No penalty u/s 271B of the Act when no books of accounts were maintained

Notice u/s 274 read with section 271B of the Income Tax Act, 1961. Penalty not to be imposed when assessee not maintained books of accounts

The assessment of the assessee u/s 147/143(3) has been framed on the basis of non maintenance of proper books of accounts and income has been assessed u/s 44AF of the Income tax Act, 1961. It has been written in the assessment order Para No. 2 that “He did not maintained any books of accounts for the relevant assessment year under consideration”. When assessee has not maintained any books of accounts then penalty u/s 271A is imposable not penalty u/s 271B of the Act. In the absence of books of accounts net profit @ 5% has been taken of the total turnover.

The following are the favorable judgments in respect of the assessee. When books of accounts has not been maintained by the assessee, then question of audit u/s 44AB will not arise.

First Judgment of ITAT, Lucknow Bench in favour of the assessee

Sacred Heart Inter College through Sacred Heart Catholic Educational Society  vs. DCIT  (ITAT Lucknow); Appeal No. ITA Nos.379 to 382/LKW/2014; Date of Pronouncement: 16-09-2014; Assessment Years: 2001-02 to 2003-04

These appeals are preferred by the assessee against the consolidated order of the ld. CIT(A) on a common ground that the ld. CIT(A) has erred in confirming the penalty levied under section 271B of the Income-tax Act, 1961 (hereinafter called in short “the Act”).

2. During the course of hearing of the appeals, the ld. counsel for the assessee has invited our attention that the Assessing Officer initiated penalty proceedings under section 271A and 271B of the Act. Since the Assessing Officer has levied penalty under section 271A of the Act, penalty under section 271B of the Act cannot be levied on account of non-auditing of the accounts. In support of his contention, the ld. counsel for the assessee has placed reliance upon the judgment of the jurisdictional High Court in the case of CIT vs. Bisauli Tractors, [2007] 165 Taxman 1 (All). During the course of hearing, a specific query was raised from the ld. counsel for the assessee as to what happened with regard to the penalty initiated under section 271A of the Act. In response thereto, the ld. counsel for the assessee could not furnish satisfactory reply with regard to the levy of penalty under section 271A of the Act. He has, however, submitted that he has no information with regard to the levy of penalty under section 271A of the Act. On the basis of the assessment order he can simply say that penalty under section 271A of the Act was initiated. In the absence of complete details with regard to the levy of penalty under section 271A of the Act, we are of the view that let the matter be sent back to the file of the Assessing Officer with a direction to verify whether penalty under section 271A of the Act was levied or not, if levied, what was the fate of it. If penalty under section 271A of the Act is levied against the assessee, penalty under section 271B of the Act cannot be levied. With this direction, we restore the matter to the file of the Assessing Officer. Accordingly the appeals of the assessee are allowed for statistical purposes.

3. In the result, appeals of the assessee are allowed for statistical purposes.

Second Judgment of ITAT, Kolkata Bench in favour of the assessee

Abu Mansur Ali vs DCIT (ITAT Kolkata); Appeal No. I.T.A No. 93/Kol/2014; Date of Pronouncement: 10 August, 2016 ; Assessment Year : 2009-10

This is an appeal by the Assessee against the order dated 25.11.2013 of C.I.T.(A)-Central-II, Kolkata relating to AY 2009-10.

2. In this appeal the assessee challenged the order of CIT(A) whereby the CIT(A) confirmed the order of AO imposing the penalty on the assessee u/s 271B of the Income Tax Act, 1961 (Act).

3. The penalty u/s 44AB was imposed for the failure of assessee to get its books of accounts audited and to file the report of such audit before the specified date mentioned in Sec.44AB of the Act. There is no dispute that the provisions of section 44AB of the Act are application in the case of the assessee. The plea of the Assessee before the revenue authorities was that the assessee had not maintained any books of accounts and therefore there was no question of getting the same audited by a Chartered Accountant u/s 44AB of the Act. The CIT(A) did not agree with the stand of the assessee in this regard for the following reasons :-

“4. During the course of appellate proceedings, it is submitted on behalf of appellant that the AO was not justified in imposing the penalty u/s 271B of the Act for the failure of getting the books of account audited u/s 44AB of the Act. It is contended by the Ld. A.R. that there is no dispute on the fact that, the appellant had acted as a middleman for Kaushalya Group for arranging purchase of land at Rajarhat. It is also a fact on record that for the year under consideration the appellant did not maintain regular books of account in a systematic manner and the transactions of land dealing were recorded in diaries in haphazard manner. These diaries were seized in the course of search operation. Thus, the fact is that the appellant did not maintain the regular books of account for the year under consideration. Based on the noting in the seized diaries and other documents the appellant prepared the books of account after the search operation. These books of account were rejected by the AO being unreliable and, therefore, he estimated the income by arriving on the turnover on the basis of seized diaries and other documents in the form of land agreements etc. It is argued by the Ld. A. R. that on these facts the AO was not justified in imposing the penalty u/s 271B for the failure of the appellant in getting the books of account audited. He has failed to appreciate that when no regular books of account were maintained by the appellant then there was no question of getting the books of account audited u/s 44AB of the Act. Under the circumstances, no penalty should have been imposed by him u/s 271B of the Act., The reliance is placed on the decision in the case of Surajmal Parsuram Todi Vs CIT, 222 ITR 691 (Gauhati): CIT vs. S. K. Gupta & Co., 322 ITR 86 (All); K.V.ramchandran vs. DCIT, 32 Taxmann.com 200 (Cochin) and Ram Prakash Puri vs. ACIT, 77 ITD 210(Pune). It is further submitted by the Ld. A.R. that since the appellant had only worked as a middleman in arranging the purchase of land and earning commission/price difference in between, the cost of land as per agreements cannot be treated as the turnover of the appellant for the purpose of provisions of section 44AB of the Act. In view of above, the appellant pleaded that the AO be directed to delete the penalty imposed by him u/s 271B of the Act.

5. I have considered the submission of the appellant and perused the assessment order. I have also gone through the decisions relied upon by the appellant. On careful consideration of facts, I am of the opinion that for the year under consideration the AO was justified in imposing the penalty u/s 271B at Rs.1,00,000/-. It is true that initially the appellant has not maintained the books of account. But, subsequent to date of search on 26.03.2009, the appellant prepared his books of account which were produced by him before the AO in the course of assessment proceedings. Therefore, the appellant was required to get his books of account audited by 30.09.2009 in compliance to provisions of section 44AB of the Act. However, the appellant did not get his books of account audited. The judicial decisions relied upon by the appellant are not applicable for the year under consideration. The claim of the appellant that the agreement value of land cannot be treated as turnover for the purpose of section 44AB is not acceptable. In fact, as per the profit and loss account submitted by the appellant along with the return of income, his gross receipts for the year under consideration were more than Rs.40 lakhs. In view of above, it is held that the AO was justified in imposing the penalty u/s 271B at Rs.1,00,000/-. His action is in accordance with law, therefore, penalty imposed by him is confirmed. The ground no. 1 to 4 are dismissed.”

4. The ld. Counsel for the assessee in the course of hearing brought to our notice that the revenue has imposed penalty on the assessee for A.Y.2009-10 for failure to maintain books of accounts u/s 271AAA of the Act. In this regard our attention was drawn to the order of CIT(A) dated 19.11.2013 wherein the CIT(A) confirmed the order of AO imposing penalty on the assessee u/s 271AAA of the Act for failure to maintain books of accounts. It was his submission that in the light of the aforesaid finding of the CIT(A), no penalty could be imposed on the assessee u/s 271B of the Act and in this regard he relied on the decision of the Hon’ble Gauhati and Allahabad High Court in the case of Surajmal Parsuram Todi and CIT Vs. S.K.Gupta & Co. respectively. The ld. DR relied on the order of CIT(A).

5. We have heard the rival submissions. We are of the view that in the light of the fact that the assessee was imposed penalty u/s 271AAA of the Act in the very same assessment year. The revenue has clearly taken a stand that the assessee does not maintain books of accounts. In such circumstances for the purpose of imposing penalty u/s 271B of the Act the revenue cannot take a stand that the assessee does maintain the books of account. We therefore following the decision of the Hon’ble Gauhati High Court in the case of Surajmal Parsuram Todi (supra) wherein it was held that if an assessee does not maintain books of accounts then there is no question of getting the books of accounts getting audited u/s 44AB of the Act and there is no question of imposing penalty u/s 271B of the Act, we hold that no penalty u/s.271B of the Act could be imposed on the Assessee. In the light of the above judicial pronouncements which are directly applicable to the facts of the present case, we hold that penalty imposed on the assessee cannot be sustained and the same is directed to be cancelled and the appeal of the assessee is allowed.

6. In the result the appeal of the assessee is allowed.

On going through the above judgments and facts of the assessee, it is found that the assessee is not liable to get his accounts audited u/s 44AB of the Income Tax Act, 1961 in the absence of proper maintenance of books of accounts. Hence penalty u/s 271B is not leviable on the assessee.