ITAT Overturns Penalty for Non-Audited Accounts in Retail Trading

The ITAT set aside the penalty imposed under section 271B of the Income Tax Act on an individual engaged in retail trading, tailoring, and stitching, who failed to get accounts audited as required by section 44AB. Despite the turnover exceeding the limit, the ITAT considered the appellant's bonafide belief and lack of maintained accounts, following a judgment of the Allahabad HC. Consequently, the ITAT ruled that imposing a penalty for not auditing accounts when none were kept was impractical, overturning the penalties imposed by the AO and CIT(A) and allowing the appellant's appeal.

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Issues involved:
The issues involved in this case are the imposition of penalty under section 271B of the Income Tax Act, 1961 for failure to get accounts audited as per provisions of section 44AB, and the contention of the assessee regarding the bonafide belief that no audit was required for a retail business.

Imposition of Penalty under Section 271B:
The appellant, an individual engaged in trading of cloth on a retail basis, tailoring, and stitching, filed a return of income declaring total income. The Assessing Officer (AO) initiated penalty proceedings under section 271B as the appellant failed to get accounts audited as required by section 44AB of the IT Act. The penalty was imposed based on a percentage of the total turnover. The appellant challenged this penalty through an appeal to the Commissioner of Income Tax (Appeals) and subsequently to the ITAT.

Bonafide Belief of Assessee:
The appellant argued that she was under the bonafide belief that maintaining books of accounts was not required for a retail business, especially in the first year of operation. The appellant contended that since she offered profit at a certain percentage of turnover and paid tax accordingly, the penalty for not getting the accounts audited should not apply. The appellant relied on a judgment of the Allahabad High Court to support her argument that penalty under section 271B is not attracted when no accounts have been maintained, and recourse under section 271A can be taken instead.

Judgment and Decision:
After considering the arguments from both sides, the ITAT observed that the appellant's turnover exceeded the prescribed limit necessitating the maintenance and audit of accounts under relevant sections of the IT Act. However, the ITAT also noted the appellant's bonafide belief and lack of maintained accounts. Relying on the Allahabad High Court's judgment, the ITAT concluded that imposing a penalty under section 271B for not getting the accounts audited was impractical when no accounts were maintained in the first place. Therefore, the ITAT set aside the penalty imposed by the AO and confirmed by the CIT(A), allowing the appeal of the assessee.

Separate Judgment:
This judgment was delivered by Shri Arun Khodpia, AM, and Shri Ravish Sood, JM.

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