Facts of the Case

The assessee, an individual engaged in wholesale trading of tea, did not file her return of income within the prescribed time for Assessment Year 2018-19. Subsequently, during assessment proceedings, the Assessing Officer noted that the assessee’s turnover exceeded the threshold prescribed under section 44AB of the Income-tax Act, 1961.

The Assessing Officer held that the assessee failed to furnish the tax audit report within the specified time and accordingly levied a penalty of ₹98,524 under section 271B. The assessee’s appeal against the penalty was dismissed by the Commissioner of Income Tax (Appeals), NFAC, vide order dated 19.07.2024, leading to the present appeal before the Tribunal.

 Issues Involved

  1. Whether penalty under section 271B is leviable where the assessee has not maintained books of account.
  2. Whether section 271B can be invoked independently when no books exist to be audited under section 44AB.
  3. Whether the CIT(A), NFAC erred in confirming the penalty despite binding jurisdictional High Court precedents.

 Petitioner’s (Assessee’s) Arguments

The assessee contended that she had not maintained any books of account for the relevant assessment year and, therefore, the question of getting such books audited under section 44AB did not arise. It was submitted that the Assessing Officer himself recorded the fact of non-maintenance of books during assessment proceedings.

The assessee relied upon binding judicial precedents, including CIT vs Bisauli Tractors and CIT vs S. K. Gupta & Co., wherein the Allahabad High Court had categorically held that penalty under section 271B is not leviable in cases where books of account are not maintained. It was further argued that penalties under sections 271A and 271B operate in distinct fields and cannot be applied interchangeably.

 Respondent’s (Revenue’s) Arguments

The Revenue contended that the assessee had turnover exceeding the limits prescribed under section 44AB and was therefore statutorily required to get her accounts audited. It was argued that failure to furnish an audit report attracted penalty under section 271B and that the assessee’s explanation was not acceptable. The Revenue relied on certain non-jurisdictional High Court and Tribunal decisions to support its stand.

Court Order / Findings

The Tribunal observed that convincing evidence had not been produced by the Revenue to establish that the assessee had maintained books of account during the relevant year. The Tribunal held that when books of account are not maintained, penalty under section 271B for failure to get accounts audited cannot be levied.

Relying on binding precedents of the jurisdictional Allahabad High Court in CIT vs Bisauli Tractors and CIT vs S. K. Gupta & Co., as well as consistent Tribunal decisions, the ITAT held that the penalty imposed under section 271B was unsustainable in law. Accordingly, the penalty was deleted and the appeal of the assessee was allowed.

Important Clarification

The Tribunal clarified that sections 271A and 271B deal with separate and distinct defaults. Where an assessee has not maintained books of account, penalty, if any, may arise under section 271A, but penalty under section 271B for failure to get accounts audited under section 44AB is not attracted. Binding jurisdictional High Court decisions must prevail over contrary non-jurisdictional rulings.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770628188_ANITAMEHROTRANARENDRASADANVS.CITANFAC.pdf 

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