Penalty u/s 271B of Income Tax Act cannot be Imposed for Not Getting Books of Accounts Audited for Violation of S. 44AB: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Jaipur Bench, has recently, in an appeal filed before it, held that penalty u/s 271B of Income Tax Act cannot be imposed for not getting books of accounts audited for violation of S. 44AB.

The aforesaid observation was made by the Jaipur ITAT, when an appeal by the assesseewas filed before it, as directed against the order of the CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 13.06.2022, for the assessment year 2012-13.

The solitary ground raised by the assessee before the Tribunal being with regard to challenging the order of the CIT (A) (NFAC), in upholding the imposition of penalty under section 271B of the Income TaxAct, the brief facts of the case were that the assessee had filed his return of income on 27.06.2019, declaring total income of Rs. 26,260/- from business.

The assessment being completed under section 143(3), read with section 147 of the Income Tax Act, 1961, considering the income as Rs. 2,26,620/-,apart from this, the AO had also initiated penalty proceedings under section 271B of the Income Tax Act.

Consequently, after providing an opportunity of hearing to the assessee, he imposed upon the assessee, a penalty of Rs. 75,297under section 271B of the Income Tax Act on 27.01.2022, aggrieved by which, the assessee filed an appeal before the CIT (A).

However, considering the submissions of both the parties, the lCIT (A) dismissed the appeal filed by the assessee and upheld the imposition of penalty. And it is being aggrieved by the said order of theCIT (A), that the assesseehas preferred the present appeal before the Jaipur ITAT.

With Ms Suhani Meharwal, CA, the AR appearing on behalf of the assessee, having reiterated the same arguments before the Jaipur ITAT as was made by him before the  CIT (A), by relying upon a variety of judgements and thereby requesting theITAT to drop the penalty, MsMonisha Choudhary (JCIT), the DR appearing on behalf of the Department, on the other hand, relied upon the orders of the Revenue authorities , submitting that since there was a clear violation of provisions of section 44AB of the Income Tax Act, the Revenue authorities have rightly imposed the penalty by invoking provisions of section 271B of the Income Tax Act.

Hearing the opposing contentions of either sides, and perusing the materials available on record, the Jaipur ITAT commented:

“I have heard the ld. Counsels for both the parties and have also perused the material available on record and the judgments cited by the respective parties and the orders passed by the revenue authorities. From the record, it is noticed that it is an undisputed fact that order of assessment was passed under section 143(3) read with section 147 of the Act considering the income of the assessee at Rs. 2,26,620/- and consequently penalty proceedings under section 271B of the Act was initiated. It is important to mention here that the assessee from the day one had been submitting before the Revenue authorities that the assessee had suffered hugelosses and was booked in various cases under RBI Act for cheque dishonor and since the assessee could not settle his liabilities in due time, therefore, he was absconding from Jaipur and in this regard an FIR has already been registered against the assessee. Apart from this, assessee also had categorically mentioned that he was not maintaining any books of accounts and even the Tax Consultants of the assessee filed his ITR by collecting information available with him i.e., sales, purchases and bank book. But the said Tax Consultants has refused to sign the Tax Audit Report mainly on the ground that no books of accounts were maintained by the assessee.”

“I have also gone through meticulously the orders passed by the revenue authorities and in the order passed by the AO, I noticed that he also categorically mentioned that assessee has failed to produce books of accounts and bills/vouchers for verification of purchases and other expenditures claimed in the Profit & Loss account and hence the net profit arrived at by the assessee is not verifiable. Thus, from the conjoint reading of the defence as set up by the assessee before the revenue authorities, I conclude that when assessee did not maintain regular books of accounts, then the question of getting the books of account audited does not arise at all. I am also of the view that since there is a violation of provisions of section 44AA of the Act and the said violation cannot be extended to section 44AB of the Act. The provisions of section 44AB of the Act can only be invoked when the assessee had first complied with the provisions of section 44AA of the Act. Therefore, in my view the violation of section 44AA of the Act cannot continue because once it is found that assessee did not maintain the regular books of account then the said violation cannot travel beyond the provisions of section 44AA andhence cannot be held as further violation of section 44AB of the Act. In this regard, the Hon’ble Allahabad High Court in the case of CIT vs. Bisauli Tractors. A similar view has been taken by the Hon’ble Gauhati High Court in the case of SurajmalParsuramTodi vs. CIT also”, the ITAT Bench added.

“Looking to the entirety of facts and circumstances of the case, I find that since the AO himself has recorded a categorical finding in the order of assessment that no books of accounts were maintained by the assessee, therefore, in my view in such circumstances a question arises as to whether any penalty can be imposed under section 271B for not getting the books of accounts audited. In this regard, I rely upon the decision of Hon’ble Gauhati High Court in the case of Suraj Mal ParasuramTodi vs. CIT (supra) wherein it was held that where no books of account are maintained, penalty should be imposed for non-maintenance of books of account u/s 271A of the Act and in such circumstances no penalty can be imposed under section 271B for violation of section 44AB of the Act.”, the ITAT Panel comprising of Sandeep Gosain, the Judicial Member further observed.

Thus, allowing the assessee’s appeal, the Jaipur ITAT held:

“Therefore, while summing up the entire discussion and while relying upon the different decisions as mentioned supra, I am also of the view that in the instant case since assessee was not found to have maintained the books of account, therefore, no penalty can be imposed for not getting the books of accounts audited as prescribed under section 271B of the Act for violation of section 44AB of the Act. Thus, keeping in view, the binding precedent and principles laid down by the Hon’ble High Courts, I set aside.”

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