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Facts
The assessee, an individual, earned significant interest income from advancing loans to his business concerns and offered it under 'Income from Other Sources'. The Assessing Officer treated this as a business activity requiring audit under Section 44AB, and levied a penalty under Section 271B for failure to do so. The CIT(A) dismissed the appeal.
Held
The Tribunal held that the assessee was not engaged in the business of money lending, and the advances were to his own business concerns. It was found that there was a reasonable cause for not getting accounts audited, and the penalty levied under Section 271B was not sustainable.
Key Issues
Whether the penalty under Section 271B for failure to get accounts audited under Section 44AB is sustainable when the income was rightly offered under 'Income from Other Sources' and there was reasonable cause for non-compliance.
Sections Cited
271B, 44AB, 57
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2018-19 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 17.01.2025 in the matter of penalty order passed by the Assessing Officer [AO] u/s. 271B of the Income-tax Act,1961 (hereinafter “the Act”) dated 01.02.2022 The assessee has filed condonation petition/affidavit stating the reasons for delay in filing the appeal. We have considered the petition/affidavit of delay in filing the appeal and satisfied that there was sufficient cause for not filing the appeal within the prescribed time limit. Hence, the delay is hereby condoned.
The only ground of appeal is against in confirming the levy of penalty u/s. 271B of the Act for failure to get the accounts audited as required u/s. 44AB of the Act.
1. 4. The assessee is an individual and filed his return of income declaring income from salary, house property, share of profit/loss from partnership firms, capital gains, and income from other sources (interest income). The assessee has shown interest income of Rs.1,63,17,459/- under the head “Income from Other Sources” and claimed deduction of Rs.1,56,28,726/- towards interest expenditure u/s 57 of the Act, thereby declaring net income of Rs.6,88,733/- under this head. The Assessing Officer (A.O.) noted that the assessee was engaged in the activity of receiving and advancing loans to and from parties at different rates of interest with the object of earning profit. The A.O. therefore held that such activity constituted a business, and hence the assessee was required to get his accounts audited in done so, the A.O. levied a penalty of Rs.81,587/- under section 271B of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A)], who dismissed the appeal as not maintainable.
Before us, the Learned Authorised Representative (Ld. A.R) for the assessee submitted that the assessee had borrowed funds at interest rates from 12% to 20% and advanced them to his business concerns at interest rates ranging from 12% to 15%. It was contended that the assessee had correctly offered the interest receipts under the head “Income from Other Sources” and claimed deduction for corresponding interest paid under section 57 of the Act. The Ld. A.R further submitted that the assessee was not engaged in the business of money lending. The advances were made only to the business concerns in which the assessee was a partner or director, and the transactions were not in the nature of a systematic business activity.
Hence, the income was rightly shown under “Income from Other Sources,” and the assessee was not required to get his accounts audited under section 44AB of the Act. has relied on the orders of lower authorities.
We have heard the rival submissions, and perused the materials available on record. The assessee in the return of income has shown interest receipt of Rs.1,63,17,459/- under the head “Income from Other Sources”. The advances on which interest was earned were made only to his business concerns in which he was a partner or director.
Considering these facts, we are of the view that assessee was not required to get books audited u/s 44AB . Further, there was a reasonable cause for the assessee’s failure to get his accounts audited under section 44AB of the Act, as assessee has been showing interest income under income from other sources and the same has been accepted by the department. In view of above, penalty levied under section 271B of the Act is not sustainable. Accordingly, the penalty imposed under section 271B of the Act is hereby cancelled.