Penalty under Section 271B deleted when books of accounts not maintained by assessee

ITAT Dehradun allowed the assessee's appeal and deleted penalty imposed under Section 271B. The tribunal held that penalty under Section 271B for non-audit of accounts is not applicable when books of accounts are not maintained by the assessee. Following the precedent in Bisauli Tractor case, the tribunal ruled that only penalty under Section 271A applies for failure to maintain books of accounts, not Section 271B which specifically relates to audit requirements. The penalty under Section 271B was deleted in all three appeals.

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Issues Involved:

1. Whether the conditions precedent for invoking penalty u/s 271B were met.
2. Whether the assessee's failure to maintain proper books of accounts impacts the applicability of penalty u/s 271B.
3. Whether the penalty u/s 271B can be levied when books of accounts were not maintained.
4. Whether the penalty u/s 271B is justified when the audit for the preceding year was not completed.
5. Whether independent penalties for violations of Section 44AA and Section 44AB can be imposed.
6. Whether the penalty u/s 271B is valid when the assessee's turnover exceeded the threshold limit.

Summary of Judgment:

1. Conditions Precedent for Invoking Penalty u/s 271B:
The assessee argued that for penalty u/s 271B to be levied, two conditions must be met: maintaining books of accounts as per section 44AA and getting them audited u/s 44AB. The assessee contended that neither condition was met, thus penalty u/s 271B cannot be levied.

2. Impact of Failure to Maintain Proper Books of Accounts:
The assessee was not maintaining proper books of accounts as per section 44AA, and thus argued that penalty u/s 271B for not getting the accounts audited was not applicable. The audit of books was impossible, and penalty u/s 271A should only be considered.

3. Applicability of Penalty u/s 271B When Books of Accounts Were Not Maintained:
The Tribunal noted that if no books of accounts were maintained, the question of their audit does not arise. The imposition of penalty u/s 271B is erroneous in such cases, and instead, penalty u/s 271A may be applicable.

4. Penalty Justification When Audit for Preceding Year Was Not Completed:
The assessee argued that without the audit of the preceding year's accounts, the audit for the subsequent year could not be done. This was supported by various judicial pronouncements which stated that without audited accounts of the preceding year, the subsequent year's audit is not possible.

5. Independent Penalties for Violations of Section 44AA and Section 44AB:
The Tribunal noted that penalties for violations of sections 44AA and 44AB are distinct. If books of accounts are not maintained, penalty u/s 271A is applicable, and not u/s 271B, as there would be nothing to audit.

6. Validity of Penalty u/s 271B with Turnover Exceeding Threshold Limit:
The Tribunal observed that the assessee's gross turnover exceeded the threshold limit, and the assessee did not file the statutory audit report as required u/s 44AB. However, since the assessee did not maintain books of accounts, penalty u/s 271B was not applicable, and the proper recourse was penalty u/s 271A.

Conclusion:
The Tribunal allowed the appeals, holding that the provisions of Section 271B were not attracted as the assessee had not maintained books of accounts. The penalty imposed u/s 271B was deleted, and the assessee was liable for penalty u/s 271A.

Order:
The appeals in ITA No. 58/DDN/2022, 59/DDN/2022, and 60/DDN/2022 were allowed, and the penalty u/s 271B was deleted. The judgment was pronounced in open court on 27th May, 2024.

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