Appeal allowed for charitable trust exempt under sec 11, penalty under sec 271B canceled

The ITAT allowed the appeal by the assessee, a charitable trust claiming exemption under section 11 of the Income Tax Act, against a penalty imposed under section 271B for failure to audit accounts under section 44AB. The ITAT held that the assessee's exempt status under section 11 rendered section 44AB inapplicable, citing case law precedent. Consequently, the penalty was deemed unjustified and canceled, with the ITAT allowing all grounds of appeal and reversing the lower authorities' decision.

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Issues involved:
The judgment deals with the imposition of penalty u/s 271B of the Income Tax Act on an assessee for failure to get the accounts audited under section 44AB of the Act, specifically in the context of a charitable trust claiming exemption under section 11 of the Act for the assessment year 2006-07.

Details of the judgment:

1. The AO imposed a penalty of Rs. 26,572 u/s 271B for failure to get the accounts of a hospital audited u/s 44AB, despite the assessee being a charitable organization claiming exemption under section 11. The AO rejected the contention that the accounts were not required to be audited due to the charitable status, noting the business income declaration in the return filed by a Chartered Accountant.

2. The Ld. CIT(A) upheld the penalty, leading to an appeal by the assessee represented by Sh. Surinder Mahajan, CA. The Ld. DR supported the lower authorities' orders.

3. The ITAT considered whether the assessee, as a charitable trust with exempt income u/s 11, was liable for audit u/s 44AB meant for business entities. It was argued that Chapter III (exempt incomes) prevails over Chapter IV (business incomes) of the Act, rendering section 44AB inapplicable to the assessee.

4. Referring to case law precedent, including ACIT vs. India Magnum Fund, the ITAT concluded that the assessee's exempt status under section 11 precluded the application of section 44AB. The penalty under section 271B was deemed unjustified and canceled.

5. The ITAT also considered the assessee's bonafide belief in not attracting section 44AB and cited relevant case laws to support the decision to cancel the penalty.

6. Consequently, the ITAT allowed all grounds of appeal by the assessee, reversing the Ld. CIT(A)'s order and canceling the penalty imposed u/s 271B.

7. The appeal in ITA No.185(Asr)2012 was allowed, and the order was pronounced on 6th August 2012.

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