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Income Tax Appellate Tribunal, ‘’ A” BENCH, AHMEDABAD
Before: MS SUCHITRA KAMBLE & SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-12, Ahmedabad, dated 15/11/2018 arising in the matter of penalty order passed under s. 271B of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2012-13.
The only effective issue raised by the assessee is that the learned CIT (A) erred in confirming the penalty levied by the AO under section 271B of the Act for not getting the accounts audited under section 44AB of the Act.
The facts in brief are that the assessee is an individual and engaged in the business of trading of footwear and dealing in land. There was search under section 132 of the Act dated 02-07-2012 carried out at the premises of “Dhanjimama group”. The assessee was also part of the search operation. During search at premises of Dhanjimama Group, the documents belonging to the assessee were found. Accordingly, the notice under section 153A of the Act was issued to the assessee. The assessee in response to such notice furnished return of income declaring total income of ₹ 2,30,70,560/- which included additional income Rs. 1,60,47,523/- only. The income declared by the assessee has been accepted by the AO in the order framed under section 143(3) read with section 153A of the Act. However, the AO found that the assessee in the year under consideration has achieved a turnover of ₹ 2,62,31,918/- and therefore he was liable for getting the accounts audited under section 44 AB of the Act. But the assessee failed to do so. Accordingly, the AO initiated the penalty proceedings under section 271B of the Act and show caused the assessee.
The assessee response to show cause notice vide letter dated 21-09-2015 submitted that its books of account and other supporting materials were impounded by the search team. Therefore, it was practically impossible and to get the books of account audited. Thus the income tax return was filed on provisional basis and during the assessment proceeding, all the materials fact were available before the AO and no defect was pointed out in such details. The assessee also submitted if the assessing authority felt the necessity to get books audited then he had the option under section 142(2A) of the Act, but the authority accepted the books without pointing out any defect. Therefore, the procedural lapse committed by the assessee was for the reason beyond the control and therefore, the assessee for this default cannot be penalized. The assessee in its support also relied upon the various case laws.
However the AO disregarded the submission made by the assessee and levied the penalty under section 271B of Act for ₹ 1,31,160/- being ½% of the turnover by holding that it was the duty of the assessee to get its books of account audited under section 44AB of the Act which has not been complied with.
Aggrieved assessee preferred an appeal to the learned CIT (A) who has confirmed the order of the AO by observing as under: 6.1 The Income Tax Act provides for maintenance of boolcs of accounts by certain persons carrying on profession or business (section 44AA) and thereafter audit of accounts of certain persons carrying on business or profession (section 44AB) and the respective failures lead to penalty u/s 271A and u/s 271B but these penalties are subject to section 273B whereby the penalty shall not be imposed if there was "reasonable cause* for the said failure. The appellant's case is that the search having been carried out on 03/07/2012 and books of accounts and other documents seized during the search, it was not in a position to prepare and maintain proper books of accounts for F.Y. 2011-12 and as a result return of income for AY 2012-13 was filed without obtaining tax audit report u/s 44AB. It is further contended that the AO has not brought out any defect and no further addition has been made in the assessment and that the AO could have exercised the option u/s 142(2A) if he felt the need of getting the books of accounts audited. I find reasonable strength in the arguments of the appellant because in the ultimate analysis the purposes of proper maintenance of books of accounts and audit for tax purposes are to ensure that the income of the tax payer is correctly arrived at. But at the same time I hold that it is to be seen that whether the AO has used his discretion ("may" clause) judiciously and whether the appellant had any reasonable cause for the failure. 6.2 There is no dispute that by virtue of gross receipt during the P.Y. 2011-12 (relevant to A.Y. 2012-13) the appellant was required to maintain the books of accounts and also required to get the accounts audited u/s 44AB before the j specified date and furnish by that day the report of such audit in the prescribed form duly signed and verified by such accountant. The appellant is therefore prima facie liable for penalty u/s 271B for failure to comply to section 44AB. But the \ search having been conducted on 03/07/2012, the Department may have seized j the books of accounts and the documents for the small period from 01/04/2011 to 31/03/2012 of the financial year 2011-12 but as the books of accounts are maintained in the computers also and the Department allows the searched party to obtain the photocopies of the seized materials, I do not find that the search by itself could prevent the appellant from maintaining the books of accounts for F.Y 2011-12 and completing them and thus getting the books of accounts audited impossible by the specified date. To me the "conduct of search" in the appellant's case does not appear to be a "reasonable cause" as a defence provided u/s 273B for the failure of section 44AB. In Kalakrithi Vs HO (2002) 253 ITR 754 (Mad) the High Court has held that the words "reasonable cause" in section 273B must necessarily have a relation to the failure on the part of the assessee to comply with the requirement of the law which he failed to comply with and that the cause shown must be for the whole of the period of the delay and not merely for a part thereof and that in case where the cause shown is such as to explain a part of the delay, or the cause shown is only to mitigate the gravity of the non compliance, such a cause cannot be extrapolated and treated as being a good cause for the whole of the period of delay in its entirety. The assessee fails to meet the test laid down in the cited case law. I also find that the appellant has not produced any judgment where the conduct of search and/or seizure of books of accounts or document has been held as reasonable cause for failure of section 44AB for the purpose of not imposing penalty u/s 27IB. 6.3 I also note that the various case laws relied upon by the appellant basically lay down that when a person commits an offence of not maintaining the books of accounts as per section 44AA, there is no possibility of any offence of violating section 44AB. In this context it is noted that the appellant himself has admitted that the return of income was filed based on a provisional annual accounts and I see no reason if the provisional books of accounts can be prepared and return of income can be prepared and filed, how the accounts cannot be got audited u/s 44AB. Though the returned income has been accepted by the AO, it only means that the AO did not have material/information with him to reject the returned income and it cannot be argued that the AO should have invoked section 142(2A). Accepting the returned income by the AO cannot reduce the provisions of section 44AB to a nullity and a formality in futile. As the search was early in the financial year, I hold that the appellant has failed to comply to the provisions of section 44AB without there being reasonable cause and is therefore liable for penalty u/s 271B. I find no reason to interfere with the penalty order for the AY 2012-13. 6.4 The penalty is confirmed and the appeal for AY 2012-13 is dismissed.
Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
At time of hearing, no body was present from the side of the assessee, however a written submission dated 21st November 2022 was filed. In the written submission filed before us, it was inter-alia contended that the books and other supporting documents of the assessee were impounded by the search team therefore, the assessee did not maintain proper books of accounts due to reason beyond control. When proper books of account were not available, the question getting the same audited in prescribed time limit cannot arise, therefore there cannot be any penalty under section 271B of the Act for not getting the books of accounts audited.
It was further contended that identical penalty under section 271B of the Act was levied in the case of the group of the assessee namely Shri Ravikant D Mangalani, who was also part of the same search proceeding. The penalty levied in his case on identical fact has been deleted by this Tribunal in ITA No. 1876/Ahd/2018. Hence same should be deleted in case of appellant assessee also.
On the other hand the learned DR vehemently supported the order of the authorities below.
We have heard the learned DR and perused the materials available on record. At the outset we note that identical issue came before this tribunal in case of group assessee namely Ravikant D Manglani in where the issue has been decided in favour of the assessee. The relevant finding of the bench extracted as under: 7. We have given our thoughtful consideration in the matter and perused material available on record including the written submissions. Admittedly, during the search and seizure operation, the department has seized books of accounts and other materials. The assessee has filed his return of income on 30.8.2014 wherein he admitted additional income of Rs.94,40,275/- which was accepted by the department without making any further addition, which is not in dispute. The dispute in the present case is against levy of penalty under section 271B for failure to get accounts audited and furnishing of a report of such audit, as required under section 44AB of the Act. To this proposition, we find a parallel decision of the ITAT in the case of Faith Intertrade Vs. ITO in ITA No.356/Ahd/2019 (authored by one of us – Judicial Member herein). The Tribunal in the given set of facts and circumstances, considered validity of imposing penalty under section 271BA read with Section 92E of the Act. The Tribunal held that imposition of penalty under section 273B of the Act is not mandatory, rather it is discretionary, because if the assessee proves that there was a “reasonable cause” for the said failure, then the AO ought to have considered the same and then proceed with levying penalty. The findings of the Tribunal in this regard read as follows: “7. We have given out thoughtful consideration on the issue of levy of penalty under section 271BA of the Act and heard the rival submissions and perused the material available on record. In the facts of the present case, admittedly the assessee failed to upload Form No. 3CEB in terms of the statutory requirement. The Statute requires in terms of Section 92E that the report from an Accountant be filed in regard to the international transactions or specified domestic transactions. The relevant provision reads as under : “Report from an accountant to be furnished by persons entering into international transaction.— "92E. Every person who has entered into an international transaction [or specified domestic transaction] during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed."
7.1 In order to ensure compliance, the Statute has provided imposition of penalty u/s 271BA in case of violation of section 92E. The relevant provision is extracted hereunder for completeness: “Penalty for failure to furnish report under section 92E. "271BA—If any person fails to furnish a report from an accountant as required by section 92E, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of one hundred thousand rupees." 7.2. A perusal of the above provisions shows that the Parliament has used the words "may" and not "shall", thereby making their intentions clear inasmuch as that levy of penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act. A careful reading of Section 273B encompasses that certain penalties "shall" not be imposed in cases where “reasonable cause” is successfully pleaded. It is seen that penalty imposable u/s 271BA is also included therein. By the said provisions, the Parliament has unambiguously made it clear that no penalty "shall be" imposed, if the assessee "proves that there was a reasonable cause for the said failure". As noticed, if the statutory provision shows that the word "shall" has been used in Section 271BA, then the imposition of penalty would have been mandatory. Section 273B as noted further throws light on the legislative intent as it specifically provides that no penalty "shall" be imposed if the assessee proves "that there was reasonable cause for the said failure". 7.3. In the facts of the present case, it is seen that the consistent explanation of the assessee has been ignored. The assessee has pleaded ignorance in regard to the said legal requirement and has demonstrated that the word “Specified Domestic Transaction” was inserted in section 92E by Finance Act, 2012 w.e.f. 01-04-2013 which is applicable for the first time from the assessment year 2013-14. Though the assessee obtained the Form 3CEB from the Chartered Accountant but had failed to up load electronically, as it has not aware about the recent changes and amendments in the provision. Further this being the first year of this new provision it could not upload the same electronically which is neither wilful nor wanton. The assessee has further pleaded that based on the report, no adjustments have been proposed by the TPO. Copy of the assessment order dated 02.12.2016 passed u/s. 143[3] rws 92CA(3) clearly shows that there were no adjustment made by the TPO and the AO accepted the returned income as the Assessed Income. Thus there is no mala fide is found in the above transaction, but only a bond fide mistake of new amended provision is not followed by the assessee. It is further seen that both the lower authorities has proceeded as though the levy of penalty u/s.271BA as automatic, without considering section 273B of the Act.”
8. In the light of the above decision of the Tribunal, if we look at the case in hand, then it would reveal that the assessee has explained before the lower authorities that non- submission of audited accounts was due to non-finalisation of accounts, because all the books of accounts and other relevant materials were seized by the Investigation Wing of the department, and they were not made available to the assessee. The assessee has filed his return of income on the basis of provisional accounts, and such return was accepted by the department. These facts were not denied by the Revenue and attained finality. The ld.AO has simply invoked his discretionary power under section 271B without appreciating the reasons putforth by the assessee for the alleged failure on his part for non-submission of audited accounts. We are of the considered option that the explanation offered by the assessee ought to have been accepted by the Revenue as being sufficient cause. We find force in the submissions of the assessee, and therefore we incline to cancel the impugned penalty. Thus, we delete penalty of Rs.54,106/- imposed under section 271B of the Act, and allow the ground of appeal.
11.1 Respectfully following the finding of the Co-ordinate Bench in group case of the appellant, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the penalty levied by him. Hence the ground of appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the Court on 30/11/2022 at Ahmedabad.