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Facts
The Assessing Officer (AO) imposed a penalty under section 271B for failure to get accounts audited, citing turnover exceeding Rs. 40,00,000. The assessee contested this, stating the turnover added by the AO was not theirs and had been deleted by the CIT(A). The CIT(A) deleted an addition of Rs. 42,45,630, which was treated as turnover, on the grounds that it was not linked to the assessee's books.
Held
The Tribunal noted that the addition of Rs. 42,45,630, which formed the basis for the turnover threshold and subsequent penalty, was deleted by the CIT(A). Since the foundation for the penalty (i.e., the turnover exceeding the threshold) failed, the penalty under section 271B was also deemed unsustainable.
Key Issues
Whether the penalty under Section 271B is sustainable when the turnover addition, which formed the basis for mandatory audit under Section 44AB, was deleted by the CIT(A).
Sections Cited
271B, 44AB
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Income Tax Appellate Tribunal, RAJKOT BENCH (SMC
Before: DR. ARJUN LAL SAINI
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2008-09, is directed against the order passed by the Learned Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [in short “the Ld. CIT(A)/NFAC”], dated 22.02.2023, which in turn arises out of a penalty order passed by Assessing Officer (in short ‘the AO”) u/s 271B of the Income Tax Act, 1961 .
Sanjaybhai Jadavjibhai Jamnagar v. ITO AY. 2008-09 2. At the outset, the Learned Counsel for the assessee, begins by pointing out that the appeal filed by the assessee is against the penalty, imposed by the assessing officer under section 271B of the Act. The Assessing Officer, imposed the penalty u/s 271B of the Act, stating that assessee failed to get his accounts audited, by a chartered accountant, despite the fact that assessee`s turnover was more than Rs. 40,00,000/-. Therefore, the Assessing Officer stated that assessee did not make the compliance of provisions of section 44AB of the Act. The ld Counsel further stated that the turnover, which was stated by the assessing officer to be belonged to the assessee, in fact, was deleted by the ld. CIT(A). In a real sense, there was no turnover (sales) in the hands of the assessee, right from the beginning, however, assessing officer made wrong addition in the hands of the assessee, in respect of the turnover, which does not belong to assessee, at all, therefore, the said turnover, was deleted by the ld CIT (A), in quantum proceedings, hence, the penalty imposed under section 271B of the Act may also be deleted.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para this order and is not being repeated for the sake of brevity.
4 I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. I note that assessing officer made addition of Rs.42,45,630/- on account of uncounted, credit and treated, as a turnover of the assessee, in fact, it was not belonged to the assessee. Therefore, on appeal, by the assessee, before Ld. CIT(A), the addition of Rs.42,45,630/-, was deleted by the ld. CIT(A). Therefore, turnover Sanjaybhai Jadavjibhai Jamnagar v. ITO AY. 2008-09 of the assessee, does not reach to the threshold limit of Rs.40,00,000/- and hence the assessee is not responsible to get the accounts audited under section 44AB of the Act, and consequently, penalty under section 271B of the Act, should not be levied, on the assessee. As addition of Rs.42,45,630/-, presumed by the assessing officer, as if, it is turnover of the assessee, was not really turnover of the assessee and hence the assessee is not liable to get his accounts audited under section 44AB of the Act. I note that Learned CIT(A) in assessee’s case, for assessment year 2008-09, while passing the order dated 19.07.2021, vide DIN and order No: ITBA/NFAC/S/250/2022-23/1043930189(1), has deleted the quantum addition of Rs.42,45,630/-, observing as follows: “I have carefully considered the facts, mentioned in the assessment order and submission of the appellant along with several case laws and judicial pronouncement in support of his contention. There is apparent merit in the submission and force in the arguments of appellant. The above cited case laws and judicial pronouncement fully support to contention of the appellant. As apparent from the facts of the case, some entries were found from the premises of Late Chhotalal Doshi, which was admitted by his son Dharmendra Doshi, as containing details of accommodation entries. The figure of Rs. 42,45,630/-, in the name of 'Sanjay or Sanjay shrinathji’ for the period from 03.04.2007 to 31.08.2008 and the same was held by the Ld. AO to be related to appellant. However, the appellant denied to have made any transactions with Late Chhotalal Doshi or his family member or his concerns during the period under consideration. It is a matter of common understanding that one limb of transactions in the case of accommodation entries is reflected in the books and the other limb is in cash which is found only when some incriminating documents is unearthed. In the instant case, the AO failed to link the entries in the diaries with transactions recorded in the books of the appellant which was necessarily required to be done as the appellant has denied any type of transactions with the said entry operator. Further, the appellant has also alleged that the diaries were written in one go after survey/search and is not reliable evidence. In absence of any link with the transactions recorded in books of the appellant and the entries in the diaries, it is found that the addition is not sustainable. In view of above, the addition of Rs. 42,45,630/- made by the AO is hereby deleted. Therefore, these grounds of appeal are allowed.”
5. From the above findings of the ld. CIT(A), it is vivid that the addition of Rs. 42,45,630/- made by the assessing officer was deleted, by ld CIT(A), hence it is not a turnover of the assessee, therefore, assessee is not liable to get his accounts audited under section 44AB of the Act. Once the foundation fails, the Sanjaybhai Jadavjibhai Jamnagar v. ITO AY. 2008-09 superstructure also fails i.e. the addition also is to be deleted. In this regard, I placed reliance on the legal maxim “Sublato fundamento cadit opus” (meaning thereby that foundation being removed, structure /work falls). Hence the initial action of the assessing officer itself is not in consonance with law, then all the subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. Based on this factual position, I delete the penalty imposed by the assessing officer under section 271B of the Act.
6.In the result, the appeal of the assessee is allowed.
Order is pronounced on 23/01/2025 in the open court.