No section 271B penalty when Assessee not Maintained Books of Account

Maranaikana Halli Jayashella Shetty Pradeepkumar Vs ACIT (ITAT Bangalore)

271B Penalty- When the Assessee Has Not Maintained the Books of Account, There Is No Question of Getting the Books of Account Audited U/S 44AB

Assessment was completed u/s 143(3) making  additions to the returned income u/s 44AD.  AO initiated penalty proceedings u/s 271A &  271B.

Penalty u/s 271B was imposed for the reason that the assessee was required to get his books of account audited and having failed to do the same.

Assessee filed appeal before the CIT(A). As there was no appearance / compliance to the notices issued by e CIT(A),  an ex parte order was passed by him confirming the penalty imposed u/s 271B.

Assessee  filed   appeal before the Tribunal. None was present on behalf of the assessee. However, Tribunal noted that  AO had imposed penalty u/s 271A of for non-maintenance of books of account. Tribunal held that when the assessee has admittedly not maintained the books of account, there is no question of getting the books of account audited u/s 44AB . Tribunal relied on Surajmal Parsuram Todi v. CIT reported in (1996) 222 ITR 691 (Gau) wherein it was held that when the assessee is liable to pay penalty u/s 271A , penalty u/s 271B of the I.T.A ct cannot be levied for non furnishing of audit report.  Tribunal also placed reliance on the decision in CIT v. Bisauli Tractors reported in (2008) 299 ITR 219 (All.), wherein it is held that if a person is not maintained books of account, the question of audit does not arise.

Accordingly the Tribunal deleted the 271B penalty.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal at the instance of the assessee is directed against CIT(A)’s order dated 24.08.2022 passed u/s 250 of the I.T. Act. The relevant assessment year is 2017-2018.

2. The solitary issue that is raised is whether the CIT(A) is justified in confirming penalty imposed u/s 271B of the I.T. Act amounting to Rs.1,50,000.

3. The brief facts of the case are as follows:

The assessee is an individual. He is a distributor of Mysore Cable TV Network providing cable TV network to local operators through Hathway Cable and Siti Networks. For the assessment year 2017-2018, the return of income was filed on 22.01.2018 declaring total income of Rs.17,89,780. The assessment was completed u/s 143(3) of the I.T.Act vide order dated 22.12.2019 by making an addition of Rs.14,76,539 to the returned income u/s 44AD of the I.T.Act. In the said assessment order, the Assessing Officer initiated penalty proceedings u/s 271A and also 271B of the I.T.Act. Penalty u/s 271B of the I.T.Act was imposed amounting to Rs.1,50,000 vide order dated 23.01.2022 for the reason that the assessee was required to get his books of account audited and having failed to do the same, penalty was imposed u/s 271B of the I.T.Act.

4. Aggrieved, the assessee filed appeal before the first appellate authority. Before the first appellate authority, there was no appearance / compliance to the notices issued. Consequently, the CIT(A) passed an ex parte order by confirming the penalty imposed u/s 271B of the I.T.Act.

5. Aggrieved, the assessee has filed the present appeal before the Tribunal. None was present on behalf of the assessee. However, we decided to proceed with the matter after hearing the learned Departmental Representative. The learned DR supported the orders of the AO and the CIT(A).

6. We have heard the learned DR the perused the material on record. The solitary issue is whether penalty can be imposed u/s 271B of the I.T.Act on the facts of the instant case. Admittedly, in the instant case, the A.O. had imposed penalty u/s 271A of the I.T.Act r.w.s. 44AA of the I.T.Act for non-maintenance of books of account. When the assessee has admittedly not maintained the books of account, there is no question of getting the books of account audited u/s 44AB of the I.T.Act. Therefore, imposition of penalty for non-furnishing of audit report u/s 271B does not arise. The Hon’ble Gauhati High Court in the case of Surajmal Parsuram Todi v. CIT reported in (1996) 222 ITR 691 (Gau) had held that when the assessee is liable to pay penalty u/s 271A of the I.T.Act, penalty u/s 271B of the I.T.Act cannot be levied for non-furnishing of audit report. The relevant finding of the Hon’ble Gauhati High Court, reads as follows:-

“We have gone through the provisions of Sections 44AA, 44AB, 271A and 271B of the Act. Maintenance of accounts is envisaged under Section 44AA and on failure to do so the assessee shall he guilty and liable to be penalised under Section 271A. Even after maintenance of books of account the obligation of the assessee does not come to an end. He is required to do something more, i.e., by getting the books of account audited by an accountant. But when a person commits an offence by not maintaining the books of account as contemplated by Section 44AA the offence is complete. After that there can be no possibility of any offence as contemplated by Section 44AB and, therefore, in our opinion, the imposition of penalty under Section 271B is erroneous. The Tribunal has overlooked this aspect of the matter. Of course, it is apparent from the records that the assessee failed to maintain the books of account as required under Section 44AA and for that penalty is prescribed under Section  271A. It is for the Tribunal to take action in accordance with law.”

7. A similar view has also been held by the Hon’ble Allahabad High Court in the case of CIT v. Bisauli Tractors reported in (2008) 299 ITR 219 (All.), wherein it is held that if a person is not maintained books of account, the question of audit does not arise. Further, it was held by the Hon’ble High Court that in such an event, the imposition of penalty u/s 271A of the I.T.Act for alleged non-compliance with section 44AA of the I.T.Act may arise but the provisions of section 44AB of the I.T.Act do not get violated in a case where accounts have not been maintained at all. Therefore, it was concluded by the Hon’ble Allahabad High Court that the penal provisions of section 271B of the I.T.Act would not apply. In the instant case as mentioned earlier, admittedly, the assessee has not maintained books of account, penalty imposed u/s 271B of the I.T.Act for non-furnishing of audit report does not arise. Therefore, we delete the penalty imposed u/s 271B of the I.T.Act. It is ordered accordingly.

8. In the result, the appeal filed by the assessee is allowed.

Order pronounced on this 30^th day of March, 2023.