The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) held that penalty proceeding under Section 271A of the Income Tax Act, 1961 cannot be initiated on proper maintenance of books of accounts.
The assessee is an Individual, filed the appeal being aggrieved by an order passed under Section 271A r.w.s 44AA of the Income Tax Act, levying a sum of Rs. 25,000/- as a penalty for failure to maintain books of accounts.
The penalty proceedings were initiated in the assessment order passed under Section 143(3) of the Income Tax Act. The assessment order was passed accepting the income as returned by the assessee.
The Authorized Representative for the assessee stated that for the year under consideration, the assessee has maintained regular books of account and has even got the books of accounts audited under Section 44AB of the Income Tax Act.
The assessee, in the course of assessment proceedings, submitted the copy of the Audit report in Form 3CB-3CD obtained from the Chartered Accountant. In the course of assessment proceedings, the assessee had also submitted various ledger extracts of the expenditure claimed.
Therefore, there was no question of non-maintenance of books of accounts. The assessee has maintained books of account in accordance with the regular accounting system followed and in accordance with the law.
It was further submitted that the show cause notices were issued on the assessee. The notices could not be seen and replied due to the lockdown in the state of Karnataka due to the prevalent pandemic situation on account of Covid-19.
The Assessing Officer has not considered the above facts and circumstances and has passed an order under Section 271A of the Income Tax Act levying a penalty of Rs.25,000/-.
Aggrieved by this order, the assessee went to appeal before National Faceless Appeal Centre (NFAC).
The NFAC confirmed the levy of penalty order of the Assessing Officer passed under Section 271A of the Income Tax Act.
The two-bench member comprising of Chandra Poojari (Accountant member) and Beena Pillai (Judicial member) held that the filing of an audit report is possible only after auditing of books of accounts.
Thus, it means that the assessee has maintained the books of accounts. In the present case, the penalty has been levied for non-maintenance of books of accounts under Section 271A of the Income Tax Act.
Thus, the appeal of the assessee was allowed.
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