2022 (10) TMI 944 - AT - Income Tax

Tribunal rules in favor of Assessee, finds unaccounted income not subject to penalty.

Shri Jay Nalin Shah Versus The ITO, Ward-2, Bhuj-Kutch

The Tribunal allowed the Assessee's appeal, concluding that the unaccounted commission income was not part of the regular books of accounts and therefore ... Penalty levied u/s. 271B - failure to get accounts audited - determination of turnover - accommodation entries - reasonable cause for the said failure - assessee had turnover which exceed the limit as per the provisions of Section 44AB but not the commission income - HELD THAT:- Parliament has used the words 'may' and not 'shall', thereby making their intention clear in as much as that levy of penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B namely “penalty not to be imposed in certain cases”. A careful reading of Section 273B encompasses that certain penalties 'shall' be imposed in cases where 'reasonable cause' is successfully pleaded. It is seen that penalty imposable u/s 271B is also included therein. By the said provisions, the Parliament has unambiguously made it clear that no penalty 'shall be' imposed, if the assessee 'proves that there was a reasonable cause for the said failure'. As noticed, if the statutory provision shows that the word 'shall' has been used in Section 271B, then the imposition of penalty would have been mandatory. Section 271B as extracted above further throws light on the legislative intent as it specifically provides that no penalty 'shall’ be imposed if the assessee proves 'that there was reasonable cause for the said failure'. In the facts of the present case, it is seen that the explanations offered by the assessee have been ignored by the Assessing Officer as well as CIT(A) and levied penalty u/s. 271B of the Act. The discretion available u/s. 273B is not exercised by the Lower Authorities. For the reasons stated in the previous paragraph, we have no hesitation in deleting the penalty levied u/s. 271B of the Act. Grounds raised by the Assessee is allowed. Issues Involved:1. Confirmation of penalty levied under Section 271B of the Income Tax Act, 1961.2. Interpretation of turnover exceeding the limit under Section 44AB.3. Maintenance of regular books of accounts.4. Discretionary nature of penalty under Section 271B and reasonable cause under Section 273B.Detailed Analysis:1. Confirmation of Penalty Levied Under Section 271B:The appeal was filed by the Assessee against the order dated 29.08.2019 by the Commissioner of Income Tax (Appeals)-3, Rajkot, which confirmed the penalty levied under Section 271B of the Income Tax Act, 1961, for the Assessment Year 2015-16. The penalty was initiated by the Assessing Officer (A.O.) on the grounds that the Assessee's turnover exceeded the limit prescribed under Section 44AB, necessitating an audit, which was not conducted.2. Interpretation of Turnover Exceeding the Limit Under Section 44AB:The A.O. assessed the Assessee's total income at Rs. 24,09,640/- against the declared income of Rs. 6,11,880/-. The A.O. noted that the Assessee had a turnover of Rs. 4,79,20,728/-, which exceeded the limit under Section 44AB, thus requiring an audit. The Assessee argued that the turnover as per the regular books was Rs. 40,88,466/-. The additional income was derived from accommodation entries with a 2% commission, which was not part of the regular books but was accepted to avoid litigation.3. Maintenance of Regular Books of Accounts:The Assessee maintained regular books of accounts showing a turnover below the threshold. The A.O. did not reject these books but added income from accommodation entries identified during the assessment. The Assessee cited previous ITAT decisions, arguing that penalty under Section 271B is not applicable where no regular books of accounts were maintained for certain transactions.4. Discretionary Nature of Penalty Under Section 271B and Reasonable Cause Under Section 273B:The Tribunal noted that the penalty under Section 271B is discretionary and not mandatory. Section 273B provides that no penalty shall be imposed if the Assessee proves there was a reasonable cause for the failure. The Tribunal observed that the Lower Authorities did not consider the Assessee's explanations and failed to exercise discretion under Section 273B.Conclusion:The Tribunal concluded that the unaccounted commission income was not part of the regular books of accounts and thus did not warrant a penalty under Section 271B. The Tribunal emphasized the discretionary nature of the penalty and the need to consider reasonable cause under Section 273B. Consequently, the Tribunal deleted the penalty levied under Section 271B and allowed the Assessee's appeal.Order:The appeal by the Assessee was allowed, and the penalty under Section 271B was deleted. The order was pronounced in the open court on 21-10-2022.