Tribunal upholds penalty for failure to comply with income tax audit requirements

The Tribunal upheld the penalty of Rs.1,50,000 imposed by the Assessing Officer under Section 271B of the Income Tax Act, as the assessee failed to comply with the mandatory audit requirement under Section 44AB. The Tribunal rejected the assessee's contention of a bonafide belief and professional advice as reasonable cause, emphasizing that the gross receipts exceeded Rs.1 crore, making the audit obligatory. The appeal was dismissed, with the Tribunal stating that the explanation provided did not constitute a reasonable cause for the failure to audit accounts.

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Issues Involved:
1. Penalty under Section 271B of the Income Tax Act, 1961.
2. Applicability of Section 44AB of the Income Tax Act, 1961.
3. Assessee's bonafide belief regarding non-applicability of Section 44AB.
4. Reasonable cause under Section 273B of the Income Tax Act, 1961.

Detailed Analysis:

1. Penalty under Section 271B of the Income Tax Act, 1961:
The primary issue is whether the penalty levied under Section 271B for failing to get accounts audited as mandated by Section 44AB is justified. The Assessing Officer (AO) levied the penalty, and the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed it. The Tribunal upheld the penalty, emphasizing that the assessee's gross receipts exceeded the prescribed limit of Rs.1 crore, making the audit mandatory.

2. Applicability of Section 44AB of the Income Tax Act, 1961:
Section 44AB mandates that every person carrying on business must get their accounts audited if their total sales, turnover, or gross receipts exceed Rs.1 crore in any previous year. The Tribunal noted that the assessee, a builder and developer, followed the Percentage Completion Method of Accounting. The assessee's gross receipts, including advances from customers and work in progress, exceeded Rs.1 crore, thus triggering the audit requirement under Section 44AB.

3. Assessee's Bonafide Belief Regarding Non-Applicability of Section 44AB:
The assessee argued that they were under a bonafide belief that an audit was not required as there were only advances from customers and no complete sales during the year. The Tribunal rejected this argument, stating that the assessee, being a builder and developer, should have been aware of the audit requirements, especially with professional advice from a Chartered Accountant (CA). The Tribunal emphasized that gross receipts, including advances, exceeded Rs.1 crore, making the audit mandatory.

4. Reasonable Cause under Section 273B of the Income Tax Act, 1961:
Section 273B provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure. The assessee contended that their bonafide belief constituted a reasonable cause. However, the Tribunal found this explanation unacceptable, highlighting that the assessee had professional advice and had prepared financial statements with the help of a CA. The Tribunal concluded that the explanation was merely an eye wash and did not constitute a reasonable cause under Section 273B.

Conclusion:
The Tribunal upheld the penalty of Rs.1,50,000 levied by the AO under Section 271B, stating that the assessee failed to comply with the mandatory audit requirement under Section 44AB. The Tribunal dismissed the appeal, emphasizing that the assessee's gross receipts exceeded Rs.1 crore and that the explanation provided did not constitute a reasonable cause for the failure to get the accounts audited.

Order Pronouncement:
The appeal of the assessee was dismissed, and the order was pronounced in the open court on 22nd December, 2022.

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