No Penalty u/s 271B where assessee under bona-fide belief failed to get accounts audited u/s 44AB despite turnover exceeding threshold for sale/purchase of shares
ABCAUS Case Law Citation:
ABCAUS 3216 (2020) (01) ITAT
In the instant case, the appeal had been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals) arising in the matter of penalty order passed under section 271B of the Income Tax Act, 1961 (“the Act”).
The assessee is an Individual. The assessee in the year under consideration had made large value transactions of sale and purchase of shares which resulted the loss. But the assessee failed to declare the capital gain transactions in the return of income.
As such the assessee declared only the interest income in the return of income which was accepted by the Assessing Officer (AO) in the assessment framed u/s 143(3) of the Act.
However, the AO further during the assessment proceedings observed that the assessee had not maintained books of account, profit and loss accounts, balance sheet and also did not get the accounts audited under section 44AB despite the turnover exceeding the threshold for the transactions relating to sale/purchase of shares.
The AO further noted that the assessee filed return of income in form-2 (for individual and HUF not having business income) whereas according to him, the same should have been filed in requisite form-4 as the assessee was having the business transactions.
The AO accordingly issued show cause notice to the assessee for levy of the penalty u/s 271B of the Act for violating the provision of section 44AB of the Act.
The assessee in response to the notice submitted that she was of the view that only net profit from share transactions has to be shown in the return of income. The books of account were not maintained as the transactions were made by her son in her name and she was not aware about such a huge transaction.
The assessee also submitted that she was not aware that the accounting of share transactions as well as audit should have been done. Therefore, she did not inform her tax consultant about share transactions as she was under the belief that the loss would not be shown in the return of income as the tax liability does not arise on loss.
However, during the assessment proceedings coming to know about the requirement of tax audit u/s 44AB of the Act, the assessee got the books of account audited and submitted the accounts/financial statements along with tax audit report u/s 44AB of the Act.
However, disregarding the submissions of the assessee, the AO levied the penalty u/s 271B of the Act for not getting the books of account audited and filing the audit report on or before the specified date.
The CIT-A upheld the order of the AO.
The Tribunal observed that the books of accounts, which were subsequently audited, prepared by the assessee during the assessment proceedings were accepted by the AO therefore no penalty was levied under section 271A of the Act. Further noted that the AO levied the penalty for not furnishing the audited report in form 3CD in time under section 271B of the Act.
The Tribunal further observed that importantly there was the loss from the transactions of purchase and sale of shares and there was the substantial compliance on the part of the assessee for getting the accounts audited. More so, the plea of the assessee that her son had carried out the sale purchase transaction of shares had not been proved wrong. Also, no infirmity in audit report was pointed out by the AO.
Therefore, the Tribunal opined that the assessee was under the bona-fide belief failed to get the accounts audited and in such facts and circumstances the penalty under section 271B was not warranted.
Accordingly, the orders of lower authorities were set aside and the penalty levied u/s 271B was deleted.
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