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2022 (9) TMI 719 - AT - Income TaxPenalty u/s 271B - assessee failed to get the accounts audited - whether the accounts were subject to audit under the provisions of section 44AB of the Act? - whether there was a reasonable cause for failure on the part of the assessee to get his accounts audited? - HELD THAT - Under section 271B if a person required to get the accounts audited under the provisions of section 44 AB of the Act, fails to do so, AO may impose on him a penalty for a sum of Rs. 1,50,000.00 or .5% of the turnover whichever is less. The use of the word may in this section also indicates that it is not mandatory but discretionary. It cannot be imposed in each and every case of default but the AO shall issue a notice to the assessee for affording the opportunity of hearing. Penalty under the provisions of section 271B of the Act is not automatic. Likewise, the provisions of section 273B of the Act provides that there shall not be any penalty if the assessee fails to get its accounts audited under the provisions of section 44 AB of the Act if he proves that there was reasonable cause for the said failure. Admittedly, in the given case the income declared by the assessee in the return of income has been admitted by the revenue without any variation though the assessee has furnished necessary documents in support of the return filed by him. This fact can be verified from the observations of the AO contained in the assessment order. There remains no ambiguity to the fact that all the necessary details were available before the AO during the assessment proceedings in support of the return of income filed by the assessee and no infirmity of whatsoever was pointed out by the AO during the assessment proceedings. AO after due application of mind and carrying out the necessary verification has accepted the income declared by the assessee. As such we are of the view that there was no leakage of the revenue to the government exchequer on account of failure on the part of the assessee for not getting the accounts audited under the provisions of section 44AB of the Act. On this count, we are of the view that the assessee should not be visited with the penalty under the provisions of section 271B - Decided in favour of assessee.
Issues involved:
Penalty under section 271B for failure to get accounts audited under section 44AB. Detailed Analysis: Issue 1: Penalty under section 271B The appeal was filed against the order of the Commissioner of Income tax (Appeals) confirming the penalty under section 271B of the Income Tax Act, 1961. The assessee, an individual engaged in retail trade of milk products, failed to get the accounts audited despite exceeding the threshold limit specified under section 44AB of the Act. The penalty of Rs. 1,50,000 was imposed by the Assessing Officer. The assessee contended that only commission income should be considered for audit purposes, not the gross sales amount. However, the CIT (A) rejected this argument due to lack of supporting evidence regarding commission income. Issue 2: Reasonable Cause for Failure The Tribunal considered whether there was a reasonable cause for the failure to get the accounts audited. The assessee, acting as a commission agent, believed that only commission income needed to be audited. The Tribunal noted that under section 271B, the penalty is discretionary, not automatic, and can be avoided if a reasonable cause is proven. The assessee failed to provide documentary evidence of commission income from Maahi Milk Company, shifting the onus onto the assessee to justify his claim with tangible materials. Issue 3: Assessment Proceedings and Revenue Acceptance During assessment proceedings, the assessee's income was accepted without variation, and all relevant documents were furnished and verified by the Assessing Officer. The AO confirmed the income declared by the assessee, indicating no revenue leakage or fraudulent practices. The Tribunal concluded that since the revenue was not impacted and all necessary details were provided during assessment, the penalty under section 271B was not justified. The Tribunal directed the AO to delete the penalty, allowing the appeal of the assessee. In conclusion, the Tribunal set aside the penalty imposed under section 271B, emphasizing the importance of reasonable cause and proper documentation in tax audit matters. The decision was based on the lack of revenue loss and the acceptance of declared income during assessment proceedings.
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