HANUMAN SAHAY CHOUDHARY,JAIPUR vs. ITO WARD 3(1), JAIPUR, JAIPUR

During the penalty proceedings u/s. 271B of the Act, the assessee had made reply which was considered by the AO and imposed the penalty of Rs. 1,50,000/- for not getting the books audited by the assessee. The observations of AO are as under:-

Aggrieved against the penalty order, the assessee filed appeal before the Ld. CIT(A) who had also confirmed the penalty levied u/s. 271B of the Act.

Aggrieved by the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal:-

Ld. Counsel appearing on behalf of the assessee submitted that the assessee is engaged in commodity trading for the first time during the Assessment Year 2011-12 with Multi Commodity exchange of India Limited, Mumbai (MCX). The assessee has entered into the transaction of purchase and sale of commodity of MCX without taking any delivery of the items being the crude oil, zinc, etc. and incurred net loss of Rs. 1,63,457/- (loss of Rs. 9,26,553 – profit of Rs. 7,63,096) on the commodity transaction. Since it was the loss, the assessee was not aware of the provisions of Income Tax Act and not filed the return of income and also not maintained the books of account. Therefore, the assessee has failed to get audited his books of account u/s. 44AB of the Act and relied on various case laws as submitted before the Ld. CIT(A). Thus, Ld. Counsel requested to delete the penalty levied u/s. 271B of the Act.

Per contra, Ld. Sr. DR appearing for the Revenue supported the orders passed by the lower authorities and requested to confirm the penalty levied by the lower authorities.

We have carefully considered the rival submission and perused the materials available on record. It is undisputed fact that the assessee had carried out MCX trading for the first time during the financial year 2010-11 and incurred a loss of Rs. 1,63,457/- which was not allowed to be carry forward by the AO, since no return of income was filed by the assessee. Whereas the profit of Rs. 7,63,096/- was assessed to tax. It is undisputed fact that the assessee has not maintained any books of account and also not filed his return of income u/s. 139(1) of the Act, for which the relevant penalty provisions were initiated by the AO. The assessee claims for the first time commodity trading during the assessment year and he was not aware of the provision of section 44AB of the Act and not maintained the books of account. Further, there was a loss in the MCX trading activity. The Coordinate Bench of Delhi Tribunal in the case of Madan Lal Gupta, Prop. Shree Ganesh Engineering Works –Vs- ITO reported in (2005) 185 Taxation 119, held as follows:-

Further, the Coordinate Bench in the case of Chandra Sudhir Kumar –Vs- I.T.O. reported in [1996] 86 Taxman 272, held that the question of audit of the books of account under section 44AB does not arise where no books of accounts are maintained by the assessee, thereby cancelled the penalty levied under section 271B of the Act.

Further the Hon’ble Allahabad High Court in the case of CIT –Vs- S. K. Gupta & Co. reported in [2010] 322 ITR 86 (All.) held that assessee could not be penalised under both sections 271A for not maintaining the books of accounts and also section 271B for not getting the books of accounts audited. The correct recourse is to impose penalty for not maintaining the books of account u/s. 271A of the Act and not invoking section 271B of the Act.

Following the above judicial precedents, since the assessee has not maintained the books of accounts, the correct recourse would have been invocation of penalty u/s. 271A of the Act. Therefore, we are of the considered view that the penalty levied u/s 271B of the Act is liable to be deleted.

In the result, the appeal filed by the assessee is hereby allowed.