Penalty u/s 271B deleted due to bona fide belief of not subject to tax audit

Penalty u/s 271B not leviable as assessee was under bona fide belief that he was not subject to tax audit

In a recent judgment, the ITAT Agra has deleted Penalty u/s 271B where the assessee was under the bona fide belief that he was not subject to tax audit u/s 44AB of the Income Tax Act, 1961.

ABCAUS Case Law Citation:
ABCAUS 4092 (2024) (06) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) NFAC confirming the leavy of penalty u/s 271B of the Income Tax Act, 1961 (the Act).

The appellant assessee was a retired army personnel and running a milk booth of Mother Dairy. During the relevant financial year, the assessee had deposited a large amount in his bank account.

The Assessing Officer (AO) observed that the assessee had 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. However, the assessee had e-filed his return of income and tax audit report though belatedly.

During the course of assessment proceedings, the Assessing Officer, exercising his powers u/s 133(6), sought information from Mother Dairy. In response to the notice, Mother Diary provided a copy of ledger account showing total turnover of more than one cores with the assessee.

The AO completed the assessment applying a net profit rate on the total turnover of the assessee. Thereafter, the Assessing Officer levied penalty u/s 271A for non-maintenance of books of account 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.

Before the Tribunal the assessee admitted that during the impugned assessment year, assessee had not maintained any books of account and since the AO had also levied penalty 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. In support of his argument, the assessee placed reliance on the judgment of Hon’ble Allahabad High Court and Co-ordinate Bench of ITAT Jaipur.

It was also the contention 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.

The Revenue contended 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.

The Tribunal observed that the Assessing Officer had himself observed that the assessee has earned commission income which 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. Further, the Assessee was also under the belief that the assessee was not subject to tax audit under section 44AB.

The Tribunal further noted that if the income of assessee as explained by the assessee and also after conducting enquires by the Assessing Officer had arisen by way of commission on sale of milk and other prodcucts as fixed by mother diary then the income of the assessee would go below the threshold limit as provided u/s 44AB because in that situation commission is to be considered and not the sale proceeds of milk and other product.

In view of the above, the Tribunal opined that the assessee’s belief that he was under belief that he was not subject to tax audit appears to be prima facie bona fide belief.

The Tribunal pointed out that Section 273B of the Income Tax Act categorically provides 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.

Accordingly, Tribunal directed AO to delete the penalty. 

Download Full Judgment Click Here >>

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