Audit u/s 44AB Not Required and Penalty u/s 271B Not Leviable When No Books of Account Maintained: ITAT [Read Order]
The ITAT noted that under section 44AD, maintaining books is not mandatory, and relying on case law, held that penalty cannot be imposed for a technical or minor breach
The Rajkot Bench of Income Tax Appellate Tribunal (ITAT) held that audit under section 44AB is not required and penalty under section 271B of the Income Tax Act,1961 is not leviable when no books of account are maintained.
Bhaveshbhai Haribhai Kanani,appellant-assessee, was an individual whose case was selected for scrutiny under CASS. A notice u/s 143(2) of the Act dated 22/09/2019 was issued and served on him, followed by a notice u/s 142(1) along with a questionnaire.
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During assessment, it was found that he was engaged in the business of trading in brass scrap. His return declared a turnover of Rs. 1,03,43,628/- and a net profit of Rs. 7,91,012/- (7.65% of turnover).
The Assessing Officer (AO) discovered additional turnover of Rs. 11,93,30,453/- and noted that the appellant filed income under the “no account case” u/s 44AD and did not comply with section 44AB to get his accounts audited. A show-cause notice was issued, and the officer estimated income at 4% of the total turnover, i.e., Rs. 44,73,218/-, adding Rs. 39,82,206/- to the declared income.
Penalty proceedings u/s 271B were initiated for non-filing of the audit report, and a notice dated 20/04/2021 was issued. The assessee replied on 20/07/2021, attributing the failure to a mistake by his accountant and argued that no penalty should apply since income was estimated at 4% of turnover.
The AO rejected this and imposed a penalty of Rs. 1,50,000/-. The Commissioner of Income Tax (Appeals)[CIT(A)] confirmed the penalty, holding that the reason given by the assessee was not sufficient to avoid penal provisions. Aggrieved, the assessee filed an appeal before the tribunal.
A single member bench of Dr.A.L Saini (Accountant Member) heard both parties, reviewed the submissions, documents, case laws, and the findings of the CIT(A). It noted that the assessee had filed the return under section 44AD, under which maintaining books of account was not required. Since no books were maintained, no penalty could be imposed under section 271B.
The appellate tribunal relied on the decision in CIT v. Bisauli Tractors [(2008) 299 ITR 219 (All.)], where the court held that when no books of account are maintained, audit under section 44AB does not arise, and penalty under section 271B is not leviable.
The tribunal further observed that the AO had already estimated the income, and penalty proceedings are quasi-criminal, imposed only for deliberate, dishonest, or contumacious conduct.
A technical or minor breach does not justify penalty. Considering these facts, the bench held that the assessee was not required to maintain books and deleted the penalty of Rs. 1,50,000/- imposed by the AO.
Accordingly,the appeal was allowed.
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