2017 (7) TMI 104 - AT - Income Tax

Tribunal overturns penalty for derivative trading; audit not required

The Tribunal allowed the appeal, setting aside the penalty under section 271B imposed on the assessee for trading in derivatives transactions and the ... Penalty levied u/s 271B - trading in derivatives transaction - whether the assessee is not liable to get the books of accounts audited u/s 44AB? - bonafide belief - Held that:- The assessee being a Sr. Citizen and engaged in the business of derivative, Future & Option with a tremendous courage and dynamism and on the other hand, he is taking such excuse which is not acceptable. We have seen that the order of ld. CIT (A) is reasoned one and does not suffer from any infirmity or illegality, which requires our interference. In reply to the show-cause notice for initiation of penalty, the assessee has replied that he is a Sr. Citizen; his accounts are looked after by Accountant. The accountant of the assessee is not qualified person. The assessee was under bonafide belief that accounts are not required to be issued u/s 44AB of the Act. The assessee specifically pleaded in the reply that the Guidance note, ‘Note of Tax Audit u/s 44AB’ issued by ICAI that, if the turnover of Future & Option defined as aggregate of favorable and unfavorable transaction exceed ₹ 40,00,000/- than the assessee is liable to get his account audited. As per our view the assessee has sufficiently explained the circumstances, as per the provisions of section 273B of the Income-tax Act. Considering the reply of the assessee the penalty levied by assessing officer under section 271B is deleted. Appeal of the assessee is allowed. Issues:1. Appeal against penalty u/s 271B for trading in derivatives transaction and liability to get books of accounts audited u/s 44AB.Analysis:1. The appeal was against the penalty levied u/s 271B for trading in derivatives transaction and the requirement to get books of accounts audited u/s 44AB. The Assessing Officer (AO) initiated the penalty as the turnover exceeded the prescribed limit of &8377; 40,00,000 under section 44AB. The AO held that turnover includes both gains and losses, and thus, the penalty was levied. On appeal, the penalty was sustained by the ld. CIT(A).2. Despite repeated calls and notices, the assessee did not appear during the proceedings. The authority letter of representatives was on record, and the notice of hearing was duly served. The Tribunal proceeded based on the material available. The ld. DR for the Revenue supported the lower authorities' orders, stating that the assessee's explanation was not convincing. The penalty was levied after affording full opportunity, and the ld. DR prayed for dismissal of the appeal.3. The Tribunal considered the contentions and orders of the lower authorities. The assessee, a senior citizen, argued that his accounts were maintained by a non-qualified person and believed they were not required to be audited under section 44AB. The assessee referred to the ICAI's guidance note on Future & Options transactions. The AO rejected this argument, stating the ICAI note does not override tax provisions. The ld. CIT(A) found the assessee's explanation insufficient and unjustified. However, the Tribunal found the assessee's explanation reasonable under section 273B and deleted the penalty of &8377; 40,694.4. The Tribunal noted that the assessee adequately explained the circumstances and the belief that his accounts did not need auditing under section 44AB. Considering the provisions of section 273B, the Tribunal found the assessee's reply satisfactory and deleted the penalty. Consequently, the appeal of the assessee was allowed, and the penalty under section 271B was set aside.5. The Tribunal's decision to delete the penalty was based on the assessee's explanation and the provisions of the Income-tax Act. The appeal was allowed, and the penalty was removed.