2019 (3) TMI 2096 - AT - Income Tax

Penalty under s.271B not leviable when no books maintained; omission falls under s.44AA, not s.44AB, penalty deleted

ITAT, Chennai (AT) held that penalty under s. 271B for failure to get accounts audited could not be levied where no books of account were maintained. The ... Penalty u/s.271B - failure to get the accounts audited as the turnover exceeded Rs. 1 crore - appellant had submitted that no books of accounts were maintained and therefore, question of getting the accounts audited does not arise - HELD THAT:- When no books of accounts are maintained the assessee commits an offence of not maintaining the books of accounts as contemplated by sec 44AA of the Act, after that there can be no offence contemplated by s. 44AB of the Act. The penalty cannot be imposed u/s. 271B of the Act for an offence contemplated by s. 44AA of the Act. Reliance in this regard can be placed on the decisions of Surajmal Parusuram Todi [1996 (8) TMI 102 - GAUHATI HIGH COURT] and Bisauli Tractors [2007 (5) TMI 181 - ALLAHABAD HIGH COURT] We held that levy of penalty u/s. 271B of the Act is not justified in case no books of accounts were maintained. Accordingly, we direct the AO to delete the penalty. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271B of the Income-tax Act is leviable where the assessee did not maintain any books of account at all. 2. Whether the absence of maintained books falls within the mischief of section 44AB (audit) or is exclusively governed by non-maintenance penalty under section 271A (and the obligation under section 44AA). ISSUE-WISE DETAILED ANALYSIS Issue 1: Levy of penalty under section 271B where no books of account are maintained Legal framework: Section 44AA prescribes maintenance of books of account; section 44AB requires audit of accounts and furnishing of audit report where statutory thresholds are crossed; section 271A penalises failure to maintain books of account; section 271B penalises failure to get accounts audited and furnish the audit report as required by section 44AB. Precedent Treatment: The Tribunal relied on a body of High Court and other authority decisions holding that where no books are maintained at all the obligation to conduct an audit under section 44AB does not arise and thus section 271B cannot be invoked; instead, non-maintenance is addressed under section 271A. These authorities were followed rather than distinguished or overruled. Interpretation and reasoning: The Court analysed the textual and purposive distinction between non-maintenance and non-audit. Where books are not maintained, there is no subject matter for the audit obligation in section 44AB; therefore, penalising under section 271B for failure to furnish an audit report would be improper. The Tribunal applied principles of strict construction of penal provisions and the rule that ambiguous penal language should be interpreted in favour of the assessee. Comparative statutory reading shows the legislature created separate penal consequences for distinct defaults (non-maintenance v. non-audit), and the penal provision for audit (271B) presupposes existence of accounts to be audited. Ratio vs. Obiter: Ratio - Penalty under section 271B cannot be imposed where books of account were not maintained at all; such defaults fall within the ambit of section 271A and not section 271B. Observations on cited authorities and related doctrinal principles (strict construction of penal provisions, analogy to non-filing of returns jurisprudence) are explanatory but support the binding ratio. Conclusion: The levy of penalty under section 271B in cases of total non-maintenance of books is not justified; the appropriate recourse is under section 271A. The Tribunal therefore directed deletion of the section 271B penalty. Issue 2: Application of judicial principles on construction of penal tax provisions and analogy to non-filing/non-return jurisprudence Legal framework: General principles of statutory interpretation govern penal provisions in taxation statutes - ambiguity is resolved in favour of the taxpayer and penalties must be strictly construed. Precedent Treatment: The Court relied on established authorities applying strict construction to penal tax provisions and on cases holding that penalties that require a return or particulars presuppose that a return was filed; where no return is filed the distinct penal clause dealing with non-filing applies. These precedents were followed to support the interpretive conclusion on sections 44AA/44AB/271A/271B. Interpretation and reasoning: The Tribunal reasoned by analogy: just as penal provisions that punish concealment or inaccurate particulars presuppose a return filed, section 271B presupposes existence of accounts that can be audited. Where the factual state is non-maintenance the statutory elements of section 44AB/271B are not satisfied. Given the penal character of section 271B, the interpretation favouring the assessee is mandated. Ratio vs. Obiter: Ratio - Penal tax provisions that require the existence of a subject matter (e.g., books for audit; particulars in a return) cannot be invoked where that subject matter does not exist; instead separate penal provisions for non-existence (e.g., non-maintenance/non-filing) govern. Observations on legislative intent and comparative sales/wealth tax jurisprudence are supportive obiter but reinforce the ratio. Conclusion: The Court applied the strict construction principle to hold that section 271B is inapplicable when no books are maintained; the analogous penal provision addressing non-maintenance (section 271A) is the correct statutory response. Cross-references and Consolidated Conclusion For the interconnected questions in Issues 1 and 2: the Tribunal treated the matter holistically - the statutory scheme distinguishes non-maintenance and non-audit; judicial authorities construing similar dichotomies were followed; and the penal provision 271B was held inapplicable where books were not maintained, warranting deletion of the 271B penalty. The Tribunal affirmed that resort to section 271A is the appropriate statutory remedy for non-maintenance.