Penalty for failure to get accounts Audited Section 271B

"Failure to get accounts audited 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, the 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.”

Therefore, the failure of a person to get his accounts audited in respect of any previous year or to furnish a copy of such report as required under section 44AB may attract a penalty equal to 0.5% of the total sales, turnover or gross receipts, or Rs.1.5 lakh, whichever is less. However, in view of the specific provisions contained in section 273B, no penalty is imposable under section 271B on the assessee for the above failure if he proves that there was reasonable cause for the said failure.

Reasonable Causes

1. Resignation of tax auditor and consequent delay
2. Bona fide interpretation of the ‘turnover’ based on expert advice
3. Death or physical inability of the partner in charge of the account
4. Labor problems such as strike, lock-out for a long period, etc.
5. Loss of accounts because of fire, theft, etc., beyond the control of the assessee
6. Non-availability of accounts on account of seizure
7. Natural calamities, commotion, etc.

‘Reasonable cause’ held by Hon’ble ITAT for not levying penalty u/s 271B

• Audit could not be completed in time due to voluminous work and non-receipt of bank statements in time would be a ‘reasonable cause’ for the purpose of Section 44AB of the Income Tax Act, 1961. [DCIT v. Machino Techno Sales (P) Ltd., 62 ITD 225 (Cal)™]
• Delay on the part of the accountant in completing the audit work before the specified date on account of his prior professional commitments constituted a reasonable cause for the failure of the assessee to obtain the audit report as required u/s 44AB within the specified date. [ACIT v Gayatri Traders, 58 ITD 121 (Hyd) (SB)]
• Justification accepted during immediately previous year that audit report delayed due to seizure and retention of books, the same reason also justifies for delay in completion of audit for A.Y. 1986-87, even though books of account of the said A.Y. were not seized. [ACIT v Roopali Dyeing & Printing Works, 86 Taxmann 124 (Ahd.) (Mag)]
• Existence of dispute between partners of assessee firm would constitute a reasonable cause for delay in getting audit report u/s 44AB. [Allied Distributors vs. ITO, 89 Taxmann 205 (Cal) (Mag)]
• Delay in getting audit report u/s 44AB due to reappointment of another auditor on resignation of previous auditor was held as a reasonable cause for not levying penalty u/s 271B. [Progressive Construction (P) Ltdv. ITO 20 ITD 182 (Hyd).]
• No penalty under Section 271B by ITO exceeding Rs.10,000 in absence of prior approval of Joint Commissioner. Sagar Dutta Vs. CIT, [2014] 44 taxmann.com 311 (Calcutta)
• Held that no penalty is imposable u/s 271B for non-compliance with the provisions of Sec. 44AB on the ground that the returns were filed belatedly. Penalty is leviable only if the assessee fails to get his accounts audited and obtain a report. CIT Apex Laboratories Pvt. Ltd. [2010] 320 ITR 498 (Mad)
• For purpose of Sec. 44AB turnover of all businesses carried on by assessee has to be considered but provisions of Sec. 271B can be applied only in respect of that business, accounts of which have not been audited and not in respect of accounts which have been audited. Asst. CIT v. Smt. Bharti Sharma [2011] 44 SOT 230 (Del.)
• Where assessee, an advertising agent, was under bona fide belief that commission income earned by him was not in excess of limits prescribed under section 44AB and, thus, he was not required to get books of account audited, impugned penalty order passed under section 271B deserved to be set aside. Manoj S. Gugale vs. ITO [2017] 80 taxmann.com 193 (Pune – Trib.). Also see Off-shore India Ltd. Vs. DCIT [2017] 167 ITD 0635 (Kol.- Trib.)

ITAT Lucknow has held that penalty under section 271B for failure to get accounts audited and furnish tax audit report u/s 44AB cannot be levied simultaneously along with penalty u/s 271A

These appeals are preferred by the assessee against the consolidated order of the ld. CIT(A) on a common ground that the ld. CIT(A) has erred in confirming the penalty levied under section 271B of the Income-tax Act, 1961 (hereinafter called in short "the Act"). During the course of hearing of the appeals, the ld. counsel for the assessee has invited our attention that the Assessing Officer initiated penalty proceedings under section 271A and 271B of the Act. Since the Assessing Officer has levied penalty under section 271A of the Act, penalty under section 271B of the Act cannot be levied on account of non-auditing of the accounts. In support of his contention, the ld. counsel for the assessee has placed reliance upon the judgment of the jurisdictional High Court in the case of CIT vs. Bisauli Tractors, [2007] 165 Taxman 1 (All). During the course of hearing, a specific query was raised from the ld. counsel for the assessee as to what happened with regard to the penalty initiated under section 271A of the Act. In response thereto, the ld. counsel for the assessee could not furnish satisfactory reply with regard to the levy of penalty under section 271A of the Act. He has, however, submitted that he has no information with regard to the levy of penalty under section 271A of the Act. On the basis of the assessment order he can simply say that penalty under section 271A of the Act was initiated. In the absence of complete details with regard to the levy of penalty under section 271A of the Act, we are of the view that let the matter be sent back to the file of the Assessing Officer with a direction to verify whether penalty under section 271A of the Act was levied or not, if levied, what was the fate of it. If penalty under section 271A of the Act is levied against the assessee, penalty under section 271B of the Act cannot be levied. With this direction, we restore the matter to the file of the Assessing Officer. Accordingly the appeals of the assessee are allowed for statistical purposes.

In Surajmal Parsuram Todi v. CIT (1996) 222 ITR 691, the Gauhati High Court has held that when a person commits an offence by not maintaining books of accounts as contemplated by section 44AA, the offence is complete and after that there can be no possibility of any offence as contemplated by section 44AB and, therefore, the imposition of penalty under section 271B is erroneous.

Therefore, in this case, the Assessing Officer is not justified in levying penalty under section 271B.

No books of accounts maintained – No Penalty under section 271B for Failure to get its audited

Short Overview

When there are no books of account, the question of its audit does not arise, so as to impose penalty under section 271B.

Assessee assailed the imposition of penalty under section 271B imposed by AO on account of failure to get accounts audited under section 44AB. Assessee contended that penalty was not justified as no books of account were maintained by assessee.

It is held thatAO himself recorded that no books were maintained by assessee and penalty under section 271B is to be imposed when any person fails to get his accounts audited. Admittedly there was no dispute that no books were maintained by the assessee and as rightly contended by assessee the question of getting the same audited did not arise at all. If there is any fault in the matter, the said fault can be examined with reference to non-maintenance of Books of Account.

Delhi ITAT deletes penalty levied u/s.271B on assessee in the case of Sh. Mohit Garg [TS-302-ITAT-2020(DEL)] individual for failure to get the accounts audited u/s.44AB for AY 2012-13; In addition to the penalty levied u/s.271A (for non-maintenance of books of accounts), the AO had levied penalty u/s.271B on the assessee; States that a twin responsibility has been casted upon the assessee to (i) Maintain books of accounts u/s.44AA and (ii) To get the books audited u/s.44AB, also notes that the legislature also provides for separate levy of penalty for failure to meet each statutory requirement; Opines that In the instant case, the audit could not have been conducted in the absence of books of accounts. If a person has not maintained the books of accounts, the question of audit does not arise.”; Rules that the infraction of Sec.44AB gets attracted only when the assessee maintains the books of accounts but fail to get them audited, holds that penalty for non-maintenance of books of accounts has already been rightly levied, hence the offence has already been taken note of and the only recourse is to levy penalty U/s 271A for non-compliance of Sec.44AA.