedents and case laws:

The assessee relied on the Tribunal's decision in U.P. Co-operative Cane Development Union Ltd. v. Dy. CIT, where a similar issue was decided in favor of the assessee, following the decision in CIT v. Iqbalpur Co-operative Cane Development Union Ltd. The Tribunal had canceled the penalty under section 271B in those cases, considering the entire income being exempt under section 80P as a reasonable cause for non-compliance.

The Department Representative (D.R.) argued that section 44AB applies irrespective of the taxable income, and courts cannot nullify the express provisions of an Act. The Tribunal, upon reviewing the facts and precedents, observed that the assessee's contentions were baseless and rightly rejected by the authorities below. However, it acknowledged the precedents where exemption of income from tax was considered a valid cause for holding a bona fide belief that section 44AB did not apply.

Decision:

For assessment year 2006-2007, the Tribunal found that the assessee's belief that it was not required to get its accounts audited under section 44AB due to its entire income being exempt under section 80P was reasonable. The statutory audit was completed in time, indicating the assessee's bona fides. Therefore, the Tribunal directed the deletion of the penalty for this year.

For assessment year 2007-2008, the Tribunal upheld the penalty. By this time, the assessee had already been served a show-cause notice for the previous year, making it aware of the legal requirement. Despite this, the assessee failed to comply with section 44AB for the subsequent year, indicating a deliberate disregard of statutory obligations. Consequently, the plea of 'reasonable cause' did not apply, and the penalty was upheld.

Conclusion:

The appeal for assessment year 2006-2007 was allowed, and the penalty was deleted. The appeal for assessment year 2007-2008 was dismissed, and the penalty was upheld.

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