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September 22, 2022

Non-business income transactions are not subject to the Section 271B penalty

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Non-business income transactions are not subject to the Section 271B penalty

Facts and Issue of the Case

Ground Nos. 1 and 2 raised by the assessee challenging the action of CIT(A) in confirming the order of AO in levying penalty u/s. 271B of the Act by holding the capital gains arising from sale of land to be receipts from business.

The facts relating to the issue on hand are that the assessee is an individual, a partner and director in Shatrunjay Infrastructure and Shatrunjay Parks and Resorts Ltd. A search and seizure action was conducted at his premises on 25-04-2012 u/s. 132 of the Act. During the said search and seizure action certain documents and records were seized. The AO completed assessment to the best judgment u/s. 144 of the Act vide its order dated 27-03-2015. As matter stood thus, the AO initiated penalty proceedings u/s. 271B of the Act by observing that the assessee failed to get its accounts audited u/s. 44AB of the Act. The CIT(A) upheld the order of AO in imposing penalty of Rs.1,00,000/- u/s. 271B of the Act by holding that the receipts from unexplained cash deposits, unexplained investments and sale of receipts from lands are from business. Having aggrieved, the assessee is before us.

Observation by the Court

The court had heard both the parties and perused the material available on record. The court note that the AO initiated penalty proceedings u/s. 271B of the Act against the assessee for his failure to gets its accounts audited. The ld. AR contends that there were no sales or purchase made by the assessee during the year under consideration and the additions made on account of unexplained cash deposits, unexplained investments, unexplained other investments and unexplained profit on sale of land to an extent of Rs.15,40,26,567/- is not turnover as the investments and sale of land was in the nature of capital gain but not in the category of business income. The AO reproduced the year wise investments/cash deposits/income as given by the assessee and also on the basis of seized documents of the assessment order.

On perusal of the same the unexplained cash deposits at Sr. No. 1, unexplained investment in immovable property at Sr. No. 2, unexplained investment in property (depreciable) at Sr. No. 3, unexplained investment in property (non-depreciable) at Sr. No. 4, unexplained other investment at Sr. No. 5, F.D. interest at Sr. No. 6 and unexplained profit on sale of land at Sr. No. 7 to an extent of Rs.15,40,26,567/-. According to AO that the said sum of Rs.15,40,26,567/- is the income of the assessee and no return of income filed as well as got the books audited as required u/s. 139(1) and 44AB of the Act, respectively. The only contention raised by the ld. AR is that there are all in the nature of capital gain not in the business income. Section 44AB of the Act provides mandatory audit of books of accounts and threshold monetary limit for the year under consideration i.e. A.Y. 2007-08 is Rs.40 lacs.

The said provision explains that every person carrying on business if the turnover or gross receipts in business exceeds Rs.40 lacs is mandatorily get the accounts audited. In the present case, the AO held the unexplained cash deposits, unexplained investments, interest on F.D. and unexplained profit on sale of land is held to be business income of the assessee. The only contention of ld. AR is that the assessee is an individual and all the said transactions as held by the AO which was confirmed by the CIT(A) is not business income. We find force in the arguments of ld. AR, thus, the penalty imposed by the AO u/s. 271B of the Act as confirmed by the CIT(A) is not justified. Thus, the issue raised in this regard is allowed.

Conclusion

The appeal of assessee is allowed by the court.

Lalit-Sakalchand-Gandhi-Vs-ACIT-ITAT-Pune

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