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TMI Blog2017 (11) TMI 1493X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of investment in debentures and shares. Although the securities held by it were shown at investment by the assessee company in the balance sheet, the profit or loss arising from the purchase and sale of such securities was treated as business income. During the course of assessment proceedings, the AO noticed that the gross receipts of the assessee from purchase and sale of securities were in excess of Rs. 40,00,000/-. According to him, the assessee company therefore was required to get its account audited and furnish the report of such audit as per the provisions of section 44A. Since there was no compliance on the part of the assessee company of the provisions of section 44AB, he initiated penalty proceedings under section 271B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d merit in the submission of the assessee and proceeded to confirm the penalty imposed by the AO u/s 271B for the following reasons given in paragraph no 5.1.3 of his impugned order: "I have carefully considered the submission put forth on behalf of the appellant along with the judgement of the cases relied upon, perused the facts of the case including the impugned penalty order and other materials brought on record. The AO has imposed the penalty u/s 271B of the Act since the appellant failed to get its accounts audited by an accountant before the specified date and furnish the same within the specified date in terms of section 44AB of the Act within due date even though the turnover of the business was more than Rs. 40 lacs during the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover or gross receipts in the business exceeds Rs. 40 lacs. The Income Tax Act does not define or mention as to what wouls constitute total sales, turnover or gross receipts in the business. The AR of the appellant contended that the issue whether in the case of shares and securities held as investments whether the gross sale value should be considered or any profit/loss arising from the sale of securities is required to be considered has been clarified by the Institute of Chartered Accountants of India (ICAI) in the Guidance Note on Tax Audit under section 44AB of the Income Tax Act. Para 5 of the said Guidance Note deals with sales, turnover or gross receipts. Thus, it is argued that in para 5.11 of the said Guidance Note issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the same squarely applies on the facts of the appellant's case. In the appellant's case reliance was placed on the guidance note issued by the ICAI and the appellant bona fidely believed that sale proceeds of assets held as investments would not form part of the gross receipts of business and ascertaining the limit of Rs. 40 lacs so as to attract provisions of section 44AB. Hence, there was thus a reasonable cause for not obtaining a audit report u/s 44AB and as such no penalty u/s 271B could be imposed. It is observed that the appellant has heavily placed reliance on para 5.11 of the guidance note issued by the ICAI (Fourth Edition 1999) where it is mentioned that if there is a sale of assets held as investments, the sale procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to be not acceptable for the purpose of Income Tax Act, the belief of the assessee about the non applicability of the provisions of section 44AB based on the said method was bona fide. In support of this contention, he relied on the decision of the Hon'ble Gujarat High Court in the case of ITO vs Sachinam Trust 320 ITR 445 5. The learned DR, on the other hand, strongly relied on the orders of the authorities below in support of the revenue's case. He contended that when the assessee company was engaged in the business of purchase and sale of securities as per its memorandum of association and the profit / loss from purchase and sale of securities was offered to tax by it as business income, the provisions of section 44AB were clearly at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss amount of advances would constitute the basis for ascertaining the limit of Rs. 40,00,000/- so as to attract u/s 44AB and since the said belief was based on the legal opinion of eminent counsel contained in tax audit manual published by the Bombay Chartered Accountant Society, the assessee was held to have a bona fide belief which constituted the reasonable cause for not getting its accounts audited u/s 44AB. Hon'ble Gujarat High Curt accordingly held that no penalty u/s 271B could be imposed on the assessee. In our opinion, the ratio of the decision of Hon'ble Gujarat High Court in the case of Sachinam Trust (supra) is squarely applicable to the facts involved in the present case and respectfully following the same, we cancelled the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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