Bona fide capital gains view shields taxpayer from audit penalty when transaction character remains debatable.

Penalty for failure to obtain or furnish a tax audit report was held not sustainable where the assessee treated shop-sale receipts as capital gains on a bona fide view that the transactions were investment in nature. The character of the receipts was a debatable issue, and that reasonable, consistent position was treated as sufficient cause for non-compliance with the audit requirement. Section 273B was applied to protect the assessee from penalty under section 271B, and the absence of any distinguishing feature from the earlier year, in which identical penalty had been deleted, reinforced the result.

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Issues: Whether penalty under section 271B of the Income-tax Act, 1961 was leviable for failure to get accounts audited or to furnish the audit report when the assessee had treated the transactions as investment and claimed capital gains.

Analysis: The dispute turned on the character of the shop-sale transactions. The assessee had consistently treated the receipts as capital gains, whereas the revenue treated them as business income and invoked the audit requirement. The characterization of such transactions was regarded as a debatable issue, and the assessee's adoption of one possible view under a bona fide belief was treated as sufficient to explain the non-compliance with section 44AB. In that setting, section 273B was applied to hold that penalty was not imposable where reasonable cause was shown. The absence of any distinguishing feature from the earlier year, where the penalty had already been deleted on identical facts, also supported the same result.

Conclusion: Penalty under section 271B was not sustainable and was directed to be deleted.

Ratio Decidendi: Where an assessee's non-compliance with the audit requirement arises from a bona fide and reasonable view that the underlying transactions are capital in nature, and the issue itself is debatable, section 273B protects the assessee from penalty under section 271B.

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