BHAVESHBHAI HARIBHAI KANANI,JAMNAGAR vs. ITO WD-1(3) JAMNAGAR, JAMNAGAR

Thereafter, the Assessing Officer having gone through the reply of assessee estimated the income of the assessee at 4% of the total turnover of Rs.11,93,30,453/- which worked out to Rs.44,73,218/-. As the assessee has already declared income of Rs.7,91,012/- the balance of Rs.39,82,206/- (Rs.44,73,218- Rs.7,91,012) was added to the total income declared and brought to tax. In view of the above, the assessment was completed by making an addition of Rs.39,82,206/-. Further it was noted that the assessee has not furnished an audit report in Form 3CA, as required u/s. 44AB within the stipulated due date. Therefore, penalty proceedings u/s 271B of the Act was initiated during the course of assessment proceedings and notice u/s 274 r.w.s 271B of the Act dated 20/04/2021, was issued to the assessee.

In response to the show cause notice, the assessee submitted his reply on 20/07/2021, before the assessing officer stating that failure of assessee or default u/s 44AB was on account of mistake of accountant of assessee under wrong belief, and mistake on the part of accountant cannot put assessee to Page | 2 jeopardy. It was also contended that since the assessing officer estimated the addition of the assessee, at the rate of 4% on turnover, therefore, no penalty should be imposed on the assessee.

However, the Assessing Officer rejected the above contention of the assessee and observed that the failure of assessee or default u/s 44AB on account of mistake of accountant of assessee is not a reasonable cause for dropping penalty u/s 271B of the Act, therefore, assessing officer imposed penalty u/s 271B of the Act of Rs.1,50,000/-.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the penalty imposed by the assessing officer. The ld.CIT(A) observed that the reason for not getting the books of accounts audited u/s 44AB of the Act, explained by the assessee, was not sufficient and cogent ground to avoid penal provision u/s 271B of the Act.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.

The Ld. Counsel for the assessee, vehemently argued that the assessee did not maintain the books of accounts and in fact, the assessee filed the return of income, u/s 44AD of the Income Tax Act, therefore, the assessee is not responsible to maintain the books of accounts. Hence, the penalty u/s 271B does not attract. The Ld. Counsel for the assessee, further submitted that Assessing Officer has made the addition on estimated basis, at the rate of 4% on the turnover, therefore, on estimation, there should not be any penalty. Therefore, the Ld. Counsel contended that since the assessee has filed the return of income u/s 44AD of the Act, the assessee is a small trader, therefore, the assessee is not maintaining the books of account, and moreover, the Assessing Officer has Page | 3 estimated the profit, hence on the estimation, no question of penalty arises, therefore, penalty imposed by the Assessing Officer may be deleted.

On the other hand, the Ld. Sr. DR for the revenue submitted that the assessee has concealed the income and therefore the Assessing Officer has estimated the profit at the 4% on the turnover, therefore, on estimation of profit penalty should be imposed. The ld. Sr. DR further submits that assessee has not shown any reasonable cause for not levying penalty, therefore, penalty imposed by the Assessing Officer may be confirmed.

I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I note that the assessee has filed the return of income u/s 44AD of the Act, and as per the scheme of section 44AD of the Act, the assessee need not to maintain the books of accounts. Since, the assessee did not maintain the books of account, therefore, no penalty should be imposed u/s. 271B of the Act. I note that in the case of CIT v. Bisauli Tractors [(2008) 299 ITR 219 (All.)], the Hon’ble Allahabad High Court held that when the assessee had not maintained books of account, the question of getting the books audited under Section 44AB would not arise. Therefore, penalty under Section 271B was not leviable. Therefore, I note that if no books are maintained, the foundation of audit collapses, and hence penalty cannot be imposed. Apart from this, during the assessment proceedings itself, the Assessing Officer has estimated the income of the assessee, therefore, the penalty on estimation should not be levied. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or guilty of conduct, Page | 4