The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the penalty under Section 271B of the Income Tax Act 1961, would not be leviable when the assessee engaged in the business of trading, financing, reality and commodities had not maintained the books of accounts.
Assessee, Varadagovind Parthasarthy Iyer had filed return of income. He was engaged in the business of trading, financing, reality and commodities etc. Assessee had declared short term capital loss from trading in future and option and loss was arrived from the business of trading in shares and derivatives. AO had treated this loss as business loss instead of short-term capital loss declared by the AO on the ground that assessee was trading in F & O and it was not sale of asset.
The AO noted that the total turnover from transaction in future and option was more than the limit prescribed in Section 44AB of the Income Tax Act. Since, the assessee had failed to submit the report of the auditors and had not got the accounts audited, therefore, there was a contravention of Section 44AB of the Income Tax Act and accordingly, penalty under Section 271 B of the Income Tax Act was initiated.
Aditya Ramchandran, on behalf of the assessee submitted that the assessee had not maintained any books of accounts and once assessee had not maintained any books of accounts, then there was no question of the getting the books of accounts audited and therefore, no penalty under Section 271B of the Income Tax could be applied.
Mahesh Parwani, on behalf of the revenue submitted that the turnover was more than Rs.1 Crore and assessee was required to get the accounts audited.
The two-member Bench of Amit Shukla, (Judicial Member) and Gagan Goyal, (Accountant Member) observed that the penalty had been levied under Section 271B of the Income Tax Act for violation of Section 44AB of the Income Tax act i.e. failure to get the accounts audited.
It was not in dispute that assessee had not maintained any books of accounts as required under Section 44AA of the Income Tax Act. For violation of non-maintenance of books of account u 4nder Section 44AA of the Income Tax Act, there was a separate penal provision for levying penalty for non-maintaining of books of accounts prescribed under Section 271A of the Income Tax Act and therefore if at all penalty should have been levied under this section.
The Bench allowed the appeal filed by the assessee and deleted the penalty, referring to the Allahabad High Court in the case of CIT vs. Bisauli Tractors which held that Section 271B of the Income Tax Act was not attracted in the case where no account had been maintained and instead recourse under Section 271A of the Income Tax Act could be taken.
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