Penalty for failure to get account audited not justified if assessee acted bona fide

Off- Shore India Ltd. Vs. DCIT (ITAT Kolkata)

It is observed that even though the net profit / loss arising from the purchase and sale of securities was disclosed by the assessee in the profit and loss account, the value of such securities held by the assessee was fully and truly disclosed by the assessee under the head investment in the relevant balance sheet. It, therefore, cannot be said that this method of disclosure was deliberately followed by the assessee in order to avoid the compliance of section 44AB. On the other hand, the said method was followed by the assessee as per the relevant guidelines laid down by the ICAI and we find merit in the contention of the learned counsel for the assessee that the belief of the assessee about the non applicability of provisions of section 44AB based on such method of disclosure as adopted by it following guidelines of ICAI was a bona fide belief. In the case of Sachinam Trust (supra) cited by the learned counsel for the assessee, the assessee carrying on the business of financing had believed that gross receipts of interest and not gross amount of advances would constitute the basis for ascertaining the limit of Rs. 40,00,000/- so as to attract u/s 44AB and since the said belief was based on the legal opinion of eminent counsel contained in tax audit manual published by the Bombay Chartered Accountant Society, the assessee was held to have a bona fide belief which constituted the reasonable cause for not getting its accounts audited u/s 44AB. Hon’ble Gujarat High Curt accordingly held that no penalty u/s 271B could be imposed on the assessee. In our opinion, the ratio of the decision of Hon’ble Gujarat High Court in the case of Sachinam Trust (supra) is squarely applicable to the facts involved in the present case and respectfully following the same, we cancelled the penalty imposed by the AO u/s 271B and confirmed by the Ld. CIT (A).

Full Text of the ITAT Order is as follows:-

P.M. Jagtap, Accountant Member – This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – XII, Kolkata dated 14.02.2014 whereby he confirmed the penalty of Rs. 1,00,000/- imposed by the AO under section 271B of the Income Tax Act, 1961.

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