SHRI DAYALJI JAMNADAS THACKER,BHUJ-KUTCH vs. THE ITO-WARD-2, BHUJ-KUTCH, BHUJ-KUTCH

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi dated 02/08/2021 arising in the matter of penalty order passed under s. 271B of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-16.

The assessee has raised following grounds of appeal: “1. The penalty order u/s. 271B of the Act is bad in law.

In the present case, the assessee is an individual and engaged in the business of dairy products. The assessee has obtained agency from Gujarat Co- operative Milk Marketing Federation Limited (AMUL) and dealing in various dairy products. The AY in dispute being 2015-16 is the first year of his business.

During the assessment year, it was observed by the AO that the turnover of the assessee for the relevant assessment year was amounting to Rs. 4,26,21,645/- only. According to AO, the assessee was required to get his accounts audited u/s 44AB of the Act before 31.10.2015 and Tax Audit Report was to be filed by 31-10-2015. Since, no Tax Audit Report was furnished by the assessee by or before the specified date, he initiated the penalty proceedings u/s 271B of the Act by issuing penalty notice dated 05.11.2017. The assessee in response to such notice submitted that the audit report was uploaded on 31.03.2017. It was also submitted by the assessee that this was his first year of business and the tax has already been paid to the Government Exchequer, so there was no loss to the revenue. But AO disagreed with the contention of the assessee and levied the penalty amounting to Rs. 1,50,000/- under section 271B of the Act.

Aggrieved by the aforesaid order of penalty levied u/s 271B of the Act, the assessee preferred an appeal before the ld. CIT(A). It was submitted by the Assessee that his case was selected for scrutiny assessment and the assessment u/s 143(3) was completed by the AO without making any variation in the return of income filed by him. Furthermore, it was his first year of business and it has taken time to finalize accounts and get the same audited. But the tax was already paid with interest to the Government Exchequer. It was also submitted that the assessee is a semi-literate man and he was under bona-fide belief that his net margin i.e. 1.5% of the turnover would be considered as his gross receipt/ turnover instead of his total sales.

However, it was observed by the Ld. CIT(A) that the appellant’s contention that he is a semi- literate layman and not much conversant with the provisions of Income Tax Laws cannot be a reason for non- compliance. An ordinary man doing such a huge business and turnover would necessary require to consult an expert to meet his statutory compliance and obligations under the Income Tax Act. The minimum penalty amounting to Rs. 1,50,000/- has been levied only for non- compliance of the provision of law not for concealment of income. As such, the Ld. CIT(A) found the contention of the assessee not palpable and upheld the decision of the AO.

Now the assessee is in appeal before us.

The ld. AR before us filed a written submission running from pages 1 to 3 and contended that there was a bona fides believe on the part of the assessee that for not getting his accounts audited and consequently failure to furnish the tax audit report within the prescribed time. As such, the assessee was under the impression that only the commission income shall be treated as the gross turnover of the assessee. Furthermore, the assessee on realization of his mistake got his accounts audited and filed the tax audit report before the completion of the assessment under section 143(3) of the Act which evidences that substantial compliance was made by the assessee and therefore the mistake committed by the assessee cannot be subject matter of penalty under the provisions of section 271B of the Act. The learned AR also submitted that it is the 1st year of the business of the assessee and therefore considering the same, the penalty should be waived off.

On the contrary, the ld. DR before us vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. An Income Tax penalty is a punitive measure which is levied when assessee makes default in compliance of the provisions of Income Tax Act. The Act has introduced various penalties for contraventions committed by taxpayers. The penalty prescribed as per the Income Tax Act can either be mandatory or leviable at the discretion of a tax authority. So in penalty proceedings the conduct of the assessee is very important. The Hon’ble Supreme Court in Hindustan Steel Ltd Vs. State of Orissa 83 ITR 26 held that penalty should not be imposed unless the assessee acted deliberately. An order imposing the 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, contumacious or dishonest, or acted in conscious disregard to its obligation. Penalty will not also 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 to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the 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.

Coming to the case on hand where the penalty has been levied under section 271 B of the Act on account of failure to get the accounts audited and furnished the audit report within the prescribed time. The salient features of tax audit report stand as under:

Admittedly, the income declared by the assessee in the return of income was accepted by the revenue without making any addition and disallowance. Likewise, the assessee has also furnished the tax audit report before the completion of the assessment. In such facts and circumstances, it appears that the book results shown by the assessee were substantially accepted by the revenue as genuine and the compliance was made by the assessee with some delay. The delay has also been explained by the assessee that it was the 1st year of the business. Considering, all the facts stated above, we are not inclined to up- hold the findings of the authorities below. Accordingly, we set-aside the finding of the learned CIT-A and direct the AO to delete the penalty by him. Hence, the ground of appeal of the assessee is hereby allowed.

In the result, the appeal of the assessee is allowed.