2022 (4) TMI 1270 - AT - Income Tax

Tribunal overturns penalty under Income Tax Act, ruling in favor of assessee

Anju Chamaria C/o. S.N. Ghosh & Associates, Advocates, “SEBEN BROTHERS LODGE” Versus ITO, Ward-43 (1), Kolkata

The Tribunal set aside the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision and directed the Assessing Officer (AO) to delete the penalty imposed ... Tax audit u/s 44AB - Determination of turnover - Penalty proceedings u/s 271B - assessment proceeding that the assessee failed to comply with provisions as laid down in section 44AB as the assessee was involved in delivery based as well as non-delivery based trading of shares and securities and thus had speculative income/loss non-speculative business income/loss as per the provisions laid down in section 43(5) - HELD THAT:- We find that the AO imposed penalty for not getting the accounts audited as according to the AO turnover exceeds the threshold limit as prescribed u/s 44AB of the Act. We note that the assessee is doing non-delivery based transactions and in such case the turnover has to be determined on the basis of the net of sales and purchase of shares. Further the default committed by the assessee is of technical nature and the AO was not handicapped for want of tax audit report while making assessment under appeal. Default committed by the assessee is a technical or venial nature. Beside that the assessment was selected for limited scrutiny to verify the derivative (future) transaction and securities transactions. Thus we are of the view that there is no requirement for getting the accounts audited u/s 44AB of the Act as the turnover is less than the prescribed limit. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the penalty. - Decided in favour of assessee. Issues Involved:1. Jurisdiction under Section 27IB of the Income Tax Act, 1961.2. Interpretation of Section 44AB and applicability of penalty under Section 271B of the Income Tax Act, 1961.3. Consideration of explanation under Section 273B of the Income Tax Act, 1961.4. Legitimacy and correctness of the penalty order.Detailed Analysis:Jurisdiction under Section 27IB of the Income Tax Act, 1961The appellant argued that the Commissioner of Income Tax (Appeals) [CIT(A)] failed to appreciate that none of the conditions precedent required for the assumption of jurisdiction under Section 27IB were satisfied. The Income Tax Officer (ITO) imposed a penalty of Rs. 1,50,000 alleging a violation of Section 44AB, which the appellant claimed was void and ultra vires. The Tribunal noted that the assessee was involved in both delivery-based and non-delivery-based trading of shares and securities, making Section 44AB applicable. Consequently, the ITO issued a show cause notice and initiated penalty proceedings under Section 271B due to non-compliance.Interpretation of Section 44AB and Applicability of Penalty under Section 271BThe appellant contended that the CIT(A) erred in upholding the penalty as the transactions in question were speculative and did not constitute turnover for the purpose of Section 44AB. The Tribunal observed that the assessee engaged in derivative contracts amounting to Rs. 965.35 crores and could not be considered an ordinary layperson ignorant of the law. The CIT(A) concluded that the appellant's plea of ignorance was without merit and not covered under Section 273B, which provides for no penalty if there was a reasonable cause for failure to get accounts audited.Consideration of Explanation under Section 273BThe appellant argued that the CIT(A) failed to consider the explanation provided under Section 273B. The Tribunal found that the appellant's engagement in specialized derivative trading negated the claim of ignorance. The CIT(A) emphasized that reasonable cause must be rational and not excessive, and the appellant failed to prove reasonable cause for non-compliance with Section 44AB.Legitimacy and Correctness of the Penalty OrderThe appellant submitted that the failure to get accounts audited was a technical default and did not justify the penalty. The Tribunal referred to previous decisions, including the case of The Kalna Town Credit Co-operative Bank Ltd., where the penalty was deleted due to the technical nature of the default. The Tribunal also considered the case of Banwari Sitaram Pasari HUF, which held that speculative transactions without physical delivery do not constitute turnover requiring audit under Section 44AB.ConclusionThe Tribunal concluded that the assessee's default was of a technical nature and the accounts were not liable for audit under Section 44AB as the turnover was below the prescribed limit. Consequently, the penalty under Section 271B was not justified. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the penalty, allowing the appeal in favor of the assessee.Order PronouncedThe appeal of the assessee was allowed, and the order was pronounced in the open court on 22nd April, 2022.