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Facts
The assessee, a co-operative society formed by ex-servicemen, provides security guards and deducts service charges. The society failed to maintain regular books of accounts and get them audited for AY 2015-16 and 2016-17. Consequently, the AO initiated penalty proceedings under Section 271B and Section 271A of the Income Tax Act.
Held
The Tribunal held that penalty under Section 271B is applicable only when books of account are maintained but not audited. Since the assessee failed to maintain books of account, the default is for non-maintenance under Section 44AA, making it liable for penalty under Section 271A, not 271B. The imposition of penalty under Section 271B was deemed erroneous and unjustified.
Key Issues
Whether penalty under Section 271B is leviable for non-maintenance of books of account, or only for failure to get audited accounts that were maintained.
Sections Cited
271B, 271A, 44AA, 44AB
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC’’ JAIPUR
Before: Hon’ble SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No. 26 & 27/JP/2024
ORDER PER: SANDEEP GOSAIN, JM Both these appeals filed by the assessee are directed against two different orders of the ld. CIT(A) dated 29-12-2023, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment years 2015-16 & 2016-17 wherein the assessee has raised the following grounds of appeal. – A.Y. 2015-16 ‘’1. The impugned penalty order u/s 271B dated 10-09-2023 as well as notice are bad in law and on facts of the case, being barred by limitation, for want of jurisdiction and various other reasons and hence the same may kindly be quashed.
2. The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the penalty of Rs.1.50 lacs imposed by the AO u/s 271B of the Act for not getting the books of account audited without considering the request and material available on record.
2 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA Hence, the penalty so imposed by the AO and confirmed by the ld. CIT(A) is totally contrary to the provisions of law and facts on the record and hence the same may kindly be deleted in full.
ITA NO.27/JP/2024 – A.Y. 2016-17 ‘’1. The impugned penalty order u/s 271B dated 17-05-2019 as well as notice are bad in law and on facts of the case, being barred by limitation, for want of jurisdiction and various other reasons and hence the same may kindly be quashed.
The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the penalty of Rs.1.50 lacs imposed by the AO u/s 271B of the Act for not getting the books of account audited without considering the request and material available on record. Hence, the penalty so imposed by the AO and confirmed by the ld. CIT(A) is totally contrary to the provisions of law and facts on the record and hence the same may kindly be deleted in full.’’ 2.1 Brief facts of the case are that assessee is a registered co-operative society with the deputy registrar co-operative societies Kota and its registration no is 2481/R Kota dated 27/3/2004. The co-operative society has been formed by the EX-SERVICE MEN of the army (retired military men). The society provides security guards to the prospective people, concerns and /or companies and the payment for such recruitment is made by the employers to the society and then the society in turn makes the payment to the member recommended for employment by deducting 2-3 % service charges meaning there by that if the society receives Rs.100, then it makes the payment (including ESI AND PF AND SERVICE TAX) of Rs.97-98 to and for the member and balance Rs. 3-2 is kept for management charges and as such the surplus which remains with the society is 2-3 % of the gross revenue. Assesee Society filed its Return of 3 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA income for the A.Y. 2015-16 on dt.28.10.2015 declaring the income at Rs. Nil and for A.Y. 2016-17 on dt.07.10.2016 declaring the income of Rs. Nil. In the return filed assessee also claimed the deduction u/s 80P(2)(A)(iv). The assessments were completed u/s 143(3) on dt.27.12.2017 and on dt.09.11.2018 respectively. During the course of assessment proceedings the AO has noted that the gross receipts of the assessee for A.Y. 2015-16 was of Rs.3,91,92,677/- and for A.Y. 2016-17 the gross receipts of the assessee was of Rs.4,86,44,084/- and assessee has neither maintained the books of accounts nor got its books of accounts audited u/s 44AA. Hence AO has initiated the penalty proceedings u/s 271B for not getting the books of accounts of audited and initiated the penalty proceedings u/s 271A by issuing the penalty notice u/s 271B of the Act. In response thereto, the assessee filed the reply which was not found satisfactory to the AO and imposed the penalty of Rs.1,50,000/- for both the A.Y. 2.2 Before the ld. CIT(A), the assessee filed the written submission and case laws but being not satisfied, he confirmed the penalty.
2.3 The assessee being aggrieved by the order of the CIT(A), the assessee carried the matter before this Bench and submitted that the assessee has not maintained the books of account and there was no question of audit the accounts. He further submitted that in the I.T. Act, there is provisions that if any person does not maintain the books of account then he is liable to penalty u/s 271A of the Act. He further submitted that AO has already imposed the 4 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA penalty u/s 271A for non maintenance the books of accounts for A.Y. 2015-16. The penalty u/s 271B is liable if the assessee maintains the books of account and does not get the books of account audited. He further submitted that if assessee does not maintain the books of account then in that eventuality he is liable for penalty u/s 271A of the Act. Thus in the present case, assessee has not maintained the books of account for which he is liable for penalty u/s 271A and not any not u/s 271B. In support the ld. A/R has relied upon on the following Judgments of this Tribunals and other Co-ordinate Benches as under :-
(a) Manoj Kumar Gour v/s ITO Ward 4(3), Jaipur in dt. 15.02.2023 (b) Bhawani Shankar Gupta v/s ITO Ward 4(1), Jaipur in ITA No. 43/Jp/2023 dt. 22.03.2023. © Gurinder Kahlon v/s ITO Ward 1(1), Baroda in ITA No. 640-642/Ahd/2015 dt. 27.02.2018. (d) Maranaikana Halli Jayashella Shetty Pradeeep Kumar v/s ACIT Circle-1(1) & TPS Mysore in ITA No. 1136/Jp/2022 dt. 30.03.2023 During the course of hearing, the ld. A/R also argued that there was various reasonable cause and technical breach which is taken from his written submission as under:-.
‘’The assessee society is a registered co-operative society with the deputy registrar Co-operative Societies Kota and its registration no is 2481/R Kota dated 27/3/2004, which was formed by the by the EX SERVICE MEN of the army (retired military men).The society has been formed for group employment as security guards. As the society provides 5 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA security guards to the prospective people, concerns and /or companies and the payment for such recruitment is made by the employers to the society and then the society in turn makes the payment to the member recommended for employment by deducting 2-3 % service charges meaning there by that if the society receives Rs.100, then it makes the payment (including ESI AND PF AND SERVICE TAX) of Rs.97-98 to and for the member and balance Rs. 3-2 is kept for management charges and as such the surplus which remains with the society is 2-3 % of the gross revenue and this comes to Rs.8,57,838/- in A.Y. 215-16 and Rs.11,18,738/- in A.Y. 2016-17 which is below the limit for audit. As the members of the society were under impression that the commission part is there receipts which is below 11-12 lakhs and not liable the Audit under the income tax. Assessee was also view that it claimed the deduction u/s 80P(2)(A)(iv) and no taxable income, hence not required for Audit. They also under impression that the assessee is registered with the Co-operative Societies and audit to be done by office of Co- Operative. Further the president namely Late Sh. Latur Singh Shaktawat who was looking after the society was suffering from some disease and ultimately expired on dt.14.06.2021 his death certificate is enclosed marked as Annexre-1. It is also the reason the accountant of the societynamely Sanjay Singh had also left the service in those period, hence the books of accounts could not be maintained.’’ ‘’Alternatively and without prejudice to our other submission, even assuming some default was there, the same at the best was a merely technical and venial breach of law and the conduct of the assessee has not been shown to be contumacious. No deliberate defiance of law is established. It has been held that by the Honble Supreme Court in the case of Hindustan Steels v/s State of Orisa 83 ITR 26 (SC). "That in order to impose penalty for failure to carry out a statutory obligation is the result of quasi criminal proceedings and penalty will not ordinarily be imposed, unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. The Supreme Court has further laid down that penalty will not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority and is to be exercised judiciously and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed the authority competent to impose the 6 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA penalty, will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." The assessee in any case entertained a bonafide belief that vide para-2. This way a reasonable cause did exist u/s 273B and hence also the penalty imposed may kindly be quashed. Thus due to the above reasons if any a poor assessee should not be suffered.’’ The ld. A/R relied upon on the following judgements on the reasonable cause and technical breach.
In the case of Raja Dudh Utpadak Sahakari Sanstha Ltd. Vs ITO & ORS. 1545/PUN/2018, 1546/PUN/2018, 1548/PUN/2018, 1550/PUN/2018, 1552/PUN/2018 (2022) 64 CCH 0040 PuneTrib (2022) 93 ITR (Trib) 0067 (Pune) (SN). In the case of CIT vs. Mathana Model Co-Op. Credit & Service Society ltd.* 299 ITR 0070 : (2008). In the case of CIT vs. L.S. Lakshmanaswamy (2008) 296 ITR 0591(Mad) In the case of Prabhulal Sahu vs. ITO (1995) 52 TTJ 0137(Jp).
2.4 During the course of hearing, the ld. DR strongly relied upon the orders of the lower authorities and submitted that there is no merit in the submission of the assessee.
2.5 The Bench has heard both the parties, perused the materials available and the case laws cited (supra). The Bench observed and it is an admitted fact that the assessee has not maintained the books of accounts and the penalty was imposable u/s 271A for non maintenance of the books of account and no penalty was imposable u/s 271B for non getting the books of accounts audited.
7 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA It is noted that AO himself levied the penalty u/s 271A for A.Y. 2015-16 and for A.Y. 2016-17 for which the assessee vide his letter dated 25-10-2018 (A.Y. 2016-17) had requested the AO to impose the penalty u/s 271A whereas in one year the AO imposed the penalty u/s 271A and in another one year he had not imposed penalty u/s 271A despite the request by the assessee then it cannot be said that there is any fault of the assessee which indicates that penalty u/s 271B is liable to be deleted. The Bench relies upon the case of Manoj Kumar Gour v/s ITO Ward 4(3), Jaipur in ITA No. 247/Jp/2021 dt. 15.02.2023 wherein it has been held as under; ‘’10. I have heard ld. Counsels for both the parties, perused the material available on record and gone through the orders of the Revenue authorities. The matter for consideration before me is against the levy of penalty under section 271B for non audit of accounts. I have considered the rival submissions as well as relevant material on record and note that the assessee has committed the default for not maintaining the regular books of accounts as required under section 44AA of the Act. The Assessing Officer has imposed penalty under section 271B for not getting the books of accounts audited. It is pertinent to note that when the assessee did not maintain the regular books of account then the question of getting the books of accounts audited does not arise. In this regard, I find that the Coordinate Bench of the Jaipur Tribunal has dealt with the similar issue in the in the case of Shahnaz Khanam vs. ITO in ITA No. 38/JP/2018 wherein considering the various judgments of the Hon’ble High Courts decided the issue in its order in paras 6 to 7 as under :- “6. Having considered the rival submissions as well as relevant material on record we note that the assessee has committed the default for not maintaining the regular books of accounts as required u/s 44AA of the Act. The Assessing Officer has already imposed the penalty u/s 271A for violation of the provisions of section 44AA of the Act. The AO has also imposed the penalty u/s 271B for not getting the books of accounts audited. It is pertinent to note that when the assessee did not maintain the 8 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA regular books of account then the question of getting of books of accounts audited does not arise. Once,there is a violation of provisions of section 44AA of the Act the said violation cannot be extended to section 44AB of the Act. The provisions of section 44AB of the Act can be invoked only when the assessee has complied with the provisions of section 44AA of the Act. Therefore, the violation of section 44AA of the Act cannot continue because once it is found that the assessee did not maintain the regular books of account, the said violation cannot travel beyond the provisions of section 44AA and hence, cannot be held as a further violation of section 44AB of the Act. The Hon’ble Allahaband High Court in case of CIT Vs. Bisauli Tractors (supra) while dealing with this issue as held in paras 11 to 14 as under:- “11. In the case of S. Narayanappa & Bros. v. CIT [1961] 41 ITR 125 the Mysore High Court has held as follows : "What was urged before us was that in a case where an assessee has furnished no return at all before the Income-tax Officer, it should be presumed for the purposes of section 28(1)(b) that he has furnished a return of his income intimating the Income-tax Officer that his income is nil. It seems to me that the language of section 28(1) does not admit of any such construction since the clear requirement of the provisions of this sub-section is that an assessee on whom a penalty is proposed to be imposed under section 28(1)(b) should have in the first instance furnished his return. That, in my opinion, is the ordinary and grammatical meaning of the words occurring in the Act. To interpret the language of this provision in the manner suggested by the learned Government Pleader would, in my opinion, be too artificial and too far-fetched to commend itself for acceptance. Although it is true that the provisions of a statute like those contained in section 28(1)(b) have to receive to construction so as to promote the object of the statute, it is clear that when we interpret a penal provision like that contained in section 28(1)(b), the interpretation we should place upon it must accord with reason and justice and must be in accordance with the plain ordinary and rational meaning of the words contained in those provisions. So interpreted, I would not, in my opinion, be right in placing on section 28(1)(b) the construction for which the learned Government Pleader contends." (p. 133).
The Madras High Court in the case S. Santhosa Nadar v. First Addl. ITO [1962] 46 ITR 411 has gone to the extent that a voluntary return filed after the period of four years from the close of the assessment year is not a valid return and such a case should be regarded as if no return has been filed at all and it cannot be said in such a case that there has been a concealment of the particulars of income or deliberate furnishing of inaccurate particulars and section 28(1)(c) of the Income-tax Act, 1922 would not be applicable. The Madras High Court has held as follows : "When we come to section 28(1)(c ), it deals specifically with the concealment of ‘particulars’ of income or the deliberate furnishing of inaccurate ‘particulars’ of income. In the setting in which this subsection finds place it is impossible to construe section 28(1)(c) except as relating to a case where a return has been filed but from which return particulars of income have been omitted or any particulars have been deliberately inaccurately furnished. The use of the expression ‘particulars of his income’ and ‘particulars of such income’ would be wholly inapposite in a case where no return has at all been filed; such a case would clearly come within the scope of section 28(1)(a) alone."
This Court in CWT v. Yadu Raj Narain Singh [2006] 286 ITR 564 also taken the same view. It has held as follows : "Thus applying the strict construction of penalty provisions contained in clause (1) of sub-section (c) of section 18 of the Act, we find that prior to the amendment in Explanation 3 by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 in a case where the person who has previously been assessed under the Act does not file any return in response to the notice or even where time for filing the return has expired has not filed any return there cannot be any concealment for which penalty provision can be imposed. In view of the foregoing discussions,we are of the considered opinion that in the present case the respondent assessee has not concealed the particulars of his income for which wealth no penalty under clause (1) of subsection (c) of section 18 of the Act is exigible.
10 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA 14. Therefore, section 271B of the Act is not attracted in a case where no account has been maintained and instead recourse under section 271A can be taken.”
A similar view has been taken by the Hon’ble Gauhati High Court in case of Surajmal Parsuram Todi vs. CIT (supra) and held in para 6 as under:- “6. We have gone through the provisions of sections 44AA, 44AB, 271A and 271B of the Act. Maintenance of accounts is envisaged under section 44AA and on failure to do so the assessee shall be guilty and liable to be penalised under section 271A. Even after maintenance of books of account the obligation of the assessee does not come to an end. He is required to do something more, i.e., by getting the books of account audited by an accountant. But when a person commits an offence by not maintaining the books of account as contemplated by section 44AA the offence is complete. After that there can be no possibility of any offence as contemplated by section 44AB and, therefore, in our opinion, the imposition of penalty under section 271B is erroneous. The Tribunal has overlooked this aspect of the matter. Of course, it is apparent from the records that the assessee failed to maintain the books of account as required under section 44AA and for that penalty is prescribed under section 271A. It is for the Tribunal to take action in accordance with law. The Delhi Benches of the Tribunal in case of Nirmal Kumar Jain vs. ITO (supra) has held in paras 3 & 4 as under:- “3. In so far as the penalty u/s 271B is concerned, it is noticed that the AO has recorded a categorical finding on page 2 of the assessment order that no books of account were maintained by the assessee. Under such circumstances, a question arises as to whether any penalty can be imposed u/s 271B for not getting the books of account audited. The Hon'ble Gauhati High Court in Surai Mal Parasuram Todi vs. CIT (1996) 222 ITR 691 (Gau.), has held that where no books of account are maintained, penalty should be imposed for non- maintenance of books of account u/s 271A and no penalty can be imposed u/s 271B for violation of section 44AB requiring ITA Nos.6696 & 6645/Del/2014 audit of accounts. Similar view has been taken by the Hon'ble Allahabad High Court in CIT vs. Bisauli Tractors (2008) 299 ITR 219 (All). The Hon'ble 11 JAI HIND SAINIK BAHUDESHIYA SAHAKARI SAMITI LTD VS ITO, WARD 1(1), KOTA Allahabad High Court reiterated the similar view in CIT and Anr. Vs. S.K. Gupta and Co. (2010) 322 ITR 86 (All) by holding that requirement of getting the books of account audited can arise only where the books of account are maintained. In the absence of the maintenance of books of account, there Can be no penalty u/s 271B of the Act. In view of the foregoing legal position emanating from the judgment of the two Hon’ble High Courts, we are convinced that penalty u/s 271B ought not to have been levied because the assessee admittedly did not maintain any books of account as has been recorded in the assessment order itself. We, therefore, order for the deletion of penalty.
As regards the imposition of penalty u/s 271(1)(c) of the Act on the addition of Rs.7.50 lac, we find that this addition has resulted on estimation of income at 5% on estimated sales ITA Nos.6696 & 6645/De1/2014 of Rs.1.50 crore. Except that there is no other basis for imposition of penalty. The Hon'ble Delhi High Court in CIT vs. Aero Traders P. Ltd. (2010) 322 ITR 316 (Del) has upheld the view taken by the Tribunal in deleting penalty u/s 271(1)(c) which was imposed on the basis of addition made by the AO on estimated profit. Similar view has been taken in a series of judgments including the Hon'ble Punjab & Haryana High Court in CIT vs. Dhillon Rice Mills (2002) 256 ITR 447 (P&H). In this case also, the Hon'ble Punjab & Haryana High Court approved the view taken by the Tribunal in deleting the penalty u/s 271(1)(c) which was based on an estimate of income made by the AO. In view of the foregoing decisions, it is clear that the penalty so confirmed in the instant case cannot be sustained because it was imposed by the AO on the estimate of income made by him. We, therefore, order for the deletion of penalty.” Accordingly, in view of the binding precedent, we hold that once the assessee found to have not maintaining the regular books of account as contemplated by Section 44AA of the Act the default was completed and therefore, after the default of not maintaining the books of accounts there cannot be a further default for not getting the same audited as required U/s 44AB of the Act. Hence, the penalty levied by the AO under section 271B is not justified and the same is deleted.”