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July 1, 2022

No section 271B penalty if the Assessee was unable to keep books of accounts

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

No section 271B penalty if the Assessee was unable to keep books of accounts

Facts and Issues of the Case

The facts of the case are the assessee in the present case is a partnership firm and engaged in the business of construction of residential as well as commercial complex. There was the search under section 132 of the Act dated 02-07-2012 carried out at the “Dhanjimama group” and the assessee was also part of the search. During search at the premises of Dhanjimama Group documents belonging to the assessee were found. Accordingly, a notice under section 153C of the Act was issued upon the assessee. The assessee in response to such shown cause notice furnished the return of income declaring an additional income of ₹ 40,18,357/- which was accepted by the AO in the order framed under section 143(3) read with section 153C read with section 153A of the Act. However, the AO found that the assessee in the year under consideration has achieved a turnover of ₹ 1,03,11,896/- and therefore it was liable for getting the accounts audited under section 44 AB of the Act. But the assessee failed to do so. Accordingly, the AO initiated the penalty proceedings under section 271B of the Act, proposing to levy the penalty by issuing show cause notice to the assessee.

The assessee in response to such show cause notice vide letter dated 05-08- 2015 submitted that its books of account and other supporting materials were impounded by the search team. Therefore, it was practically impossible to prepare the books of accounts and get them audited. As such, the return of income was filed on provisional basis. However, during the assessment proceeding all the material facts were available before the AO and no defect was pointed out in such details. The assessee also submitted if the assessing authority felt the necessity to get books audited then he has the option to refer the case for the special audit under section 142(2A) of the Act, but he accepted the books/ necessary details without pointing out any defect therein. Therefore, the procedural laps committed for the reason beyond the control, the assessee cannot be penalized. The assessee in its support also relied upon the various case laws. However the AO disregarded the submission made by the assessee and levied the penalty under section 271B of Act for ₹ 51,559/- being ½% of the turnover by holding that it was the duty of the assessee to get its books of account audited under section 44AB which has not been complied with.

The learned AR before us inter-alia submitted that the books and other supporting documents of the assessee were impounded by the search team. Therefore, the assessee could not maintain proper books of accounts due to the reason beyond its control. When proper books of account were not available, the question of getting the same audited in prescribed time limit does not arise. Therefore, there cannot be any penalty under section 271B of the Act for not maintaining the books of accounts.

Observation by the court

The court had heard both the parties and perused the materials available on record. Admittedly the books and other material were not available with the assessee due to seizure made by the search team in the search proceeding dated 2nd July 2012. Therefore, the assessee in our considered view at the most can be held as defaulter for not maintaining the books of accounts which attracts the penalty under the provisions of section 271A of the Act. But the authorities below have not initiated any penalty under section 271A of the Act for not maintaining the books of accounts.

The question of the audit arises when the assessee maintains the books of accounts. Thus, in the absence of books of accounts, the question of getting them audited under the provisions of section 44 AB of the Act does not arise. The right course of action available to the Revenue was to initiate the penalty under section 271A of the Act but the same has not been done so. In holding so, the court had  find support and guidance from the judgment of Hon’ble Allahabad High Court in the case of CIT versus Bisauli Tractors reported.

In view of the above, the opinion of the court are that the assessee cannot be penalized for not getting the accounts audited as the assessee did not maintain any books of accounts and there was no penalty initiated by the AO against the assessee on account of non-maintenance of the books of accounts under section 271A of the Act. Without prejudice to the above the court  also note the assessee was prevented by the sufficient cause which was beyond the control of the assessee.

In the case on hand, there was the search carried out and the relevant books/ materials were impounded by the search team which prevented the assessee to get them audited within the time. However all the materials were available before the AO in the course of assessment proceeding and the AO based such material accepted the rerun income of the assessee. Therefore, in our considered view the assessee in the given fact and circumstances cannot be held guilty for the procedural laps as there was sufficient cause for non-compliance as provided under the provisions of section 273B of the Act. Accordingly the court  set aside the order of the learned CIT (A) and direct the AO to delete the penalty levied by him under section 271B of the Act.

Conclusion

The appeal of the assessee is allowed by the court.

Gurukrupa-Developers-Vs-D.C.I.T.-ITAT-Ahmedabad

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