ITAT deletes CIT(A)'s Penalty for Non-Audit of Accounts Citing Pending Quantum Assessment Appeal [Read Order]

The Agra Bench of Income Tax Appellate Tribunal (ITAT) has set aside the penalty imposed under Section 271B of the Income Tax Act, 1961, for failure to audit accounts, citing the pendency of the quantum assessment appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

Gopal Agarwal (assessee), had filed his return of income declaring an income of Rs. 4,28,200/-. The case was selected for scrutiny, and during the assessment proceedings, the Assessing Officer (AO) noted a cash deposit of Rs. 5,21,89,264/- in the assessee’s bank account.

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The assessee contended that he was engaged in a commission business of cash handling for customers purchasing glass products in Firozabad, which is a hub for glassware businesses. However, the assessee was unable to provide specific details of the customers who had deposited cash into his account.

The AO applied a presumptive income rate of 8% on the total deposits, determining an additional taxable income of Rs. 44,76,376/-. The AO also initiated penalty proceedings under Section 271B, for the failure of the assessee to get his accounts audited as required under Section 44AB, as his gross receipts exceeded the threshold limit of Rs. 1 crore.

Therefore, the AO imposed a penalty of Rs. 1,50,000/- under Section 271B. Aggrieved by the penalty order, the assessee filed an appeal before the CIT(A). As no reply was submitted, the CIT(A) upheld the penalty order and dismissed the appeal of the assessee. Therefore, the assessee filed an appeal before the ITAT.

The counsel for the revenue submitted a status report from the Income Tax Business Application (ITBA) portal, confirming that the quantum appeal against the assessment order under Section 143(3) was still pending before the CIT(A).

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The single-member bench comprising Ramat Kochar (Accountant Member) that the determination of whether the assessee’s gross receipts required tax audit under Section 44AB was significant to the penalty proceedings.

The tribunal also observed that the assessee had challenged the applicability of Section 44AB in the quantum appeal, it was deemed necessary to first resolve the quantum assessment issue before adjudicating the penalty under Section 271B.

The tribunal held that penal provisions under Section 271B could not be applied until the CIT(A) decided on the quantum appeal.

Therefore, the tribunal set aside the CIT(A)’s order and remanded the matter back for fresh adjudication. The Tribunal directed the CIT(A) to first determine the quantum appeal after giving a reasonable opportunity for a hearing. The tribunal also instructed the assessee to fully cooperate with the appellate proceedings to ensure a fair resolution. The appeal was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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