Section 44AB: No Audit Required for Assessee not maintaining Books of Account

Bandenawaz Mulla Vs ACIT (ITAT Bangalore)

Introduction: The case involves Bandenawaz Mulla, who filed a return of income for Assessment Year 2017-18 without maintaining books of account. The assessing officer (AO) imposed a penalty under section 271B of the Income Tax Act for the assessee’s failure to get the books audited. The case was appealed to the Income Tax Appellate Tribunal (ITAT) Bangalore.

Analysis: The ITAT Bangalore considered the fact that the assessee had not maintained books of account, making it unnecessary to conduct an audit under section 44AB of the Income Tax Act. The ITAT concluded that since there were no books of account to audit, there was no basis for imposing a penalty under section 271B for failure to get the books audited. The ITAT referred to the judgment of the Allahabad High Court in CIT vs. S.K. Gupta & Company, which supported their view.

Conclusion: The ITAT Bangalore allowed the appeal filed by Bandenawaz Mulla and deleted the penalty imposed under section 271B of the Income Tax Act. The ITAT held that when an assessee does not maintain books of account, there is no requirement for an audit under section 44AB, and therefore, no penalty can be levied under section 271B for failure to get the books audited. The decision is in line with the judgment of the Allahabad High Court in CIT vs. S.K. Gupta & Company.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal by assessee is directed against order of NFAC dated 11.1.2023 for the assessment year 2017-18. The assessee raised the grounds with regard to levy of penalty u/s 271B of the Income-tax Act,1961 [‘the Act’ for short].

2. Facts of the issue are that in the instant case, the assessee has filed return of income for the A.Y. 2017-18 on 30.03.2018 declaring total income of Rs.1,01,89,020/-. The case was selected for scrutiny under CASS Module u/s 143(3) of the Income-tax Act,1961 [‘the Act’ for short] was concluded on 08.08.2019. During the course of assessment proceedings, the ld. AR of the assessee submitted copies of return of income along with statement of receipt and payment and statement of affairs as on 31.03.2017. After verification of said statement of affairs, it was noticed that the assessee has shown contract receipt of Rs.12,80,43,795/-. Since, the assessee failed to get the books of account audited without any reasonable cause, the AO invoked the provision of section 271B of the Act and levied penalty of Rs.1,50.000/-. Against this assessee is in appeal before us.

3. We have heard the rival submissions and perused the materials available on record. In this case, it is admitted fact that assessee has not been maintaining the books of accounts. As such, there is no question of auditing the same u/s 44AB of the Act. Consequently, there cannot be any question of levying penalty u/s 271B of the Act. In our opinion, requirement of getting the books of accounts audited could arise only where the books of accounts are maintained. If for same reason, the assessee has not maintained the books of accounts, the appropriate provision under which penalty proceedings can be initiated is u/s 271A of the Act, which recourse has not been taken by the AO. Being so, in our opinion, there is no question of levying penalty u/s 271B of the Act. Accordingly, we place reliance on the judgement of Allahabad High Court in the case of CIT Vs. S.K. Gupta & Company reported in 322 ITR 86 (All.) and delete the penalty levied u/s 271B of the Act.

4. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 7^th June, 2023