SHRI DIYA SHANKAR NATHANI,KOLKATA vs. I.T.O, WARD-29(4), KOLKATA, KOLKATA

In this appeal the assessee has challenged the order of CIT(A) whereby the CIT(A) has confirmed the order of AO imposing penalty of Rs.86,963/- u/s 271B of the Act.

The Assessee is an Individual. He filed return of income and declared total income of Rs.66,757/-. The assessee personally appeared before AO and was not assisted by any profession. In the course of assessment proceedings AO noticed that as per the AIR information the assessee deposited a sum of Rs.15,07,000/- in cash in his bank account during the previous year. The assessee explained the source of funds for the aforesaid deposit and the same was accepted by the AO. Assessment was completed on the returned income.

The AO however noticed that the total turnover of the assessee was to the tune of Rs.1,73,92,580/- and therefore the assessee ought to have got his books of account audited by a Chartered Accountant as required under the provision of section 44AB of the Act. The threshold limit for the relevant assessment year on turn over for compulsory audit u/s 44AB of the Act was Rs.40,00,000/-. Failure to get the accounts audited and submitted the return of such audit within the prescribed period attracts penalty u/s 271B of the Act. However u/s 273B of the Act no penalty is imposed if the assessee is able to show that not getting the books audited was for a reasonable cause.

The AO imposed penalty on the assessee u/s 271B of the Act. The appellate proceedings were decided ex-parte by CIT(A) and he confirmed the action of AO. The prayer of the learned counsel for the assessee before us was that the turnover of the assessee was in fact not more than Rs.40 lakhs and the provision of section 44AB of the Act were not applicable at all. In this regard the learned counsel for the assessee pointed out that the turnover of Rs.1,73,92,580-/- was arrived at by the AO was on the basis of quantum of purchase and sale of shares made by the assessee. In this regard the learned counsel for the assessee pointed out that the assessee was trading in cloth and was not a dealer in shares. The shares were held by the Assessee as investments and disclosed as such in the books of accounts. Therefore purchase and sale of the shares ought to have been declared under the head capital gain but was wrongly declared by the Assessee as income from business. The following was the transactions in purchase and sale of the shares :-

The learned counsel for the assessee placed reliance on various judicial pronouncements. a)CIT vs Market Committee (2012) 210 Taxmann 20 (P&H) in this case it was held that section 44AB was not applicable where the assessee was not involved in or has no income from profits and gains from business or profession. b) CIT Heros Publicity Services 248 ITR 256 (Bombay) wherein it was held that for the purpose of audit u/s 44AB of the Act total amount of transactions between the business and the media cannot be treated as receipt accruing to the assessee.

The learned DR relied on the order of AO.

We have given a very careful consideration to the rival submissions. It is clear from the order of AO that the assessee was not a trader in shares but was deriving income from sale of cloth. The shares were held by him as investments and this is evident from a perusal of the balance sheet. In such circumstances the sale of shares cannot be treated as turnover in business for the purpose of section 44AB of the Act. Section 44AB of the Act refers to a person carrying on business where the total sales turn over or gross receipts, in business, exceeds Rs.40 lakhs. Since the assessee is not in the business of trading in shares we are of the view that provision of section 44AB of the Act are not applicable to the assessee. Though this aspect was not highlighted either in the course of assessment proceedings or in the appellate proceedings, we are of the view that the Tribunal can take note of these facts in the penalty proceedings.

For the reasons given above penalty imposed u/s 271B of the Act is directed to be cancelled.

In the result the appeal of the assessee is allowed.