Penalty under Income Tax Act waived due to reasonable cause

The Tribunal held that the penalty under Section 271B of the Income Tax Act should not be imposed as the assessee had a reasonable cause for not getting his books audited within the stipulated time, being misled by his accountant in his first year of business. The penalty of Rs. 73,070 was directed to be deleted, and the appeal of the assessee was allowed. The order was pronounced on 24.07.2019.

---

---

Issues Involved:
1. Imposition of penalty under Section 271B of the Income Tax Act, 1961.
2. Applicability of Section 44AB regarding audit of books of accounts.
3. Reasonable cause for non-compliance with Section 44AB.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271B:
The primary issue in the appeal was the imposition of a penalty of Rs. 73,070 under Section 271B of the Income Tax Act, 1961. The penalty was levied because the assessee failed to get his books of accounts audited within the specified time as mandated by Section 44AB of the Act. The assessee argued that he was unaware of the requirement to get his books audited as his turnover exceeded Rs. 40 lakh, which was the threshold for mandatory audit under Section 44AB.

2. Applicability of Section 44AB Regarding Audit of Books of Accounts:
The assessee's turnover for the financial year 2008-09 was Rs. 1,46,14,105, which exceeded the threshold limit of Rs. 40 lakh as per Section 44AB of the Act. Consequently, the assessee was required to get his books of accounts audited and submit the tax audit report by the due date, which he failed to do. The assessee contended that this was his first year of business, and he was not professionally literate about the legal requirements, including the audit requirement under Section 44AB.

3. Reasonable Cause for Non-Compliance with Section 44AB:
The assessee claimed that his failure to comply with Section 44AB was due to a bona fide belief and lack of proper advice from his accountant. He maintained that there was no willful attempt to evade the audit requirement. The Tribunal noted that the assessee was not professionally literate and was misled by his accountant, who advised that an audit was not necessary. The Tribunal referenced the Supreme Court judgment in Hindustan Steel Ltd. vs. State of Orissa, which stated that penalty should not be imposed if the failure to comply with a statutory obligation was not deliberate or intentional.

The Tribunal also considered a similar case (Ramesh Kumar vs. ITO) where the penalty was deleted due to the assessee's bona fide belief and lack of proper advice. The Tribunal observed that the imposition of penalty is a quasi-criminal proceeding and should not be imposed unless the non-compliance was deliberate or in conscious disregard of the law.

Conclusion:
The Tribunal concluded that the assessee had a reasonable cause for not getting his books audited within the stipulated time, as it was his first year of business and he was misled by his accountant. The Tribunal held that the penalty under Section 271B should not be imposed in this case and directed the deletion of the penalty of Rs. 73,070. The appeal of the assessee was allowed.

Order Pronounced:
The order was pronounced in the Court on 24.07.2019.

---