In the case of Taranjeet Singh Alagh vs ITO (ITAT Delhi), a significant decision was made regarding the implications of non-maintenance of books of accounts on account audits. The case became pivotal in understanding and interpreting the penalties under section 271B of the Income Tax Act. This article offers a detailed analysis of the case and its impact.
The Income Tax Appellate Tribunal (ITAT) Delhi, in the case, provided an important clarification on penalties under section 271B. The case revolved around the issue of whether a penalty could be imposed for non-compliance with audit requirements in the absence of maintained books of accounts.
In the judgement, the ITAT Delhi ruled that if an assessee is not guilty of non-maintenance of books of accounts, the presumption would be that the assessee is not required to maintain them. Consequently, imposing a penalty for non-auditing of books of accounts was deemed unjustified.
This ruling challenged the prevalent notion of simultaneous penalties for non-maintenance and non-auditing of books. Instead, it highlighted the importance of the context in which the non-compliance occurs, suggesting that the lack of requirement to maintain books effectively invalidates the need for their audit, thus nullifying the penalty under section 271B.
Conclusion: The Taranjeet Singh Alagh vs ITO (ITAT Delhi) case sheds light on an essential nuance in the interpretation of section 271B of the Income Tax Act. It significantly impacts how penalties for non-compliance with account audits are imposed, particularly in instances of non-maintenance of books.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the Assessee is directed against the order of Commissioner of Income Tax (Appeals)-34, New Delhi vide order dated 17.09.2019 for Assessment Year 2015-16. The Assessee has raised the following grounds of appeal:
“1. That the Learned Assessing Officer has failed to appreciate the legal & factual position involed in the appellant’s case.
2. That the assessment order is replete with prejuidicial observations which are either unfounded or not suncepitble to any adverse conclusion.
3. That the authority below has failed to appreciate the legal and factual position involved in the Appellant’s case.
4. That no opportunity was afforded to the appellant to lead evidence on the issues involved.
5. That the provisions of section 271B are not attracted in the facts and circumstances of this case.
6. That the order is against law and facts of the case and merits to be cancelled.”
2. At the time of hearing, no one attended the proceeding. It is seen from the record that no one attended the hearing. The notices sent by the Registry have been duly served and the acknowledgment due has been placed on record. Under these facts, the appeal is taken up for hearing in the absence of assessee and materials available on records.
2.1 Apropos to the grounds of appeal, however, it is seen from the record that a letter dated 24.03.2023 has been placed on record. The contents of the same are reproduced as under for the sake of clarity:
3. On the other hand Ld. DR supported the orders of the authorities below.
4. We have heard the Ld. DR and perused the material available on record. The contention of the assessee is that the assessment was framed on returned income ignoring the capital loss of Rs. 45,38,988/- it was not claimed by the assessee in his return of income. The Assessing Officer initiated the penalty proceedings U/s 271A of Income Tax Act, 1961 (hereinafter referred to as “the Act”) for non maintaining the books of accounts, as well as U/s 271B of the Act for not complying with the provisions of section 44AB of the Act. After considering the submissions of the assessee, the penalty proceedings initiated U/s 271A of the Act was dropped but the penalty U/s 271B of the Act was imposed and same was sustained by the Ld. CIT(A). It is further submitted that the appellant was not treated in default U/s 271A of the Act for non- maintenance of books of accounts, than how the provision of Section 271B of the Act would be attracted in the absence of books of accounts.
4.1 We have given our thoughtful consideration to the present appeal, admittedly, the penalty was initiated U/s 271A of the Act for non-maintenance of books of accounts as well as U/s 271B for not complying with the provisions of section 44AB of the Act regarding the auditing of the account. The penalty for non-maintenance on books of accounts was dropped but the penalty for not getting the accounts audited is sustained. We find merits into the contentions of the assessee that if he was not guilty of non maintaining of books of accounts, the presumption would be that he shall not required to maintain the books of accounts. Under these undisputed facts, imposing penalty for non auditing of books of accounts is not justified. Therefore, we hereby direct the Assessing authority to delete the penalty.
7. In the result, the appeal of the Assessee is allowed.
Order pronounced in the open court on 20th June, 2023.