The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, has recently, in an appeal filed before it, held that a failure of the assessee to maintain the books of account will not attract penalty under section 271 B, for non-furnishing of an audit report.
The aforesaid observation was made by the Bangalore ITAT when an appeal was filed before it by the assessee as directed against the CIT(A)’s order dated 24.08.2022, passed under Section 250 of the Income Tax Act, with regard to the assessment year 2017-2018.
The solitary issue raised in the appeal is whether the CIT(A) can be justified in confirming the penalty imposed under Section 271B of the Income Tax Act, amounting to Rs.1,50,000, the facts in brief pertaining to the issue were that the assessee was an individual, who was a distributor of Mysore Cable TV Network providing cable TV network to local operators through Hathway Cable and Siti Networks.
For the assessment year 2017-2018, the return of income was filed by the assessee, on 22.01.2018, declaring a total income of Rs.17,89,780. And, the assessment was completed under Section 143(3), vide order dated 22.12.2019, by making an addition of Rs.14,76,539 to the returned income under Section 44AD of the Income Tax Act.
In the said assessment order, the Assessing Officer initiated penalty proceedings under Section 271A and also 271B of the Income Tax Act, wherein the penalty under Section 271B was imposed amounting to Rs.1,50,000 vide order dated 23.01.2022, for the reason that the assessee was required to get his books of account audited and that he had failed to do the same.
Aggrieved by the same, the assessee filed an appeal before the first appellate authority. However, before the first appellate authority, there was no appearance/compliance with the notices issued.
Consequently, the CIT(A) passed an ex parte order by confirming the penalty imposed under Section 271B of the Income Tax Act, thus leaving the assessee aggrieved to prefer the instant appeal before the Tribunal.
Hearing the contentions of the Revenue, as submitted by Shri Gudimella VP Pavan Kumar, the JCIT-DR, with no appearance made on behalf of the appellant, the ITAT observed:
“We have heard the learned DR and perused the material on record. The solitary issue is whether a penalty can be imposed under Section 271B of the Income Tax Act, on the facts of the instant case. Admittedly, in the instant case, the A.O. had imposed a penalty under Section 271A of the Income Tax Act r.w.s. 44AA of the Income Tax Act, for non-maintenance of books of account. When the assessee has admittedly not maintained the books of account, there is no question of getting the books of account audited under Section 44AB of the Income Tax Act. Therefore, imposition of penalty for non-furnishing of audit report under Section 271B does not arise. The Hon’ble Gauhati High Court in the case of Surajmal Parsuram Todi v. CIT, had held that when the assessee is liable to pay a penalty under Section 271A of the Income Tax Act, a penalty under Section 271B of the Income Tax Act cannot be levied for non- furnishing of audit report.”
“A similar view has also been held by the Hon’ble Allahabad High Court in the case of CIT v. Bisauli Tractors, wherein it is held that if a person is not maintained books of account, the question of audit does not arise. Further, it was held by the Hon’ble High Court that in such an event, the imposition of penalty under Section 271A of the alleged non-compliance with section 44AA of the Income Tax Act, may arise but the provisions of section 44AB of the Income Tax Act do not get violated in a case where accounts have not been maintained at all. Therefore, it was concluded by the Hon’ble Allahabad High Court that the penal provisions of section 271B of the Income Tax Act would not apply. In the instant case as mentioned earlier, admittedly, the assessee has not maintained books of account, a penalty imposed under Section 271B of the Income Tax Act for non-furnishing of audit report does not arise.”, the Coram of Laxmi Prasad Sahu, the Accountant Member and George George K, the Judicial Member added.
Thus, the Bangalore ITAT held:
“Therefore, we delete the penalty imposed under Section 271B of the Income Tax Act. It is ordered accordingly. In the result, the appeal filed by the assessee is allowed.”
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