No books of accounts maintained – No Penalty under section 271B for Failure to get its audited

Short Overview : When there are no books of account, the question of its audit does not arise, so as to impose penalty under section 271B.

Assessee assailed the imposition of penalty under section 271B imposed by AO on account of failure to get accounts audited under section 44AB. Assessee contended that penalty was not justified as no books of account were maintained by assessee.

it is held that  AO himself recorded that no books were maintained by assessee and penalty under section 271B is to be imposed when any person fails to get his accounts audited. Admittedly there was no dispute that no books were maintained by the assessee and as rightly contended by assessee the question of getting the same audited did not arise at all. If there is any fault in the matter, the said fault can be examined with reference to non-maintenance of Books of Account.

Decision: In assessee’s favour.

Referred: CIT v. Bisauli Tractors (2008) 299 ITR 219 (All.) : 2008 TaxPub(DT) 0690 (All-HC).

IN THE ITAT, KOLKATA BENCH

P.M. JAGTAP, V.P. & S.S. VISWANETHRA RAVI, J.M.

Somnath Ghosh v. ITO

ITA No.640/KOL/2018

27 March, 2019

Appellant by: P. Shaw, CA

Respondent by: Sankar Kr. Halder, ACIT DR

S.S. Viswanethra Ravi, J.M.

This appeal filed by the assessee against the order dated 31-1-2018 passed by Commissioner (Appeals)-14, Kolkata under section 143(3) of the Income Tax Act, 1961 (in short “Act”) for assessment year 2013-14.

2. The only issue is to be decided as to whether the Commissioner (Appeals) as justified in confirming the penalty imposed by the assessing officer under section 271B of the Act.

3. The brief facts of the case are that the assessee is an individual and engaged in the business of trading of Iron and Steel. The assessee filed its return of income declaring a total income of Rs. 3,86,050. The notice under section 143(2) & 142(1) were issued. The assessing officer determined the income of the assessee at Rs. 8,06,820 vide its order dated 21-1-2016 passed under section 143(3) of the Act.

4. Heard both parties and perused the material available on record. The assessing officer initiated penalty proceedings against the assessee by issuing a notice under section 274/274B of the Act in response to which the assessee made submissions wherein it is clearly admitted that no books of accounts maintained by the assessee. We find an admission by the assessee to this effect in the assessment proceedings which is reflected at page No.2 of the assessing officer’s order. It is observed from the record that the assessee has shown a sale under the head for the trading in P&L account of Rs. 10,75,76,516.

According to assessing officer, the assessee is required to get his books of accounts audited for the reason as his total sales exceeded Rs. 1 crore which is a monetary limit as provided under section 44AB of the Act. Before us, learned AR contended that when there are no books and getting the same audits does not arise. He argued that no penalty could be imposed under section 271B of the Act and the penalty confirmed by the Commissioner (Appeals) is to be levied. The learned AR further relied on the decision of Hon’ble High Court of Allahabad in the case of CIT v. Bisauli Tractors (2008) 299 ITR 219 (All.) : 2008 TaxPub(DT) 0690 (All-HC). Further learned AR argued when a separate penalty provision is provided for non-maintenance of accounts, the assessing officer should have imposed penalty under section 271A of the Act but no penalty under section 271B of the Act and submitted the penalty imposed by the assessing officer as confirmed by the Commissioner (Appeals) is not maintainable.

5. The learned DR argued that it is a statutory obligation to maintain books of accounts when the assessing officer did not resort to levy penalty under section 271A of the Act and the penalty imposed under section 271B of the Act is maintainable.

6. As discussed above, that the assessing officer himself recorded that no books were maintained by the assessee and penalty under section 271B of the Act is to be imposed when any person fails to get his accounts audited. Admittedly there is no dispute that no books were maintained by the assessee and as rightly argued by the learned AR getting the same audited does not arise at all.

Therefore, we find force in the arguments of learned AR and taking the support from the decision of Hon’ble High Court of Allahabad in the case of CIT v. Bisauli Tractors (2008) 299 ITR 219 (All.) : 2008 TaxPub(DT) 0690 (All-HC). For better understanding, the relevant portion is reproduced herein below :–

4. “Aggrieved, the assessee went in first appeal before the Commissioner (Appeals), who vide his common dated 27-10-1995 has cancelled the penalty so imposed by the assessing officer for each of the three assessment years on the ground that there were no books of account with the appellant for the above three assessment years and when there were no books of account, the question of their auditing does not arise. Thereafter, the department preferred appeals before the Tribunal. After taking into consideration on the entire conspectus of the case the Tribunal held as under:

I have heard the learned Departmental Representative and have perused the records. Undisputedly, the assessee is not maintaining books of account. Commissioner (Appeals) verified this fact with reference to sales tax records also. When there are no books of account, the question of their audit does not arise. If there is any fault in the matter, the said fault can be examined with reference to non-maintenance of Books of Account. There are certainly no defaults for not obtaining the said Audit Reports for years under consideration. The requirement of audit is in relation to the books maintained. When there are no books, there is nothing to audit. I have perused the impugned orders. In my opinion the Commissioner (Appeals) took a correct view in the matter and his order calls for no interference.”

7. In view of the above, we set aside the order of Commissioner (Appeals) and cancel the penalty imposed by the assessing officer under section 271B of the Act. Thus, Ground Nos. 1 to 3 raised by the assessee are allowed.

8. In the result, the appeal of the assessee is allowed.