Penalty u/s 271B for failure to get accounts audited u/s 44AB cannot be levied if books of account are not maintained: ITAT

Once books of account are not maintained and consequently penalty u/s 271A of the Income Tax Act (“the Act”) is levied and confirmed, no penalty u/s 271B of the Act for failure to get the accounts audited u/s 44AB of the Act can be levied.

In this case, the AO has brought on record adequate material that the assessee has not maintained books of account in terms of section 44AA of the Act and has not got them audited u/s 44AB of the Act and filed with the AO.

ITAT Order

Penalty u/s 271A

Since there is no books of account and assessee could not produce any books of account before ITAT despite the specific opportunity given. ITAT was of the view that the lower authorities have rightly levied a penalty for non-maintenance of books of account u/s 271A of the Act.

Penalty u/s 271B

The AO levied penalty u/s. 271B of the Act for not producing audit report or not filing audit report u/s.44AB of the Act. The AO levied penalty u/s.271B of the Act and the CIT(A) confirmed the same. Aggrieved, now assessees are in appeal before the Tribunal.

28.2 Before us, ld.counsel for the assessee made only one statement that the Hon’ble Allahabad High Court in the case of CIT vs. S.K. Gupta & Co., (2010) 322 ITR 86, Hon’ble Madhya Pradesh High Court in the case of Bharat Construction Co. vs. ITO, (1999) 153 CTR 414 and Hon’ble Gauhati High Court in the case of Surajmal Parsuram Todi vs. CIT, (1996) 222 ITR 691 has categorically held that once books of account are not maintained and consequently penalty u/s.271A of the Act is levied and confirmed, no penalty u/s.271B of the Act for failure to get the accounts audited u/s.44AB of the Act be levied. The Hon’ble Gauhati High Court in the case of Surajmal Parsuram Todi, supra, held as under:-

We have gone through the provisions of ss. 44AA, 44AB, 271A and 271B of the Act. Maintenance of accounts is envisaged under s. 44AA and on failure to do so the assessee shall be guilty and liable to be penalised under s. 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 s. 44AA the offence is complete. After that there can be no possibility of any offence as contemplated by s. 44AB and, therefore, in our opinion, the imposition of penalty under s. 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 s. 44AA and for that penalty is prescribed under s. 271A. It is for the Tribunal to take action in accordance with law.

Similarly, the Hon’ble Allahabad High Court in the case of S.K. Gupta & Co, supra, held as under:-

“The submission of Sri Mahajan is misconceived for the reason that the requirement of getting the books of account audited could arise only where the books of accounts are maintained. If for some reason the assessee has not maintained the books of account the appropriate provision under which penalty proceedings can be initiated is under section 271A of the Act which recourse has also been taken by the assessee as would appear from the order of the Tribunal.

The Tribunal was, therefore, justified in upholding the order of the Commissioner of Income-tax (Appeals) cancelling the penalty imposed under section 271B of the Act.”

28.3 As the issue is squarely covered in favour of assessee and no contrary decision pointed out by Revenue, respectfully following the decision of these High Courts, we delete the penalty and reverse the orders of lower authorities. Similar are the facts in all these 16 appeals, hence taking a consistent view, all these 17 appeals relating to levy of penalty u/s.271B of the Act are allowed in favour of the assessee.