The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the penalty under Section 271 of Income Tax Act, 1961, due to the Assessing Officer’s failure to fulfill conditions under Section 44AA of the Income Tax Act, 1961.
According to Section 44AA of the Income Tax Act, 1961, individuals engaged in designated business activities or those conducting business as specified within the section are mandated to uphold and manage comprehensive records and documentation. These records should facilitate the Assessing Officer ( AO ) in calculating their total income in compliance with the Act.
An examination of the aforementioned sections elucidated that individuals involved in specific professions or businesses had to uphold proper accounting records. Failure to maintain such records could result in penalties under Section 271A of the Income Tax Act, 1961, Consequently, penalties under Section 271A of the Income Tax Act, 1961, were only imposed when an assessee was identified as conducting business or a profession as specified in Section 44AA of the Income Tax Act, 1961, but failed to maintain the requisite books of accounts or documents.
The AO initiated penalties under Section 271A of the Income Tax Act, 1961, found a notable absence of any determination regarding whether the taxpayer fulfilled the fundamental requirement of engaging in any business necessitating the maintenance of accounts under Section 44AA of the Act. Throughout the assessment order issued under Sections 144/147, of the Income Tax Act, 1961, there was no indication by the AO that the assessee was involved in any business activities.
The AO made additions, including Rs. 81,000/- as unexplained cash deposits in the bank with an unidentified source and Rs. 6,37,000/- as an unexplained source of investment in shares. However, throughout the entire order, the AO did not make any determination regarding whether the share transactions undertaken by the taxpayer, for which information was obtained from various sources, constituted business transactions.
The counsel for the revenue V.K. Mangla failed to identify any findings from the records indicating whether the Assessing Officer ( AO ) had assessed the fulfillment of the conditions outlined in Section 44AA of the Income Tax Act, 1961, for the assessee.
The bench observed that the Assessing Officer ( AO ) has failed to establish a compelling argument for imposing penalties under Section 271 A of the Income Tax Act, 1961. This was primarily because the AO has not provided a clear determination regarding whether the conditions outlined in Section 44AA of the Income Tax Act, 1961, were met by the assessee, the contravention of which led to the imposition of penalties under Section 271A of the Income Tax Act, 1961. Moreover, the AO has not presented a convincing case, during the imposition of penalties under Section 271A of the Income Tax Act, 1961, demonstrating that the share transactions conducted by the assessee constituted business activities mandating the maintenance of accounting records under Section 44AAof the Income Tax Act, 1961.
The bench found the imposition of a penalty of Rs.25,000/- under Section 271A of the Income Tax Act, 1961, to be entirely unwarranted. It was worth noting that the Commissioner of Income Tax ( Appeals ) [CIT(A)] upheld the penalty order issued by the Assessing Officer ( AO ) under Section 271A of the Income Tax Act, 1961, in the absence of any representation from the assessee. However, based on the facts documented in the case, it was evident that the AO did not establish grounds justifying the imposition of a penalty under Section 271A of the Income Tax Act, 1961.
The single member bench of the tribunal comparing Annapurna Gupta ( Accountant member ) nullified the order issued under Section 271A of the Income Tax Act, 1961, and the imposed penalty of Rs.25,000/- was instructed to be revoked. The grounds of appeal presented by the assessee were granted in accordance with the aforementioned terms.
Consequently, the appeal filed by the assessee was allowed.
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