2023 (8) TMI 960 - AT - Income Tax

Penalty u/s 271B - assessee has not got its books audited u/s 44AB as its business turnover exceeded the limit prescribed - HELD THAT - In the case of Dr. K. Satish Shetty 2009 (2) TMI 207 - KARNATAKA HIGH COURT held that since section 44AB as such does not show or contemplate that all businesses are to be consolidated together for working out aggregate of turnover and, on facts, it was clear that assessee had acted in a bona fide belief and had no dishonest intention in not obtaining audit report for all three businesses carried on by him, Tribunal was justified in deleting penalty imposed on assessee. In the case of Nanak Singh Guliani 2001 (9) TMI 23 - MADHYA PRADESH HIGH COURT the assessee, who was engaged in business of contractor ship, sub-contracted work of substantial amount. The gross receipts attributable to him personally became less than Rs. 40 lakhs. The High Court held that the assessee being under bona fide belief that amount obtained by subcontractor was not to be accounted towards his income, was a reasonable cause for not getting accounts audited under section 44AB. In the case of Staywell Hotels (P.) Ltd. 2005 (3) TMI 47 - MADHYA PRADESH HIGH COURT held that where delay in filing audit report in Form No. 3CD, was not due to any deliberate intention on part of assessee, nor could its conduct be regarded as contumacious or with a view to evade payment of tax, no case for penalty u/s 271B was made out. Thus we are of the considered view that this is a fit case when penalty under Section 271B of the Act is liable to set-aside. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed by the Ld. CIT(A) under Section 250 of the Income Tax Act.
2. Consideration of the appellant's ignorance of tax provisions and bona fide belief.
3. Impact of non-audit of books of accounts on revenue and whether the penalty under Section 271B should be waived.
4. Applicability of Section 44AB and the nature of the appellant's business.
5. Discretionary power of the AO to waive the penalty under Section 271B.
6. Technical nature of the mistake and its impact on penalty imposition.
7. Assessment proceedings and the acceptance of the appellant's accounts.

Summary of Judgment:

1. Validity of the Order by Ld. CIT(A):
The appellant contended that the order passed by the Ld. CIT(A) under Section 250 of the Income Tax Act was bad in law and facts, as it failed to consider the proper facts on record and the appellant's lack of mala fide intention. The tribunal noted that the Ld. CIT(A) upheld the Assessing Officer's (AO) order, stating the AO did not act mechanically and that the appellant was not prevented by any reasonable cause from getting the accounts audited under Section 44AB.

2. Ignorance of Tax Provisions and Bona Fide Belief:
The appellant argued that it was the first year of taking over the business and was unaware of the requirement to get the books audited, believing that the income did not exceed the taxable limit. The tribunal acknowledged the appellant's submission that this was the first year the turnover exceeded the limit and that the appellant was not well-versed with the income tax provisions.

3. Impact on Revenue and Penalty Waiver:
The appellant claimed that non-audit of the books did not result in any loss to revenue, and the breach of Section 44AB was unintentional. The tribunal observed that the scrutiny assessment did not reject the appellant's accounting records and no additions were made to the returned income, indicating no mala fide intention.

4. Applicability of Section 44AB and Nature of Business:
The Ld. CIT(A) held that the appellant acted as a trader, not a commission agent, with reported sales exceeding the limit under Section 44AB. The tribunal noted that the appellant's business turnover exceeded the statutory limit, requiring an audit under Section 44AB.

5. Discretionary Power to Waive Penalty:
The appellant argued that the AO had the discretion to waive the penalty under Section 271B, which was ignored. The tribunal cited judicial precedents where bona fide belief and lack of dishonest intention were considered reasonable causes for not imposing penalties.

6. Technical Mistake and Penalty Imposition:
The appellant contended that the mistake was technical and not intentional, with no discrepancies found in the accounts. The tribunal agreed, noting that the accounts were accepted during scrutiny assessment without any defects.

7. Assessment Proceedings and Acceptance of Accounts:
The tribunal observed that the assessment proceedings accepted the appellant's responses and no additions were made, suggesting no loss to revenue. The appellant's non-compliance was deemed a technical mistake.

Conclusion:
The tribunal concluded that the appellant had a reasonable cause for not getting the accounts audited and set aside the penalty under Section 271B of the Income Tax Act. The appeal was allowed, and the order was pronounced in open court on 18/08/2023.