Penalty for audit default cannot be imposed where no books of account were maintained and the proper default lies elsewhere.

Failure to maintain books of account attracts the default under section 44AA, with penalty under section 271A, and the audit obligation under section 44AB arises only where accounts exist and are maintained. Where there is complete non-maintenance of books, the audit-related default is not attracted, so penalty under section 271B cannot be sustained. The levy was therefore held unsustainable in favour of the assessee.

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Issues: Whether penalty under section 271B of the Income-tax Act, 1961 could be levied where the assessee had not maintained books of account at all and, consequently, no audit under section 44AB was undertaken.

Analysis: Maintenance of accounts is required under section 44AA of the Income-tax Act, 1961, and failure to maintain such accounts attracts penalty under section 271A. The obligation under section 44AB to get accounts audited arises only after books of account exist and are maintained. Where the default consists of complete non-maintenance of books, the offence under section 44AA is already complete and the audit-related default contemplated by section 44AB does not arise. In such a situation, penalty under section 271B cannot be sustained.

Conclusion: The levy of penalty under section 271B was unsustainable and the question was answered in favour of the assessee.

Ratio Decidendi: A penalty for failure to get accounts audited cannot be imposed where the assessee had not maintained books of account at all, because the statutory default, if any, is confined to non-maintenance of accounts and is punishable under the provision governing that default.

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