Case Law Details
Bhartiya Shiksha Prachar Samiti Vs DCIT (ITAT Jaipur)
In a recent case involving the Bhartiya Shiksha Prachar Samiti and the Deputy Commissioner of Income Tax (DCIT), the Income Tax Appellate Tribunal (ITAT) decided to drop a penalty related to the non-auditing of accounts. This was due to the Samiti’s bona fide claim under Section 11 of the Income Tax Act, which provides certain exemptions for non-profit organizations.
This case highlights the complexity of tax laws and their applications, especially when they intersect with the work of non-profit organizations. The Bhartiya Shiksha Prachar Samiti, an educational society, was originally penalized for not auditing their accounts under section 44AB of the Act. The society argued that as they are not a business or professional entity, they were not required to audit their accounts under this section.
According to the ITAT, the society’s bona fide claim for exemption under Section 11 negates the need for auditing under section 44AB. The ITAT decision referenced two previous rulings, United Education Society Vs. JCIT and Sant Baba Rangi Ram Charitable Trust Vs. ITO, both of which support the principle that entities making bona fide exemption claims under Section 11 are not subject to auditing requirements under section 44AB.
This ruling represents a significant clarification in the interpretation of the Income Tax Act, particularly regarding auditing requirements for entities claiming exemptions under Section 11. It underscores the importance of understanding the nuances of tax law and its potential implications for organizations, especially those operating in the non-profit sector. It also emphasizes the principle that bona fide beliefs in exemption claims can influence the enforcement of certain auditing requirements.
Thus the Bench is of the view that penalty imposed u/s 271B is not attracted keeping in view of the bona fide belief and circumstances as discussed hereinabove. In view of the above deliberation, the penalty confirmed u/s 271B of the Act by the ld. CIT(A) is directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The assessee has filed an appeal against the order of the ld. CIT(A) dated 23-03-2023, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2012-13 wherein the assessee has raised the following ground of appeal.
‘’The ld.CIT(A), NFAC has erred on facts and in law in the levy of penalty of Rs.1,50,000/- u/s 271B of the Act for not conducting the audit u/s 44AB of (wrongly mentioned u/s 44AD) ignoring that assesee is an educational society not carrying out any business or profession and thus not required to get its accounts audited u/s 44AB of the Act.”
2.1 At the outset of the hearing, the Bench as per facts of the case noticed that the assessment of the assessee u/s 143(3)/ 147 of the Act was completed on 13-122019 by not allowing exemption u/s 10(23C)(iiiad)/ Section 11 of the Act. Against this order, the appeal filed by the assessee before ld. CIT(A) is still pending. However, the AO initiated penalty proceedings u/s 44AB of the Act and in the absence of reply filed by the assessee, penalty u/s 271B of the Act was imposed at Rs.1.50 lacs.
2.2 Against this penalty order, the assessee preferred appeal before the ld. CIT(A) who while dismissing the appeal of the assessee held that the assessee is carrying on business of running education institution and it is required to get its accounts audited u/s 44AB of the Act and thus the ld. CIT(A) confirmed the penalty u/s 271B of the Act.
2.3 Against the order of the ld. CIT(A), the assessee preferred appeal before this Bench with the grievance that the ld. CIT(A) has erred in confirming the penalty of Rs.1.50 lacs u/s 271B of the Act.
2.4 On the other hand, the ld. DR supported the order of the ld. CIT(A).
2.5 The Bench has heard both the parties and perused the materials available o record and the judgement cited by the respective parties. It is an undisputed fact that the assessee had not filed the return of income and the return of income was filed by the assessee in response to notice u/s 148 of the Act on 14-11-2019 declaring Nil income. In the meantime, the assessee filed an application for registration u/s 12A of the Act on 7-04-2017 and consequently the said registration was granted by the ld.CIT(E) vide order dated 20-12-2019 in pursuance to the order of ITAT dated 11-10-2017 w.e.f. 01-04-2017. The AO while passing the order of assessment u/s 143(3) read with Section 147 of the Act denied the exemption to the assessee u/s 10(23C)(iiiad)/ Section 11 of the Act and against this order the appeal of the assessee is still pending. Since the AO has initiated penalty proceedings for levy of penalty u/s 271B of the Act therefore, the assessee had not got its accounts audited as required u/s 44AB of the Act. The ld. AR of the assessee submitted before the Bench that the assessee was under bona fide belief that income of the assessee is exempt and Chapter III of the Act and Section 44AB of the Act falls in Chapter IV which relates to computation of business income and thus the assessee is not required to get its accounted audited under section 44AB of the Act. Hence, penalty confirmed by the ld. CIT(A) is bad in law. In this case, the ld.AR has drawn our attention to the following decisions of Delhi and Amristar Benches of the Tribunal
1. United Education Society Vs. JCIT (2018) 63 ITR(Trib.) 135 (Del.) Para 8, 9 & 11 of this order reads as under-
8. Bare perusal of the provisions contained us 44AB of the Act goes to prove that the same are applicable to the person carrying on business or profession and is required to get its account mandatorily audited by an accountant. But, in the instant case, when assessee is undisputedly a charitable society and is not carrying out any business and has been claiming exemption u/s 11A of the Act, the penalty us 271B of the Act cannot be levied Furthermore, when there is no computation of profits and gains of the business or profession as part of the total income, the assessee society is not amenable to section 44AB of the Act.
9. No doubt, exemption claimed by the assessee society trust us 114 has not been granted by the AO and completed the assessment u/s 143(3) at Rs.6,93,54,217/- but it will not burden the assessee to get its account audited with retrospective effect so long as registration u/s 12A of the Act is in operation
11. In view of what has been discussed above, we are of the considered view that when the assessee under bonafide belief claimed the exemption w’s 11 of the Act and had not got his accounts audited from the accountant as per provisions contained us 44AB. penalty w’s 271B cannot be levied, hence penalty imposed u/s 271B is hereby ordered to be deleted by reversing the order passed by the AO as well as la CIT (A). Consequently. the appeal filed by the assessee stands allowed.
2. Sant Baba Rangi Ram Charitable Trust Vs. ITO ITA No.185(Asr)/2012 order dt.06.08.2012 (Asr.) (Trib.) Para 6.1 of this order reads as under:-
6.1. In this regard, we are convinced with the submissions of the Ld. AR that u/s 444B of the Act audit of accounts of certain persons who were carrying business or profession and whose total sales, turnover or gross receipts, exceeds Rs.40 lakhs have to get their accounts audited by an accountant before the specified date as prescribed. That no tax shall be levied or collected except by authority of law. The legal basis for levy of income tax is given in section 4 of the Act, which is in respect of the total income defined under section 2(45) of the Act, which is computed as per section 5 of the Act, in the manner laid down in the Act. Chapter IV of the Act provides for “computation of total income” and section 44AB is only one of the sections enacted under Chapter IV-D dealing with computation of profits and gains of business or profession. Section 44AB becomes operative when there is computation of profits and gains of business or profession part of total income, whereas the income of the assessee trust is admittedly wholly exempt u/s 11 of the Act, which is part of Chapter III of the Act. And heading of Chapter III is “incomes which do not form part of the total income”. Therefore, the assessee is covered under Chapter III and no provisions of Chapter IV can be made applicable in the present case. Hence, provisions of section 44AB cannot be made applicable. The reliance made by the Ld counsel for the assessee in the case of ACIT vs. India Magnum Fund reported in 81 ITD 295 (Mumbai), where it has been held that income of the assessee was exempt from tax under section 10(23D). However, section 44AB becomes operative when there is computation of profits and gains of business or profession as a part of total income. The assessee being a mutual fund, the income was exempt under section 10(23D). Hence, the assessee was not liable to obtain any audit report within the meaning of section 44AB of the Act. Therefore, cancellation of penalty under section 271B was justified. We, therefore, are convinced with the arguments of the ld counsel for the assessee before the Ld CIT(A) and before us that the income of the assessee trust is wholly exempt under section 11 of the Act, which is part of Chapter III of the Act and therefore, provisions of Chapter IV cannot be made applicable and, therefore, the provisions of section 44AB of the Act cannot be applied in the present facts and circumstances of the case. Therefore, the AO is not justified in levying penalty on the assessee. The order of the Ld. CIT(A) is accordingly reversed.
Further at Para 6.2, Hon’ble ITAT by referring to the decision of Hon’ble Supreme Court in case of Hindustan Steel Ltd. vs. State of Orissa 83 ITR 26 held that as the assessee was under bonafide belief that the provisions of section 44AB are not attracted and therefore, in the facts and circumstances of the present case, no penalty can be imposed when the assessee had not acted deliberately.”
After having gone through the facts of the case and taking into consideration the decisions of the Coordinate Benches of the Tribunal (supra), the Bench is of the view that there is no doubt that exemption claimed by the assessee has not been granted by the AO and assessment u/s 143/(3)/147 was completed. Moreover, there is no computation of profit and gains of business or profession as a part of the total income. It is noted that when the assessee under bona fide belief claimed the exemption u/s 11 of the Act and had not got his accounted audited from the accountant as per provisions contained u/s 44AB, penalty u/s 271B cannot be levied. Thus the Bench is of the view that penalty imposed u/s 271B is not attracted keeping in view of the bona fide belief and circumstances as discussed hereinabove. In view of the above deliberation, the penalty confirmed u/s 271B of the Act by the ld. CIT(A) is directed to be deleted. Thus, the appeal of the assessee is allowed.
3.0 In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 05/06/2023.
