2023 (9) TMI 799 - AT - Income Tax

Levy of penalty u/s 271B - assessee failed to get accounts audited as per provisions of section 44AB - non maintenance of books of accounts by assessee - appellant was under the misbelief that if the income declare is above 8% of gross profit, then he is not required to get its accounted audited - HELD THAT - As apparent from the records that assessee because of her bonafide belief may be wrong has not maintained any books of account and, therefore, it was impossible to get the accounts audited which were not even ever prepared/maintained. The ratio of law as interpreted in the case of CIT vs. Bisauli Tractors ( 2007 (5) TMI 181 - ALLAHABAD HIGH COURT ) on which the assessee placed reliance wherein the Hon ble High Court has concluded that the penalty u/s 271B of the Income Tax Act is not attracted in case where no account has been maintained instead recourse u/s 271A can be taken. Since, the Ld. AO appreciated the fact that assessee has not maintained any books of account but have not initiated any penalty proceedings u/s 271A for non - maintaining to books, instead the Ld. AO proposed to initiate the penalty proceedings u/s 271B of the Act for not getting the books audited which is very impractical thinking of the AO when the books of accounts are not available, how the audit of the same can be conducted. Thus penalty u/s 271B for not getting the books of account audited is impossible to be imposed when it is an evident fact that there was no books of account maintained by the assessee. Appeal of the assessee is allowed.

Summary

Issues involved:
The issues involved in this case are the imposition of penalty under section 271B of the Income Tax Act, 1961 for failure to get accounts audited as per provisions of section 44AB, and the contention of the assessee regarding the bonafide belief that no audit was required for a retail business.

Imposition of Penalty under Section 271B:
The appellant, an individual engaged in trading of cloth on a retail basis, tailoring, and stitching, filed a return of income declaring total income. The Assessing Officer (AO) initiated penalty proceedings under section 271B as the appellant failed to get accounts audited as required by section 44AB of the IT Act. The penalty was imposed based on a percentage of the total turnover. The appellant challenged this penalty through an appeal to the Commissioner of Income Tax (Appeals) and subsequently to the ITAT.

Bonafide Belief of Assessee:
The appellant argued that she was under the bonafide belief that maintaining books of accounts was not required for a retail business, especially in the first year of operation. The appellant contended that since she offered profit at a certain percentage of turnover and paid tax accordingly, the penalty for not getting the accounts audited should not apply. The appellant relied on a judgment of the Allahabad High Court to support her argument that penalty under section 271B is not attracted when no accounts have been maintained, and recourse under section 271A can be taken instead.

Judgment and Decision:
After considering the arguments from both sides, the ITAT observed that the appellant's turnover exceeded the prescribed limit necessitating the maintenance and audit of accounts under relevant sections of the IT Act. However, the ITAT also noted the appellant's bonafide belief and lack of maintained accounts. Relying on the Allahabad High Court's judgment, the ITAT concluded that imposing a penalty under section 271B for not getting the accounts audited was impractical when no accounts were maintained in the first place. Therefore, the ITAT set aside the penalty imposed by the AO and confirmed by the CIT(A), allowing the appeal of the assessee.

Separate Judgment:
This judgment was delivered by Shri Arun Khodpia, AM, and Shri Ravish Sood, JM.