Section 271B penalty invalid when books not maintained before income tax return due date

The ITAT Rajkot held that penalty under section 271B for non-audit of accounts cannot be imposed when books of accounts were not maintained within the due date for filing income tax returns. The tribunal ruled that failure to maintain books under section 44AA constitutes a complete standalone offense, making audit under section 44AB impossible. Since the primary default was non-maintenance of books, penalty under section 271B was deemed erroneous. The department failed to provide evidence that books were written up before the due date, resulting in a decision favoring the assessee.

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Issues involved:
The judgment involves appeals by the Assessee against penalty orders passed under section 271B of the Income Tax Act, 1961 for the Assessment Years 2009-2010 and 2010-2011.

For AY 2009-2010:
The Assessee contended that the penalty levied under section 271B was erroneous as there was a bona-fide reason for not getting accounts audited within the due date specified under section 44AB of the Act. The Assessee argued that non-maintenance of books of accounts under section 44AA was the first offence, making the penalty under section 271B unjustified. The Department cited case laws to support the penalty imposition. The Tribunal found that the books of accounts were not written up before the due date of filing the return of income, thus the question of getting them audited did not arise. Referring to relevant case laws, the Tribunal held that the Assessee could not be penalized under section 271B as the offence of non-maintenance of accounts was complete under section 44AA, and the penalty under section 271B was not applicable.

For AY 2010-2011:
The issue raised by the Assessee was identical to that of AY 2009-2010. The Tribunal applied the findings of the earlier year to AY 2010-2011, ruling in favor of the Assessee. Both the Assessee's appeals for the respective years were allowed.

Conclusion:
The Tribunal allowed both appeals by the Assessee against the penalty orders for AY 2009-2010 and AY 2010-2011, based on the finding that the penalty under section 271B was not justified due to the complete offence of non-maintenance of accounts under section 44AA. The Tribunal held that the Assessee could not be penalized for not getting accounts audited under section 271B in the given factual circumstances.

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