Appeal allowed, penalty canceled under Income Tax Act; reasonable cause for non-compliance recognized.

The Tribunal allowed the appeal, canceling the penalty under Section 271B of the Income Tax Act. The assessee's belief that the receipt was an advance and should be taxed as long-term capital gains was deemed a reasonable cause for not complying with audit requirements. The Tribunal found the penalty unsustainable, noting the assessee's non-business background and the one-time nature of the transaction. The order was issued on 21st June 2019.

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Issues Involved:
1. Levy of penalty under Section 271B of the Income Tax Act, 1961.
2. Classification of income as business income versus capital gains.
3. Requirement for audit under Section 44AB of the Income Tax Act, 1961.
4. Reasonable cause for non-compliance with audit requirements.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271B of the Income Tax Act, 1961:
The primary issue in this case was the levy of penalty under Section 271B for the assessee's failure to get accounts audited as required under Section 44AB of the Income Tax Act, 1961. The assessee filed a return declaring Nil income, but the Assessing Officer (AO) completed the assessment with a total income of Rs. 3,40,22,207/- under the head 'business income'. Consequently, the AO initiated penalty proceedings under Section 271B and levied a penalty of Rs. 1,00,000/- for non-maintenance of books of accounts and failure to get the accounts audited.

2. Classification of Income as Business Income versus Capital Gains:
The assessee contended that the income derived from the sale of disputed property should be classified as long-term capital gains. The assessee argued that the rights transferred did not have any cost of acquisition and referenced several judicial precedents to support the claim that the transaction did not constitute taxable capital gains. However, the AO assessed the receipt of Rs. 3,40,00,000/- as business income, stating that the transaction was in the nature of trade. This classification was upheld by the Tribunal, which confirmed that the activity was an adventure in the nature of trade.

3. Requirement for Audit under Section 44AB of the Income Tax Act, 1961:
Since the AO treated the receipt as business income and the gross receipts exceeded the specified limit of Rs. 40,00,000/-, the AO held that the assessee was required to get the accounts audited under Section 44AB. The failure to comply with this requirement led to the initiation of penalty proceedings under Section 271B.

4. Reasonable Cause for Non-compliance with Audit Requirements:
The assessee argued that the receipt of Rs. 3.4 Crores was an advance and was offered for capital gains, hence there was reasonable cause for not getting the accounts audited. The assessee believed that the amount was not taxable in the year of receipt as the transaction was not finalized and should be taxed as long-term capital gains when completed. The Tribunal found that the assessee's belief was a reasonable cause for non-compliance with the audit requirement. The Tribunal noted that the transaction was a single instance and the assessee, a mechanical engineer, was not engaged in any business activities. Therefore, the Tribunal held that the penalty under Section 271B was unsustainable and set aside the order of the Commissioner of Income Tax (Appeals), canceling the penalty levied by the AO.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that there was a reasonable cause for not getting the accounts audited, and thus, the penalty levied under Section 271B was canceled. The order was pronounced in the open court on 21st June 2019.

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