No Penalty When there is Reasonable Cause for Failure to Comply with Section 44AB: ITAT [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) in Dr. Shantanu Datta vs. ITO, held that penalty under Section 271B of the Income Tax Act, 1971 cannot be imposed when there is a reasonable cause for failure to comply with Section 44AB of the Income Tax Act.

In the instant case, the assessee, a doctor, earned income from his two clinics. The Assessing Officer (A.O) during assessment found that gross receipts of the two clinics of the assessee for the year under consideration were Rs. 53.62 Lakhs and that the assessee had failed to submit the report of audit as per Section 44AB of the Income Tax Act, 1961. The A.O imposed penalty under Section 271B of the Act.

In his reply, the assessee explained that the activity carried on by him as diagnostics centre was in the nature of business. It was submitted that the said activity was carried on by purchasing some specific instrument and machinery, employing some doctors and technicians which did not relate to the medical profession. It was further contended that since the turnover of the said business was below Rs. 1 crore, the requirements of section 44AB were not applicable.

The A.O. found that the assessee himself had declared the nature of his activities as professional in the return of income. He also found on the basis of inspector’s report that the activity of running of diagnostic centre was part of the medical profession of the assessee. He, therefore, held that the provisions of section 44AB were applicable and since the assessee had failed to comply with the requirements of the said provisions, a penalty of Rs. 26,812 was imposed by the A.O. under section 271B of the Act. Aggrieved the assessee file an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), who rejected the same. Thereafter, the assessee approached the ITAT.

The Bench comprising of Judicial Member S.S. Viswanethra and Accountant Member P.M. Jagtap observed that the assessee had failed to comply with the provisions of Section 44AB bae on a bona fide misplaced belief that the receipts from the activity were in the nature of business income and the quantum of such receipts being less than the Rs. 1 crore, the provisions of section 44AB were not applicable.

“This belief entertained by the assessee was duly supported by the fact that the activity of diagnostic centre required trade licenses from the concerned authorities. Although this belief entertained by the assessee turned out to be wrong as held by the authorities below, we are of the view that the same was a bona fide belief entertained by the assessee in the facts and circumstances of the case and the same constitutes a reasonable cause for the failure of the assessee to comply with the requirement of section 44AB. In our opinion, the case of the assessee thus is not a fit to impose penalty under section 271B and cancelling the same, we allow this appeal of the assessee.” observed the bench.