No penalty for failure to get books audited for Bonafide belief of non-applicability of Audit

P.D. Usha Rani Vs. ITO (ITAT Hyderabad)

Penalty u/s. 271B is attracted for failure to get accounts audited u/s. 44AB. Even though the law prescribes the levy of penalty, in case of default, the same is not automatic as provisions of Section 273B gives relief, when there is a reasonable cause. The AO has to examine the same as per the provisions. In these cases, the turnover has increased marginally over the lower limit of Rs. 40 Lakhs prescribed u/s. 44AB for the first time during the year. Even though assessees are on the record of department in earlier years, there is no need to get the books audited earlier. Moreover, the provisions of Section 44AD have been amended so as to provide relief to the small business men upto turnover of Rs. 60 Lakhs. In assessee’s case(s), the turnover is less than Rs. 60 Lakhs. Therefore, there can be a bonafide belief that books need not be subjected to audit.

Moreover, as rightly considered by the Hon’ble High Court in the above referred case of Bajrang oil mills(supra), the AO has an option to treat the returns as defective, should have given an option to assessees for furnishing the audit report before considering initiation of penalty proceedings. AO has not considered the return as defective. Moreover, the books of account are rejected and in two cases incomes are assessed u/s. 44AD for which turnover of Rs. 60 Lakhs is the limit. In other case also, books are rejected and addition on closing stock valuation was made, which was subject matter of appeal separately. On the facts, respectfully following the principles laid down by the Hon’ble Court in the case of Bajrang Oil Mills Vs. ITO (supra), I am of the opinion that there is reasonable cause u/s. 273B and accordingly penalty u/s. 27 1B is not warranted.