2019 (6) TMI 1094 - AT - Income Tax

Appeal granted for boat repairs and wages, penalty upheld for audit non-compliance.

The ITAT allowed the appeal regarding the disallowance of boat repairs and maintenance expenditure and the adhoc disallowance of wages paid to boat staff ... Procedure in appeal under section 250(6) - remand for decision on merits - requirement of audit under section 44AB - penalty for failure to get accounts audited under section 271B - reasonable cause for levy of penaltyProcedure in appeal under section 250(6) - remand for decision on merits - Validity of CIT(A)'s ex parte dismissal for non prosecution and remedy - HELD THAT: - The Tribunal found that the CIT(A) passed an ex parte order dismissing the assessee's appeal for non prosecution without deciding the points for determination and giving reasons as required by the statutory provision governing the form and content of the Commissioner(Appeals)'s order. The order of the CIT(A) did not contain the reasoned findings mandated by the provision reproduced in the judgment. In the interest of justice the Tribunal held that the matter must be sent back to the file of the CIT(A) for adjudication on merits and directed the assessee's authorised representative to comply with notices issued by the CIT(A). Consequently the appeal was allowed for statistical purposes and remitted for fresh decision on merits. [Paras 7]CIT(A)'s ex parte dismissal set aside and matter remitted to CIT(A) for decision on merits with direction to issue notices to and hear the assessee's representative.Requirement of audit under section 44AB - penalty for failure to get accounts audited under section 271B - reasonable cause for levy of penalty - Sustainability of penalty under section 271B for failure to get accounts audited - HELD THAT: - The Tribunal reviewed the factual position that the assessee's gross receipts exceeded the prescribed limit and that no audit report was furnished by the due date. The explanations offered-survey under section 133A, incapacity of a part time accountant to summarise transactions and illiteracy of partners-were held insufficient to constitute a 'reasonable cause' for non compliance. The Tribunal noted the mandatory nature of the obligation to procure an audit and file the report within the statutory time and observed that the assessee had not even obtained the audit belatedly by the date of the penalty order or the filing of the appeal. Applying these legal principles, the Tribunal found no reason to interfere with the CIT(A)'s confirmation of the penalty. [Paras 10]Penalty under section 271B confirmed; appeal dismissed.Final Conclusion: The Tribunal set aside the CIT(A)'s ex parte dismissal and remitted the appeal to the CIT(A) for a reasoned decision on merits, and independently upheld the penalty under section 271B for failure to get the accounts audited for A.Y.2008 09. Issues:1. Disallowance of boat repairs and maintenance expenditure2. Adhoc disallowance of wages paid to boat staff3. Penalty levied under section 271B for failure to comply with section 44ABIssue 1: Disallowance of boat repairs and maintenance expenditureThe appellant contested the addition of Rs. 16,23,563 towards disallowance of boat repairs and maintenance expenditure. The Assessing Officer (AO) made various disallowances, including payments made to partners for boat repairs. The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appeal for non-prosecution without considering the merits, which was found to be in violation of the provisions of the Income Tax Act. The Income Tax Appellate Tribunal (ITAT) remitted the matter back to the CIT(A) to decide the appeal on merits, emphasizing the need for a reasoned order as required by the Act. The appeal of the assessee was allowed for statistical purposes.Issue 2: Adhoc disallowance of wages paid to boat staffAnother ground of appeal was related to the adhoc disallowance of 10% of wages paid to boat staff. The AO had made additions to the returned income, leading to the dispute. The ITAT reviewed the contentions and material placed on record, finding that the CIT(A) had passed an ex-parte order for non-prosecution. In the interest of justice, the ITAT directed the CIT(A) to decide the appeal on merits, allowing the appeal of the assessee for statistical purposes.Issue 3: Penalty levied under section 271B for failure to comply with section 44ABThe penalty under section 271B was imposed on the assessee for failure to comply with section 44AB regarding the audit of accounts. The AO issued a notice to show cause for the penalty, to which the assessee provided explanations related to survey actions and the incapacity of the accountant. The CIT(A) confirmed the penalty, stating that the reasons provided were not sufficient to justify the failure to get the accounts audited. The ITAT upheld the decision of the CIT(A), noting that the reasons cited, such as survey actions and partner ignorance, did not constitute reasonable cause for non-compliance. The appeal of the assessee in this regard was dismissed.In conclusion, the ITAT addressed the issues of disallowance of boat repairs, adhoc disallowance of wages, and the penalty for non-compliance with audit requirements. The tribunal emphasized adherence to procedural requirements and the need for justifications in tax matters, ultimately allowing one appeal for statistical purposes and dismissing another.