Split contract and subcontract receipts in s.44AB audit default case; "reasonable cause" u/s273B accepted, penalty quashed

Penalty for failure to get accounts audited under s.44AB was challenged on the ground that the assessee had defaulted in filing the audit report. The HC held that the appellate authorities concurrently found "reasonable cause" within the meaning of s.273B: the main contract was split, the assessee received only a small portion directly, the remainder was executed by another concern in which he was a partner, he disclosed the full arrangement and his share income without suppressing material facts, and he lacked control over the subcontractor's accounts; his bona fide belief that subcontract receipts were not to be included was accepted. No substantial question of law arose; the Revenue's appeal was dismissed.

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Issues Involved:
The judgment involves the imposition of penalty under section 271B of the Income-tax Act, 1961 on an assessee for failure to get accounts audited under section 44AB, and the subsequent appeal process leading to the High Court.

Imposition of Penalty under Section 271B:
The assessee, engaged in a contractor-ship business, received a contract exceeding Rs. 40 lakhs, triggering the requirement to file a return with an audit report under section 44AB. The Income-tax Officer imposed a penalty of Rs. 44,461 for failure to get accounts audited, which was later set aside by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.

Appellate Process:
The Income-tax Officer appealed the setting aside of the penalty to the High Court under section 260A of the Act, arguing that the gross receipts exceeding Rs. 40 lakhs mandated audit. However, the court noted that while section 44AB mandates audit, section 271B regarding penalty uses the term "may," granting discretion to impose or not impose a penalty.

Reasonable Cause for Failure:
Both the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal found a reasonable cause for the assessee's failure to audit accounts. The assessee had disclosed all relevant facts, did not suppress income, and believed the sub-contractor's amount was not part of his income. The courts accepted the explanation provided, concluding that no substantial question of law merited consideration.

Conclusion:
The High Court dismissed the appeal, emphasizing that the provision for penalty under section 271B is discretionary, and in this case, the assessee had a reasonable cause for not getting the accounts audited. As there was no income suppression and the explanation was accepted by the lower authorities, the appeal was rejected.

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