The Rajkot ITAT (SMC Bench) held that no penalty should be imposed under Section 271B of the Income Tax Act for not maintaining books of account, in case the taxpayer has filed the return of income under Section 44AD as per the scheme of which, the taxpayer does not need to maintain the books of accounts. Reference was made to the decision in the case of CIT v. Bisauli Tractors [(2008) 299 ITR 219 (All.)], where the Allahabad High Court has held that “when the assessee had not maintained books of account, the question of getting the books audited under Section 44AB would not arise, and therefore, penalty under Section 271B was not leviable”.
The ITAT clarified that if no books are maintained, the foundation of audit collapses, and hence penalty cannot be imposed. Apart from this, during the assessment proceedings itself, the AO has estimated the income of the appellant, and therefore, the penalty on estimation should not be levied.
Single Member Arjun Lal Saini (Accountant Member) observed that an order imposing a penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and a penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation. The penalty will also not be imposed merely because it is lawful to do so.
In this case, the appellant, an individual taxpayer, engaged in the business of trading in brass scrap, has declared the turnover of Rs. 1.03 crores and offered a net profit of Rs. 7.91 lacs. During the scrutiny, the AO noticed more turnover of Rs. 11.93 crores, and that the appellant has declared the income under “no account case” u/s 44AD. Finding that the appellant had failed to get his accounts audited, as required u/s 44AB, the AO estimated the income of the appellant at 4% of the total turnover of Rs. 11.93 crores. As the appellant had declared income of Rs. 7.91 lacs, the AO added the balance of Rs. 39.82 lacs and brought the same to tax. The AO also initiated penalty proceedings u/s 271B for not furnishing an audit report in Form 3CA within the stipulated due date. The appellant pleaded that this default u/s 44AB was on account of the mistake of the accountant; however, negating such contention as not a reasonable cause for dropping the penalty, the AO went ahead with a penalty u/s 271B of Rs. 1.50 lacs.
When the matter reached the ITAT, it was found that the appellant was not supposed to maintain the books of account u/s. 44AD, and therefore, a penalty should not be imposed u/s. 271B. Accordingly, the Tribunal deleted the penalty of Rs. 1.50 lacs imposed by the AO and allowed the appeal in favour of the taxpayer.
Appearances:
Advocate Chetan Agarwal, for the Appellant
Advocate Dheeraj Kumr Gupta, for the Respondent
