2020 (3) TMI 171 - AT - Income Tax

Penalties deleted for low turnover in speculative transactions; failure to comply with notice upheld.

The penalties under Sections 271A and 271B were deleted as the turnover from speculative transactions was below the threshold requiring maintenance of ... Turnover for speculative transactions - Guidance Note of ICAI on tax audit - turnover threshold under section 44AB - maintenance of books under section 44AA - penalty under section 271A - penalty under section 271B - penalty under section 271(1)(b) - reasonable and bonafide explanation under section 273BTurnover for speculative transactions - Guidance Note of ICAI on tax audit - turnover threshold under section 44AB - maintenance of books under section 44AA - penalty under section 271A - penalty under section 271B - reasonable and bonafide explanation under section 273B - Whether penalties under sections 271A and 271B are leviable where assessee carried out speculative (non-delivery) transactions and turnover is to be determined for such transactions. - HELD THAT: - The Tribunal examined the nature of the assessee's transactions (speculative non-delivery based transactions on NCDEX/MCX) and applied the Guidance Note of the Institute of Chartered Accountants of India for determining turnover in respect of speculative transactions. The Guidance Note directs that for speculative transactions the 'turnover' is the aggregate of both positive and negative differences arising on settlement of contracts during the year. Applying this principle, the aggregate turnover from the assessee's speculative and delivery transactions was found to be below the threshold prescribed under section 44AB. Where turnover is below the threshold, the statutory obligation to maintain books under section 44AA and to get them audited under section 44AB does not arise. Consequently, penalties under section 271A (for non-maintenance of books) and section 271B (for not getting accounts audited) cannot be sustained. The Tribunal also noted that, on the same reasoning, an explanation that computes turnover as per the Guidance Note would constitute a reasonable and bona fide explanation under section 273B in analogous cases, removing applicability of penalty where the turnover so computed falls below the threshold. [Paras 8, 9]Penalties under sections 271A and 271B deleted and the orders of the lower authorities set aside.Penalty under section 271(1)(b) - Whether penalty under section 271(1)(b) for non-compliance with notice under section 142(1) is sustainable in absence of any explanation by the assessee. - HELD THAT: - The record contained no explanation or reasonable cause furnished by the assessee for failure to comply with the notice issued under section 142(1). In the absence of any material showing a reasonable cause for non-compliance, the Tribunal upheld the levy of penalty under section 271(1)(b). [Paras 10]Penalty under section 271(1)(b) confirmed.Final Conclusion: Appeals against penalties under sections 271A and 271B allowed (penalties deleted); appeal against penalty under section 271(1)(b) dismissed (penalty confirmed) for assessment year 2010-11. Issues Involved:1. Levy of penalty under Section 271A for non-maintenance of books of accounts.2. Levy of penalty under Section 271B for not getting the books of account audited.3. Levy of penalty under Section 271(1)(b) for non-compliance with the notice issued under Section 142(1).Issue-wise Detailed Analysis:1. Levy of Penalty under Section 271A for Non-Maintenance of Books of Accounts:The assessee was found to be engaged in day-to-day trading of commodities and shares with a total turnover of Rs. 27,26,87,233/- during the relevant assessment year. Despite repeated notices, the assessee failed to produce the necessary books of accounts and other documents as required under Section 44AB of the Income Tax Act. Consequently, the Assessing Officer levied a penalty of Rs. 5,000/- under Section 271A. The CIT(A) confirmed this penalty due to continued non-compliance by the assessee. However, upon further examination, it was determined that the turnover should be calculated based on the aggregate of positive and negative differences from speculative transactions, which amounted to Rs. 3,59,632/-. Since this amount was below the threshold requiring maintenance of books, the penalty under Section 271A was deleted.2. Levy of Penalty under Section 271B for Not Getting the Books of Account Audited:The Assessing Officer also imposed a penalty of Rs. 1,00,000/- under Section 271B due to the assessee’s failure to get the accounts audited, as required when turnover exceeds the prescribed limit. This penalty was upheld by the CIT(A). However, the Tribunal noted that the turnover for speculative transactions, calculated as per ICAI guidelines, was only Rs. 3,59,632/-, below the threshold for mandatory audit under Section 44AB. Consequently, the penalty under Section 271B was also deleted, as the requirement for audit did not apply.3. Levy of Penalty under Section 271(1)(b) for Non-Compliance with Notice under Section 142(1):The assessee did not comply with the notice issued under Section 142(1) dated 13.10.2017, and no explanation was provided for this non-compliance. As a result, the Assessing Officer levied a penalty of Rs. 10,000/- under Section 271(1)(b), which was confirmed by the CIT(A). The Tribunal upheld this penalty due to the absence of any reasonable cause shown by the assessee for non-compliance.Conclusion:The penalties under Sections 271A and 271B were deleted as the turnover from speculative transactions was determined to be below the threshold requiring maintenance of books and audit. However, the penalty under Section 271(1)(b) was confirmed due to the assessee’s failure to comply with the notice under Section 142(1) without any reasonable cause. The appeals for penalties under Sections 271A and 271B were allowed, while the appeal for the penalty under Section 271(1)(b) was dismissed.