No tax audit in one proprietorship firm-ITAT deleted penalty u/s 271B as no accounts were kept

No tax audit in one proprietorship firm-ITAT deleted penalty u/s 271B as when no accounts was maintained, assessee was not be expected to get them audited.

ABCAUS Case Law Citation:
ABCAUS 3166 (2019) (10) ITAT

Important case law relied upon by the parties:
Shri Rajeshbhai Hirabhai Patel Vs. ITO
Shri Udayshankar Narendraprasad Vs. ITO
Paragkumar Mafatlal Shah Vs. ITO
Mukesh G. Jaswani Vs. ITO
Gurinder Kahlon Vs. ITO

Tax audit in case of two proprietary business

In the instant case, the sole grievance of the assessee was the order passed by the CIT(A) in confirming the penalty imposed by the Assessing Officer (AO) under section 271B of the Income Tax Act, 1961 (the Act) for failure to get accounts audited u/s 44AB of the Act.

The assessee was running two proprietorship concerns. For the relevant Assessment Year, the assessee had filed return of income along with tax audit report under section 44AB with regard to only the account of one proprietorship firm.

However, during the course of assessment proceedings, it came to the notice of the AO that the assessee was proprietor of another firm which was having a bank account. Qua the second firm, the assessee had not got account audited u/s 44AB of the Act.

The AO passed the assessment order under section 143(2) of the Act. Later, he initiated penalty proceedings for not getting the accounts audited with regard to second proprietorship concern. Ultimately, after hearing the assessee, he imposed a minimum penalty of Rs. 1,50,000/-.

The CIT(A) did not bring any relief to the assessee.  

On the other hand, the Department contended that for exonerating one penalty, the assessee cannot take plea of another default. On the one hand, the assessee had not disclosed the accounts to the department, and on the other hand the assessee was trying to absolve herself from levy of penalty under the argument that the accounts were not maintained.

The Tribunal opined that for not maintaining accounts, penalty is required to be imposed under section 271A. The AO ought to have initiated penalty under this section. But once the assessee had been submitting that no accounts had been maintained for the concern, then the assessee could not be expected to get them audited.

The Tribunal found the argument of the assessee as plausible. Accordingly, the Tribunal allowed the appeal of the assessee and delete penalty.

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