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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri T.R. Senthil Kumar
Mahesh Damjibhai The I.T.O. Ward- Khunt, 1(2)(2), Rajkot Shri Somnath Co.Op. Vs Housing Soc., (Respondent) 150feet Ring Road, Rajkot PAN No: ASYPK7314F (Appellant) Appellant by : Written Submission Respondent by : Shri B.D. Gupta, D.R. Date of hearing : 20-09-2022 Date of pronouncement : 07-10-2022 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This is an appeal filed by the Assessee against the order dated 11.02.2020 passed by the Commissioner of Income Tax (Appeals)-1, Rajkot as against the confirming the penalty levied u/s. 271B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2010-11.
Page No 2 Mahesh Damjibhai Khunt vs. ITO
The brief facts of the case is that the assessee is an individual and engaged in the business of trading shares, and securities in Multi Commodity Exchange. For the assessment year 2010-11, the assessee did not file the Return of Income. As per the information with the Department, the assessee had entered into transactions with the Multi Commodity Exchange in aggregate of Rs. 5,09,86,890/-. Therefore the assessee was issued notice u/s. 148 and the assessment order reopened. The assessee did not respond to the u/s. 148 notice. Therefore the Assessing Officer called for information u/s. 133(6) from the M/s. Arcadia Commodities and Trading.
2.1. On verification and information, it is seen that the assessee had made total turnover of Rs. 43,14,710/- from which the assessee earned a profit of Rs. 2,15,735/-. As the turnover is exceeding the limit of Rs. 40,00,000/-, the assessee failed to get its books audited u/s. 44AB of the Act which attracts penalty leviable u/s. 271B of the Act. A Show cause notice was issued asking the assessee why not penalty is leviable u/s. 271B, for not getting its account audited u/s. 44AB of the Act. The assessee failed to reply to the show cause notice. Therefore the assessee levied a minimum penalty of Rs. 21,574/- being the 0.5% of the gross receipt u/s. 271B of the Act.
Aggrieved against the same, the assessee filed an appeal before the Ld. CIT(A). The ld. CIT(A) confirmed the levy of penalty as the assessee failed to furnish Audit Report as per the provisions of Page No 3 Mahesh Damjibhai Khunt vs. ITO Section 44AB despite the transaction in Multi Commodity Exchange having more than 1 Crore turnover. Thus the Ld. CIT(A) confirmed the levy of penalty.
3.1. Aggrieved against the same the assessee is in appeal raising as many as 11 grounds of appeal, the effective ground is that when the books of accounts are not maintained by the assessee, the question of auditing does not arise and there was reasonable cause with the assessee and therefore no penalty was leviable.
3.2. During the course of hearing, none appeared on behalf of the assessee. A written submission filed by the Authorized Representative, wherein it is reiterated that the A.O. has accepted his position as per Para 4.1 of the assessment order that the assessee has neither produced the books of accounts nor has maintained the same and accordingly concluded income reported by the M/s. Arcadia Commodities and Trading, the turnover made by the assessee. Since the assesse is a small middle class person there was no intention to maintain or get its books audited and he has not been able to comply with the above.
Per contra, the ld. D.R. appearing for the Revenue supported the order of the lower authorities and pleaded to confirm the penalty levied and thereby dismissed the assessee’s appeal.
We have heard both sides arguments and perused the materials available on record including the written submission filed by the Page No 4 Mahesh Damjibhai Khunt vs. ITO assessee. The consistent stand of the assessee is that he has not maintained any books of account and no question of Audit Report u/s. 44AB of the Act and consequently penalty cannot be levied u/s. 271B of the Act.
5.1. The imposition of penalty under section 271B of the Act is not mandatory, rather it is discretionary, because if the assessee proves that there was a “reasonable cause” for the said failure, then the Assessing Officer ought to have considered the same and then proceed with levying penalty. For better understanding, Section 271B is extracted as follows: 271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or [furnish a report of such audit as required under section 44AB], [Assessing] Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of [one hundred fifty thousand rupees], whichever is less.] 5.2. A perusal of the above provision shows that the Parliament has used the words "may" and not "shall", thereby making their intention clear in as much as that levy of penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act namely “penalty not to be imposed in certain cases”. A careful reading of Section 273B encompasses that certain penalties "shall" be imposed in cases where "reasonable cause" is successfully pleaded. It is seen that penalty imposable u/s 271B is also included therein. By the said provisions, the Parliament has unambiguously made it clear that no penalty "shall Page No 5 Mahesh Damjibhai Khunt vs. ITO be" imposed, if the assessee "proves that there was a reasonable cause for the said failure". As noticed, if the statutory provision shows that the word "shall" has been used in Section 271B, then the imposition of penalty would have been mandatory. Section 271B as extracted above further throws light on the legislative intent as it specifically provides that no penalty "shall’ be imposed if the assessee proves "that there was reasonable cause for the said failure".
5.3. In the facts of the present case, it is seen that the explanations offered by the assessee have been ignored by the Assessing Officer as well as Ld. CIT(A) and levied penalty u/s. 271B of the Act. The discretion available u/s. 273B is not exercised by the Lower Authorities. For the reasons stated in the previous paragraph, we have no hesitation in deleting the penalty levied u/s. 271B of the Act.
In the result, the grounds raised by the Assessee is allowed and the assessee appeal is hereby allowed.