2023 (8) TMI 713 - AT - Income Tax

Penalty u/s 271B - non-compliance of getting accounts audited u/s. 44AB - HELD THAT - As respectfully following the decision of Exque Finmark Pvt. Ltd. 2015 (10) TMI 1386 - ITAT MUMBAI followed by SHREE BALAJI CONSTRUCTION 2020 (2) TMI 77 - ITAT INDORE wherein judgment of Hon ble Apex court in the case of Hindustan Steel Ltd. 1969 (8) TMI 31 - SUPREME COURT was quoted a penalty even where the provision stands attracted may lawfully be not levied where the default is not found to be a result of a conscious disregard by the tax payer of his legal obligations or a conduct contumacious . Ostensibly the assessee was under bona fide belief that the advance are not turnover which was a right contention according to project completion method of accounting. No deliberate act or defiance of law or guilty conduct was observed by either of the revenue authority neither the revenue has produced any such evidence or decision contrary to what is transpired by the submission of the assessee and its reliance on the case laws. The case of the assessee AOP is covered by decisions in the judgements referred thus under identical circumstances in the instant case we are of the considered opinion that penalty imposed by the Ld AR and confirmed by the Ld CIT(A) is liable to be deleted and we direct to do so. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Sustaining Penalty under Section 271B of the Income-tax Act, 1961.
2. Non-compliance with the principles of law laid down in Exque Finmark Pvt. Ltd. vs. ACIT.
3. Legality and factual correctness of the impugned order.

Issue 1: Sustaining Penalty under Section 271B of the Income-tax Act, 1961

The assessee, an Association of Persons, was penalized Rs. 73,250 under Section 271B for failing to maintain books of accounts and get them audited as required under Section 44AB. The Assessing Officer (AO) observed that the assessee received Rs. 1,46,44,225 in the relevant assessment year, which exceeded the stipulated turnover for mandatory audit. The assessee contended that it followed the project completion method and did not recognize the received amount as sales revenue, thus believing no audit was necessary. The CIT(A) upheld the penalty, stating the amount received constituted turnover, making the audit mandatory.

Issue 2: Non-compliance with principles of law in Exque Finmark Pvt. Ltd. vs. ACIT

The assessee argued that the CIT(A) failed to follow the principles laid down in Exque Finmark Pvt. Ltd. vs. ACIT, where it was held that advances received are not part of turnover until the project is completed. The Tribunal found merit in the assessee's reliance on Exque Finmark Pvt. Ltd., noting that the advances were not turnover until crystallized as sales upon project completion. The Tribunal highlighted that the assessee was under a bona fide belief that the advances did not constitute turnover, thus exempting it from audit requirements under Section 44AB.

Issue 3: Legality and factual correctness of the impugned order

The Tribunal examined the facts and submissions, noting that the assessee maintained regular books of accounts and followed the project completion method. The Tribunal found no deliberate act or defiance of law by the assessee. It referenced the Supreme Court's judgment in Hindustan Steel Ltd. vs. State of Orissa, which states that penalties should not be imposed for non-compliance resulting from a bona fide belief. Consequently, the Tribunal concluded that the penalty under Section 271B was not justified and directed its deletion.

Conclusion:

The Tribunal allowed the appeal, directing the deletion of the penalty imposed under Section 271B, and emphasized the bona fide belief of the assessee regarding the nature of advances received. The Tribunal's decision was pronounced on 27/03/2023.