SHUBH HATCHERIES,JABALPUR vs. INCOME TAX OFFICER, WARD 1(1), JABALPUR

That the penalty confirm U/s 271B of IT Act, 1961, at Rs. 1,50,000/- is not justified.

That the Assessee crave leaves to raise any other ground/s on or before the date of hearing to prove that the order passed is bad.” 2.1 The facts of the case are, that the ld. AO observed that the assessee had not filed a return of income under section 139 of the Income Tax Act, 1961 for the assessment year 2017-18. He subsequently received information that the assessee had deposited cash of Rs. 11,30,950/- during the demonetization period in its account in maintained with ICICI Bank, Vijay Nagar Branch, Jabalpur. Therefore, assessment proceedings under section 147 of the Act were initiated. In response to the notice under section 148, the assessee filed an income tax return declaring a total , 23 & 24/JAB/2024 A.Y. 2017-18 Shubh Hatcheries loss of Rs. 1,32,779/-. It also e-filed audited accounts in Form 3CB on 26.01.2020. Subsequently, the ld. AO issued notices under section 143(2) and section 142(1) of the Income Tax Act but none of the notices were responded to. He, therefore, proceeded to complete the assessment on the basis of the material available on record. Ongoing through the audited profit and loss account, the ld. AO noticed that the assessee achieved a turnover of Rs. 2,99,74,493/- from which it had a business loss of Rs.1,32,778/-. He observed that the assessee was required to furnish its audited accounts for the F.Y. 2016-17 within the specified due date i.e. 15.10.2017 but had failed to do so. Therefore, he initiated penalty under section 271B of the Act on this account. On the issue of cash deposited, the ld. AO held that though the assessee had been found to be the owner of money, he had not offered any acceptable and cogent explanation regarding the source of such money found in its bank accounts. The ld. AO held that since the onus was upon the assessee to explain the deposit of Rs.11,30,950/- in its accounts and the assessee had failed to do so, the amount deposited into the bank account represented the assessee’s income from undisclosed sources. Accordingly, he brought it to tax under section 69A of the I.T. Act, 1961 and also initiated penalty proceedings under section 271AAC of the Act in this regard.

The ld. AO initiated penalty proceedings under section 271B of the Income Tax Act, 1961, during the course of assessments, followed it up with a regular notice. However, the assessee did not file any response to the penalty notice under section 271B issued on 1.09.2021. The assessee was thereafter, given an another opportunity to justify with documentary evidences as to why the penalty should not be levied and , 23 & 24/JAB/2024 A.Y. 2017-18 Shubh Hatcheries the assessee was warned that failure would result in the levy of penalty. However, once again, there was no response. Thereafter, the matter was referred to the verification unit for vehicle delivery of notices but despite this, the ld. AO did not receive a response on merits, it was only submitted that since it had filed an appeal with the ld. CIT(A) on 22.01.2022, the penalty under section 271B may be kept in abeyance. The ld. AO held that section 271B could not be kept in abeyance under the provisions of section 275(1A) because it was for failure to comply with the provisions under section 44AB within the stipulated time and have nothing to do with the quantum addition. The ld. AO noted that the assessee had a turnover of Rs. 2,99,74,493/- and therefore, was liable to get his accounts audited by an Auditor before the specified dated and to have furnished such report in the prescribed form before the specified date. However, the assessee had not furnished any explanation as to why it had not furnished the audit report or got accounts audited within the time limit therefore, the ld. AO held that the assessee was in violation of the provisions of section 44AB and accordingly, was liable for penalty under section 271B of the Income Tax Act. He, therefore, levied the penalty of Rs. 1,50,000/- after computing Rs. 1,49,870/- as the amount of penalty leviable @ .5% of turnover.

Aggrieved with this levy of penalty, the assessee went before the ld. CIT(A). The ld. CIT(A) records that he issued four notices to the assessee but did not receive compliance on any of the notices. Accordingly, he held that the assessee was not interested in pursuing his appeals and he therefore, dismissed the appeal.

The assessee is aggrieved at this summary dismissal of all these appeals by the ld. CIT(A) and has come in appeal before us. Sh. Hemant S. Modh, Advocate (hereinafter referred to as the ‘ld. AR’) submitted that the assessment against the assessee was unjustified because the cash that had been deposited was out of the business receipts of the assessee firm and the assessee had filed a copy of its accounts before the ld. AO to demonstrate the same. However, the ld. AO had not 23 & 24/JAB/2024 A.Y. 2017-18 Shubh Hatcheries considered this and had held that amount deposited is treated to be unexplained. It was submitted that the matter could not be properly represented before the ld. AO or the ld. CIT(A) but the deposits were not unexplained and it was prayed that if the matter could be sent back to the ld. AO, the deposits would be duly explained. On a query from the Bench, the ld. AR undertook to appear before the ld. AO and explain the matter.

Sh. Alok Bhura, Sr. DR (hereinafter referred to as the ‘ld. Sr. DR’) pointed out that the assessee had not made any compliance before either the ld. AO or the ld. CIT(A) and therefore should be presumed that he had nothing to say in this regard. However, if the Tribunal, in its wisdom decided to send the matter back while necessary direction should be issued to the assessee for compliance before the ld. AO so that the true facts could be arrived at. With regard to the issue of levy of penalty under section 271B, the ld. Sr. DR pointed out that the same ought to be confirmed as it had nothing to do with the quantum but was on account of failure to comply with the provisions of section 44AB. In response, the ld. AR submitted that this matter may also be kindly sent back to the ld. AO to enable the assessee to prove that there was an explanation for the late compliance.

We have duly considered the facts and circumstances of the case. It is seen that as per the audited accounts placed before the ld. AO, on the basis of which, return in response to notice under section 148 of the Act was filed, the assessee did not have taxable income. The ld. AR has also contended that the deposits in the bank account are explained out of the turnover of the assessee firm. We have observed that the facts of the case have not been brought out before either the ld. AO or the ld. CIT(A). Therefore, in the interest of justice, we restore to the file of the ld. AO with a direction to the assessee to make due compliance before him following which the ld. AO may make de novo assessment. Accordingly, is allowed for statistical purposes. Regarding , as , 23 & 24/JAB/2024 A.Y. 2017-18 Shubh Hatcheries the quantum assessment has been set aside for discovery of whether there was any income of escaping assessment, the penalty on account of the addition under section 69A is not sustainable. Accordingly, we restore this matter also back to the file of the ld. AO to take a final decision on the matter, which will depend on his findings in the quantum assessment. Accordingly, is also allowed for statistical purposes. Regarding we find that it is not disputed by the assessee that he failed to get his account audited and that he failed to submit the audited accounts to the Department before the due date of compliance. In the circumstances, it appears that the assessee has rendered itself liable to be proceeded against under section 271B of the Income Tax Act, 1961. However, we note that the provisions of section 273B grant the discretion to the Assessing Officer not to levy the penalty if the assessee is able to show reasonable cause for the failure to make compliance and the penalty u/s 271B is among those penalties that are listed in the said section. We further observe that the assessee has not been heard in the matter and we believe that before the levy of penalty, it must be given an opportunity to explain the default. In the circumstances, we restore this matter back to the file of the Assessing Officer, with a direction to the assessee to make due compliance. The ld. AO may thereafter pass an order in accordance with law.