No Penalty u/s 271B for non Tax Audit when AO treated capital gain transaction as business income
In a recent judgment, ITAT has deleted penalty u/s 271B for failure to get accounts audited u/s 44Ab of the Income Tax Act, 1961 (the Act) where Assessing Officer (AO) has changed the head of income from capital gain to business income
ABCAUS Case Law Citation:
ABCAUS 3868 (2024) (02) ITAT
Important Case Laws relied upon by parties:
CIT v. V.S. Sirpurkar and Dr. Mukundakam Sharma [2010] 189 Taxman 322
Surajmal Parsuram Todi vs. CIT (1996) 222 ITR 691\ (Gau)
Aveti Chinasimhachalam & anr. Vs. Income Tax officer & anr. (2016) 46 CCH 0569
Commissioner Of Income Tax & Anr. vs. S.K. Gupta & Co. (2010) 322 ITR 0086 (All)
Commissioner of Income Tax vs. Bisauli Tractors (2008) 299 ITR 0219
Ram Prakash C. Puri vs. Assistant commissioner of Income Tax (2001) 77 ITD 0210
In the instant case, the assessee had challenged the order passed by the CIT(A) of National Faceless Appeal Centre (NFAC) in confirming penalty under Section 271B of the Income Tax Act, 1961 (the Act).
The case of the assessee was selected for scrutiny and notice u/s 143(2) was issued. During the assessment proceedings, it was noticed that the total turnover/gross receipts of the assessee was more than the threshold u/s 44AB. Therefore, the assessee was required to get his accounts audited by an accountant but as per the records the accounts of the assessee were not got audited.
Based on these observation order of levying penalty u/s. 271B was passed by the NeFAC.
The CIT(A) confirmed the levy of the penalty holding that the reasons advanced by the were not covered under the any reasonable clause and since the assessee has not complied the statutory provisions, the action of levy of penalty by the AO was confirmed.
The Tribunal noted that for the year under consideration the assessee had sold a piece of land which was purchased seven years before and shown Income from capital gain after reducing indexed cost of purchase & improvement expenses and after claiming exemption u/s 54 of the Act).
The Tribunal further observed that the assessee had made improvement in the capital asset, so that he can earn more profit from sale of this asset. The AO considered this activity of the assessee as business activities even though he was fully aware about the fact the appellant doesn’t involve in any type of business activities neither in past nor in future.
Based on these finding the AO also recorded a finding that since the turnover / gross receipt of the assessee was exceeding the limit of Rs. 1 crores prescribed for getting the books of accounts audited and to furnish the audit report u/s. 44AB of the Act and on account of such violation the assessee was called upon to pay a penalty u/s. 271B of the Act.
On this issue the assessee contended that his income was offered under the head capital gains. He does not maintain any books of accounts as he was not required to do so and further, he had no business income. It was the AO who treated the capital gain transaction as a business transaction.
The Tribunal observed that the CIT(A), NFAC confirmed the penalty u/s 271B on the single ground that the appellant didn’t file the appeal against the assessment order confirmed by the CIT(A) and ignored the submission of the appellant made before him.
The bench noted that the AO had changed the head of income from capital gain to business income. The revenue could not controvert the fact that the assessee submitted that this was only solitary transactions which cannot be termed as business income. Merely the assessee has not challenged the finding of the CIT(A) in quantum in the penalty proceeding the assessee cannot be called upon pay the penalty as failure to get the books of accounts audited and failure file the audit report.
The Tribunal further observed that the reason advanced by the assessee was that he had offered the income under the head capital and under that head though the income / receipt 1
cr there is no requirement to get the books of accounts audited and therefore, this being the reasonable cause for the assessee.
The Tribunal observed that the provision of section 273B gives power to the taxing authority not to impose the penalty if the assessee proves that there was a reasonable cause for such failure
The Tribunal held that the assessee was prevented by sufficient cause and therefore, opined that the penalty levied by the lower authorities confirmed by the CIT(A) u/s 271B of the Act does not have any legs to stand, therefore, the same was deleted.
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