2024 (9) TMI 18 - AT - Income Tax

ITAT cancels penalty under section 271B for audit failure citing bona fide belief and reasonable cause defense

The ITAT AGRA-AT allowed the assessee's appeal against penalty u/s 271B for failure to conduct mandatory audit under section 44AB. The assessee, a retired ... Levy of penalty u/s. 271B - assessee failed to get his accounts audited despite the fact that the volume of assessee’s turnover was covered by the provisions of section 44AB - HELD THAT:- AO has solely relied upon the information provided by Mother Dairy, i.e., ledger account alleged to have been pertained to the assessee. It is also observed that the AO has not provided this information collected at the fag end of the assessment to the assessee for his rebuttal. As further interesting to note that the information has been collected by the AO at the fag end of the proceedings and the same has been utilized by the AO without confronting it to the assessee. The fact remains that the source of income of the assessee as enumerated by the AO in assessment order is by way income from commission from the sale of milk and other products, which is not contradicted or disputed by the AO, even after enquiries. Therefore, whether penalty in such a case would be leviable, is a question which requires adjudication by the Bench. Having regard to the facts of the case that the assessee was distributor of Mother Dairy, retired army personnel, under the bona fide belief that no books of accounts are required to be maintained since only source of earning income was commission as fixed by Mother Diary on sales of milk and other products, and there is no need of any audit of accounts appears to be bona fide belief of the assessee. We are of the view that penalty is not leviable. Section 273B has categorically provided immunity from penalty u/s. 271B to those assessees who establish, having regard to the facts, that there was a bona fide belief or a reasonable cause with respect to violation of provisions of section 271B. There are catena of decisions, where in the context of section 271B, Hon’ble Courts have held that penalty is not leviable where there is a reasonable cause or where assessee establishes its bonafides. Therefore, the penalty levied in this case is legally not tenable. Decided in favour of assessee. Issues:- Levy of penalty u/s. 271B of the Income Tax Act based on non-maintenance of books of account and failure to get accounts audited.- Whether penalty u/s. 271B is tenable when penalty u/s. 271A for not maintaining books of account has already been levied.- Assessment of the case considering the income source and the belief of the assessee regarding the requirement of maintaining books of account.Analysis:The appeal before the Tribunal stemmed from the order of the ld. CIT(Appeals) concerning the levy of a penalty under section 271B of the Income Tax Act for an assessment year. The assessee, a retired army personnel operating a milk booth, faced penalties for not filing a tax audit report and failing to get accounts audited despite a cash deposit in the bank. The Assessing Officer applied a net profit rate on the total turnover based on information from Mother Dairy Fruits and Vegetables Pvt. Ltd., leading to the computation of the assessee's income.In defense, the assessee argued that the tax audit report was filed timely and contended that there was no requirement for maintaining books of account due to a bona fide belief that income was below the taxable limit. The Tribunal considered the issue of whether the penalty under section 271B was valid when a penalty under section 271A had already been imposed for not maintaining books of account. The assessee's belief, supported by the nature of income earned, was deemed bona fide, leading to the conclusion that the penalty was not justified.The Tribunal noted that the Assessing Officer heavily relied on information from Mother Dairy without providing the assessee an opportunity for rebuttal. The assessee's belief, coupled with the specific nature of income, led to the decision that the penalty was not warranted. Section 273B of the Income Tax Act provides immunity from penalties if a bona fide belief or reasonable cause is established, which was found applicable in this case.The Tribunal, emphasizing substantial justice, allowed the appeal, condoning a slight delay in filing. The decision highlighted the importance of balancing technical considerations with substantial justice and referenced relevant legal precedents. The judgment concluded that the penalty under section 271B was not justified based on the assessee's bona fide belief and reasonable cause, without delving into other aspects of the matter.In summary, the Tribunal allowed the appeal, emphasizing the significance of the assessee's belief and reasonable cause in determining the validity of the penalty under section 271B, ultimately ruling in favor of the assessee based on the established bona fide belief and immunity provision under section 273B of the Income Tax Act.