2018 (5) TMI 1432 - AT - Income Tax

Penalty upheld for non-compliance with audit requirements and fabricating documents

The Tribunal upheld the penalty under section 271B of the I.T. Act, 1961, as the appellant failed to comply with audit requirements under section 44AB, ... Failure to get accounts audited in compliance with section 44AB - penalty under section 271B - fabrication of documents - onus to prove applicability of audit exemption - absence of reasonable cause for non-complianceFailure to get accounts audited in compliance with section 44AB - penalty under section 271B - fabrication of documents - absence of reasonable cause for non-compliance - onus to prove applicability of audit exemption - Whether penalty under section 271B is sustainable for failure to get accounts audited under section 44AB, in view of production of a fabricated tax audit report and the assessee's claim that no books of account were maintained. - HELD THAT: - The Tribunal upheld the finding that provisions of section 271B are attracted. The assessee filed a return showing high turnover but failed to produce books of account before the Assessing Officer; a tax audit report produced during proceedings was established to be fabricated as the signing Chartered Accountant admitted signing without examining books. The assessee's later plea that no books were maintained was rejected because (a) the assessee (through his authorised representative) had earlier informed the AO that books were misplaced, which indicated that books existed though not produced, and (b) the P&L account filed with the return prima facie showed turnover necessitating audit under section 44AB. The Tribunal accepted the AO's conclusion that the documents were manipulated and that no valid tax audit in terms of section 44AB was carried out. The assessee failed to discharge the onus of proving that his actual turnover was below the threshold exempting him from audit, and did not show any reasonable cause for non-compliance. In these circumstances the imposition of penalty under section 271B was held to be justified. [Paras 6]Penalty under section 271B sustained as section 44AB was not complied with, the produced audit report was fabricated and no reasonable cause or proof was shown to avoid penalty.Final Conclusion: The appeal is dismissed; the Tribunal affirms the levy of penalty under section 271B for failure to get accounts audited in accordance with section 44AB, holding the audit report to be fabricated and the assessee unable to prove exemption or reasonable cause. Issues:Levy of penalty under section 271B of the I.T. Act, 1961 for failure to produce books of account and audit report under section 44AB.Analysis:The appeal was filed against the penalty imposed under section 271B of the I.T. Act, 1961 for not producing books of account and audit report under section 44AB. The assessee, engaged in the sale/purchase of Paints and Sanitary Wares, filed a return of income showing a total income of Rs. 4,62,460 for the A.Y. 2010-2011. However, during assessment proceedings, it was found that the audit report submitted by the assessee was fabricated, and the Chartered Accountant who signed the report admitted to not examining the books of account. The Assessing Officer (A.O.) concluded that the assessee violated section 44AB and imposed a penalty of Rs. 1 lakh.The assessee contended before the Ld. CIT(A) that the inflated turnover shown in the audit report was to secure a loan of Rs. 2 crores from the bank. However, the Ld. CIT(A) upheld the penalty, noting that the assessee failed to prove the actual turnover and that the audit report was not genuine. The appellant's reliance on a High Court decision was dismissed as the circumstances were different. The appellant's failure to substantiate the claimed turnover led to the confirmation of the penalty.During the appeal, the assessee argued that since no books of account were maintained, there was no requirement for an audit. However, it was observed that the books of account were not produced, and the audit report was not submitted as per section 44AB. The Chartered Accountant denied preparing the tax audit report, highlighting fabrication. The authorities found the penalty justified as the provisions of Section 271B were clearly attracted. The appellant's explanation for the inflated turnover and failure to get accounts audited was deemed unacceptable, leading to the dismissal of the appeal.In conclusion, the Tribunal upheld the penalty under section 271B, emphasizing that the failure to comply with the audit requirements under section 44AB warranted the penalty. The appellant's actions of fabricating documents and failing to substantiate turnover led to the dismissal of the appeal.This detailed analysis of the judgment highlights the key issues, arguments presented, and the reasoning behind upholding the penalty under section 271B of the I.T. Act, 1961.