Case Law Details
Tasavver Husain Vs ITO (ITAT Agra)
The case of Tasavver Husain vs. ITO, decided by the Income Tax Appellate Tribunal (ITAT) Agra, revolves around the levy of penalty under Section 271B of the Income Tax Act, 1961, on Mr. Tasavver Husain, a retired army personnel operating a milk booth under Mother Dairy. The appeal stemmed from the order of the Commissioner of Income Tax (Appeals) [CIT(A)] dated October 10, 2022, relating to the assessment year 2017-18.
Facts of the Case
During the assessment proceedings, it came to light that Mr. Husain had deposited Rs. 21,39,000/- in his bank account with the State Bank of India, Dilshad Garden, New Delhi. The Assessing Officer (AO) noted that Mr. Husain had not initially filed his income tax return for the relevant assessment year but later e-filed it on September 24, 2019, declaring an income of Rs. 4,47,350/-. The AO further utilized his powers under Section 133(6) to obtain information from Mother Dairy Fruits and Vegetables Pvt. Ltd., revealing a turnover of Rs. 1,44,75,723/- linked to Mr. Husain. Based on this turnover, the AO applied a net profit rate of 1.3% to compute Mr. Husain’s income.
Subsequently, the AO imposed a penalty of Rs. 72,378/- under Section 271B of the Income Tax Act, 1961, for Mr. Husain’s failure to get his accounts audited despite the turnover being subject to the provisions of Section 44AB. This penalty was contested by Mr. Husain before the CIT(A), arguing that he had indeed filed a tax audit report on September 18, 2019, albeit after the initial notice. Despite these submissions, the CIT(A) dismissed Mr. Husain’s appeal.
Unsatisfied with the CIT(A)’s order, Mr. Husain appealed to the ITAT Agra, challenging the levy of penalty under Section 271B.
Legal Arguments and Analysis
Before the ITAT, Mr. Husain’s counsel argued two main points: firstly, that once a penalty under Section 271A (for not maintaining books of account) is levied, no penalty under Section 271B should apply; and secondly, Mr. Husain, being a retired army personnel, was under a bona fide belief that he did not need to maintain books of account as his income was below the taxable limit. The defense highlighted that Mr. Husain’s income primarily comprised commission from Mother Dairy, which he believed did not require audit under Section 44AB.
The ITAT considered these arguments and the factual matrix presented. It noted that Mr. Husain had indeed filed a tax audit report, although the AO had deemed it invalid due to belated submission. Moreover, the ITAT observed procedural lapses on the part of the AO, such as not providing Mr. Husain with an opportunity to rebut the information obtained from Mother Dairy before finalizing the assessment.
Conclusion and ITAT’s Decision
The ITAT concluded that the issue primarily revolved around whether the penalty under Section 271B was justified given the circumstances. It emphasized that Section 273B of the Income Tax Act provides immunity from penalty if the assessee can establish a reasonable cause or bona fide belief. In this case, considering Mr. Husain’s background as a retired army personnel and his belief regarding the applicability of audit requirements, the ITAT found merit in Mr. Husain’s contention that no penalty should be levied under Section 271B.
Citing various judicial precedents, including decisions from the Allahabad High Court and the ITAT, the ITAT held that where an assessee demonstrates a bona fide belief or reasonable cause, penalties under Section 271B should not be imposed. It underscored the principle that penalties are not punitive measures but should be applied judiciously, especially where the assessee acted in good faith.
Therefore, the ITAT allowed Mr. Husain’s appeal, setting aside the penalty imposed under Section 271B. It also condoned a minor delay in filing the appeal, emphasizing the importance of substantive justice over technicalities.
In conclusion, the case of Tasavver Husain vs. ITO serves as a reminder of the significance of bona fide belief and reasonable cause in tax matters, particularly in relation to penalties under the Income Tax Act.
FULL TEXT OF THE ORDER OF ITAT AGRA
Present appeal of the assessee is arising from the order of ld. CIT(Appeals), FNAC, Delhi dated 10.10.2022, having DIN:ITBA/NFAC/S/250/2022-23/1046233110(1) and relates to assessment year 2017-18.
2. The assessee in this appeal has raised six grounds of appeal. Ground Nos. 5 & 6 are general in nature and in rest four grounds, the assessee has challenged levy of penalty of Rs.72,378/- u/s. 271B of the Income Tax Act, 1961.
3. Brief facts, which are relevant for adjudication of the issue are as under :
4. The assessee is a retired army personnel and running a milk booth of Mother Dairy. It is the case of the Revenue that there was a cash deposit of Rs.21,39,000/- in the bank account of the assessee maintained with State Bank of India, Dilshad Garden, New Delhi. It is the observation of the Assessing Officer that the assessee has not filed his return of income for the impugned assessment year. Accordingly, a notice u/s. 142(1) of the Income Tax Act was issued by the Assessing Officer on 23.10.2019, requiring the assessee to furnish certain information/documents. Thereafter, it is observed by the Assessing Officer that the assessee has e-filed his return of income on 24.09.2019 declaring an income of Rs.4,47,350/-. During the course of assessment proceedings, the Assessing Officer, exercising his powers u/s. 133(6), sought information from Mother Dairy Fruits and Vegetables Pvt. Ltd. in respect of the present assessee. In response to the notice of Assessing Officer, Mother Dairy Fruits and Vegetables Pvt. Ltd. provided a copy of one ledger account showing total turnover of Rs.1,44,75,723/- with the assessee. Thereafter, the Assessing Officer applying net profit rate of 1.3% on the total turnover of the assessee, as furnished by Mother Dairy Fruits and Vegetables Pvt. Ltd., computed the income of the assessee.
5. During the course of assessment proceedings, the Assessing Officer has levied penalty, inter alia, u/s. 271B and various other sections of the Income-tax Act. Thereafter, the Assessing Officer vide his order dated 07.10.2021 has levied penalty u/s. 271B on the ground that the assessee failed to get his accounts audited despite the fact that the volume of assesee’s turnover was covered by the provisions of section 44AB of the Income Tax Act. The Assessing Officer was of the view that the assessee has violated the provisions of section 44AB and hence liable to be punished u/s. 271B of the Act. Accordingly, the Assessing Officer levied penalty of Rs.72,378/-.
6. Aggrieved with the order of Assessing Officer, the assessee filed appeal before ld. CIT(Appeals) and argued that the observations of the Assessing Officer that the assessee has not filed tax audit report as per Form-3CB is factually incorrect, inasmuch as the assessee has filed tax audit report on 18.09.2019 vide acknowledgement No. 165128511180919. The assessee further contended that the audit report filed by the assessee has not been declared as invalid, though the Assessing Officer has treated the return of income filed by the assessee as invalid. These submissions of the assessee find place in the statement of facts annexed with Form No. 35 filed before ld. CIT(Appeals). Before ld. CIT(Appeals) none appeared on behalf of the assessee despite issuance of four notices by ld. CIT(Appeals). The ld. CIT(Appeals) dismissed the appeal of the assessee vide impugned order.
7. Aggrieved with the order of ld. CIT(Appeals), the assessee is in appeal before the Tribunal.
8. Before us, ld. Counsel for the assessee appeared via virtual mode and drew the attention of the Bench towards order levying penalty u/s. 271A of the Income Tax Act against the assessee. It is pertinent to mention here that two appeals of the assessee were fixed before the Bench, i.e., ITA No. 10/Agr/2023 pertaining to levy of penalty u/s. 271A and the present appeal in ITA No. 11/Agr/2023 pertaining to penalty u/s. 271B. Ld. AR of the assessee has sought adjournment in ITA No. 10/Agr/2023. However, the assessee contested the present appeal.
9. During the course of arguments, ld. AR of the assessee has categorically admitted that during the impugned assessment year, assessee has not maintained any books of account. Main plank of the argument of the ld. AR is that once the penalty is levied u/s. 271A for not maintaining books of account, penalty u/s. 271B for not getting the accounts audited u/s. 44AB, cannot be levied for not getting the accounts audited. Ld. AR placed reliance on the judgment of Hon’ble Allahabad High Court to buttress his arguments in the case of CIT vs. Bisauli Tractors, 299 ITR 219(All) and on the judgment in the case of CIT vs. S.K. Gupta and Co., 322 ITR 86. Ld. AR of the assessee has also filed synopsis before the Bench, copy of which has already been supplied to the ld. DR. Ld. AR also relied upon the judgment of ITAT (SMC) Bench, Jaipur in case of Bhawani Shankar Gupta vs. ITO (ITA No. 43/JP/2023) dated 22.03.2023 for the proposition that once the penalty is levied for non-maintenance of books of account, there cannot be a penalty u/s. 271B. Ld. AR of the assessee further argued that the assessee, being an Army Personnel, was under the bona fide belief that there is no need to file any ITR, as his business income was below the taxable limit. Ld. Counsel for the assessee pointed out that the assessee was under the bona fide belief that there is no need for maintaining any books of account.
10. After hearing the ld. AR of the assessee, Bench has given 7 days time to the ld. DR to file his arguments in writing before the Bench. Accordingly, ld. DR on 05.06.2024 filed his written synopsis along with copy of judgment of ITAT (SMC) Bench, Pune in the case of S.J. Agarwal & Co. vs. ITO (2008) 114 ITD 27 (Pune)(SMC). The main contention of ld. DR is that the expression used in section 44AB is “accounts” and the expression used in section 271A is “books of accounts” and hence, both penalties u/s. 271A and penalty u/s. 271B are mutually exclusive and therefore, the Assessing Officer was correct in levying penalty under both the provisions.
11. After considering rival submissions, it is observed that the solitary issue in this case is regarding levy of penalty u/s. 271B of the Income Tax Act. The counsel for the assessee has pleaded two things – (a) that once the penalty is levied u/s. 271A, then no penalty u/s. 271B is leviable; (b) since the assessee is a retired army personnel, he was under bona fide belief that there is no need of maintaining any books of account in the capacity of an authorized distributor of Mother Dairy.
12. Certain facts, which are observed by the Bench are as under: (A). While concluding the assessment, ld. Assessing Officer himself has observed that the assessee has earned commission income. This observation of the Assessing Officer is reproduced hereunder for the sake of convenience :
“The assessee was running milk booth of mother dairy and total turnover as per the ledger received from Mother Dairy Fruit & Vegetable Pvt. Ltd. was Rs.1,44,75,723/-. Certain enquiries were made on internet and also considering the commission details furnished by the assessee as fixed by Mother Dairy on sale of milk and also considering more margin on the products other than milk, net profit rate of 1.30% has been considered fit for a milk booth/milk products seller as in the case of the assessee.”
Perusal of above observation of the Assessing Officer would prima facie prove that source of income of the assessee by way of commission earned on sale of milk products and other products as fixed by mother dairy, on which the Ld Assessing Officer has applied net profit @1.3% on the turnover. The Assessee was also under the belief that the assessee is not subject to tax audit under section 44AB, and if the income of assessee as explained by the assessee and also after conducting enquires by the Assessing Officer has arisen by way of commission on sale of milk and other products as fixed by mother diary then the income of the assessee would go below the threshold limit as provided u/s44AB because in that situation commission is to be considered and not the sale proceeds of milk and other products. Thus the assessee belief that the assessee is not subject to tax audit appears to be prima facie bonafide belief.
(B). Notwithstanding the above, in this case, the assessee has duly filed tax audit report, as is evident from the annexures appended with the ITR. Page No. 3 of the paper book filed by the assessee clearly reveals that the assessee has filed tax audit report. However, the same was discarded by the Assessing Officer on the ground that the tax audit report (TAR) has been filed belatedly.
13. It is also pertinent to note down here that the Assessing Officer has solely relied upon the information provided by Mother Dairy, i.e., ledger account alleged to have been pertained to the assessee. It is also observed that the Assessing Officer has not provided this information collected at the fag end of the assessment to the assessee for his rebuttal. It is further interesting to note that the information has been collected by the Assessing Officer at the fag end of the proceedings and the same has been utilized by the Assessing Officer without confronting it to the assessee. However, the fact remains that the source of income of the assessee as enumerated by the Assessing Officer in assessment order is by way income from commission from the sale of milk and other products, which is not contradicted or disputed by the Assessing Officer, even after enquiries. Therefore, whether penalty in such a case would be leviable, is a question which requires adjudication by the Bench. Having regard to the facts of the case that the assessee was distributor of Mother Dairy, retired army personnel, under the bona fide belief that no books of accounts are required to be maintained since only source of earning income was commission as fixed by Mother Diary on sales of milk and other products, and there is no need of any audit of accounts appears to be bona fide belief of the assessee. We are of the view that penalty is not leviable.
14. Section 273B of the Income Tax Act has categorically provided immunity from penalty u/s. 271B to those assessees who establish, having regard to the facts, that there was a bona fide belief or a reasonable cause with respect to violation of provisions of section 271B. There are catena of decisions, where in the context of section 271B, Hon’ble Courts have held that penalty is not leviable where there is a reasonable cause or where assessee establishes its bonafides. Therefore, the penalty levied in this case is legally not tenable.
15. Since, we have already decided the present appeal on the basis of bona fide belief of the assessee and reasonable cause plea, we are not deciding the other aspects of the matter.
16. Before parting, we observe that there is a small delay of 40 days in filing of this appeal, for which there is an application for condonation of delay before us. Considering the smallness of amount and ordinate delay of 40 days, we deem it fit to condone the delay in the interest of justice and for the reasons mentioned in the application for condonation of delay. It is settled position of law that when technical consideration and substantial justice are pitted against each other, cause of substantial justice should be given credence. Reference can be made to the judgment of Hon’ble Supreme Court in the case of Collector Land Acquisition, Anantnag & Ors. vs .Mst. Katiji & Ors., (1987) 167 ITR 471 (SC). Further, it is also settled position of law that there cannot be any gain to an appellant in deliberately filing the appeals after expiry of limitation period, particularly in meritorious cases.
17. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 12.06.2024.
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