Payam Ganapathi Mudaliar Dharmalingam, Chittoor, Chittoor V. ITO, Ward-2(1), Tirupathi, Tirupathi

ITA 251/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2422 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 16-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N RAVI BABU
• Assessee Lawyers: A V RAGHURAM
• Keywords: Bonafide belief; Initiation of penalty proceedings; Reasonable cause
• Section: 44AD; 273B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 250/HYD/17 2011-12 P.D. USHA RANI, NAGARI, CHITTOOR DIST., [PAN: AADPU3516A] THE INCOME TAX OFFICER, WARD-2(1), TIRUPATI 251/HYD/17 P.G. DHARMALINGAM, NAGARI, CHITTOOR DIST., [PAN: AAFHP8386R] 252/HYD/17 P.G. NEELAMEGAM, NAGARI, CHITTOOR DIST., [PAN: AEIPP7392E] FOR ASSESSEE : SHRI A.V. RAGHU RAM, AR FOR REVENUE : SHRI N. RAVI BABU, DR DATE OF HEARING : 09-11-2017 DATE OF PRONOUNCEMENT : 15-11-2017 O R D E R ALL THE THREE APPEALS PERTAIN TO LEVY OF PENALTY U/S. 271B OF THE INCOME TAX ACT [ACT] FOR NON-SUBMISSION OF AUDIT REPORT ALONG WITH RETURN OF INCOME U/S. 44AB OF THE ACT. THE ASSES SEES ARE FAMILY MEMBERS AND ARE IN THE BUSINESS OF MANUFACTUR E OF CLOTH AT NAGARI. THE FACTS ARE SIMILAR AND THE ORDERS OF THE A O/LD.CIT(A) I.T.A. NOS. 250, 251 & 252/HYD/2017 :- 2 - : ARE ALSO SIMILAR, EXCEPT THE AMOUNTS INVOLVED. HENCE, ALL THE THREE APPEALS ARE TAKEN UP TOGETHER. 2. THERE WAS A DELAY OF TWO DAYS IN FILING THE APPE ALS. THE CAUSE GIVEN WAS THAT ASSESSEES ARE ATTENDING TO OLD AG ED MOTHER/MOTHER-IN-LAW WHO WAS NOT WELL AND THE DELAY O F TWO DAYS OCCURRED DUE TO DELAY IN SIGNING THE APPEAL PAPERS AN D PAYMENT OF FEES. CONSIDERING THE EXPLANATION, THE TWO DAYS DELAY IS CONDONED AND APPEALS ARE ADMITTED. 3. THE TURNOVERS, INCOME CONSIDERED AT 8% AND PENALTY U/S. 271B OF THE ACT LEVIED ARE AS UNDER: RS. RS. RS. 1. P.D. USHA RANI 55,81,382 4,29,313 26,830 2. P.G.M. DHARMALINGAM 55,81,382 4,13,800 27,910 3. P.G. NEELAMEGHAM 58,59,100 29,295 4. IN THE CASE OF SMT. P.D. USHARANI & SRI DHARMALING AM, AO TOOK THE TURNOVER AT THE SAME AMOUNT BUT ARRIVED AT DIFFE RENT INCOMES AND LEVIED PENALTY AT DIFFERENT AMOUNTS AS CA N BE SEEN FROM THE TABLE. HOWEVER, LD.CIT(A) CONFIRMED PENALTY OF RS. 35,390/- AND RS. 32,370/- IN THE IMPUGNED ORDERS I. E., MORE THAN THE PENALTY LEVIED. THIS INDICATES THAT THE PENALTY PRO CEEDINGS ARE CONSIDERED AND FINALIZED MECHANICALLY. 4.1. IN THE CASE OF P.G. NEELAMEGHAM, AO INSTEAD OF E STIMATING INCOME AT 8% U/S. 44AD MADE ADDITION OF CLOSING STOCK AT RS. 22,66,830/- (ALMOST 45% OF THE TURNOVER) BUT LEVIED PE NALTY I.T.A. NOS. 250, 251 & 252/HYD/2017 :- 3 - : U/S. 44AB STATING ASSESSEES SHOULD HAVE OFFERED 8% ON TURNOVER U/S. 44AD. LD.CIT(A) CONFERRED THE PENALTY AT THE SAM E AMOUNT I.E., RS. 29,295/-. 5. IT WAS THE EXPLANATION THAT ASSESSEES TURNOVER WAS L ESS THAN RS. 60 LAKHS AND SO THEY ARE UNDER BONAFIDE IMPRESS ION THAT THE INCOME MAY BE ESTIMATED AND BOOKS NEED NOT BE AUDITED. THIS BEING 1 ST YEAR OF CHANGED PROVISIONS, IT WAS EXPLAINED THAT ASSESSEES WERE UNDER BONAFIDE IMPRESSION THAT MAINTENA NCE OF BOOKS OF ACCOUNT U/S. 44AA IS SUFFICIENT, AS THEY ARE COVERED BY THE PROVISIONS OF SECTION 44AD OF THE ACT.THE AO DID NOT A GREE AND LEVIED PENALTY. 6. LD.CIT(A) CONFIRMED THE PENALTY STATING AS UNDER: 4. IT IS A CASE WHERE PENALTY U/S 271B IS LEVIED FOR VIOLATING THE PROVISIONS OF SEC. 44AB READ WITH SEC. 44AD, SINCE THE APPELLANT HAS NOT ADMITTED 8% INCOME FROM ELIGIBLE BUSINESS U/S 44AD. THE APPELLANT MADE A PLEA THAT SINCE IT IS A FIRST YEAR OF AMENDMENT T O SEC. 44AD, THE APPELLANT'S FAILURE MAY BE CONDONED. FURTHER IT IS CONTENDED THAT AO HAS ESTIMATED THE INCOME @ 8% AND HENCE PENALTY MAY NOT BE LEVIABLE. THE CONTENTIONS OF THE APPELLANT ARE CAREFULLY CONS IDERED. THE APPELLANT'S STAND THAT HE WAS IGNORANT OF THE PROVISIONS CANNOT BE ACCEPTED AS VALID GROUND. THE REQUIREMENTS OF LAW NEED TO BE CONSTRUE D AS THEY ARE UNLESS DISCRETION IS PROVIDED UNDER THE LAW. THE FAILURE O F THE APPELLANT TO DISCLOSE 8% OF PROFIT AND FAILURE OF THE APPELLANT TO GET THE BOOKS OF ACCOUNT AUDITED ARE FACTUALLY ESTABLISHED. HENCE, T HE LEVY OF PENALTY U/S 271B BY AO CANNOT BE CONTESTED ONLY ON THE GROUND T HAT HE WAS IGNORANT OF LAW. AS ADMITTED THE APPELLANT IS FILING HIS RET URN REGULARLY AND MAINTAINING HIS ACCOUNTS AS REQUIRED. HENCE THERE I S NO VALID EXCUSE FOR NOT GETTING THE ACCOUNTS AUDITED. THE FACT THAT A.O . ESTIMATED THE PROFITS @ 8% IN NO WAY REDUCES THE CULPABILITY OF THE APPELLA NT. ACCORDINGLY, THE PENALTY OF RS. 35,090/- U/S. 271B IS SUSTAINED. SIMILAR ORDERS WERE PASSED IN OTHER CASES ALSO. I.T.A. NOS. 250, 251 & 252/HYD/2017 :- 4 - : 7. IT WAS THE SUBMISSION OF LD. COUNSEL THAT THE RETURN S ARE NOT TREATED AS DEFECTIVE BUT, THE BOOKS OF ACCOUNT ARE REJEC TED BY AO AND AO ESTIMATED INCOME INVOKING THE PROVISIONS OF SE CTION 44AD. FURTHER, IT WAS SUBMITTED THAT THE LIMITS U/S. 44AD WERE INCREASED, SO THE ASSESSEES, EVEN THOUGH MAINTAINED BO OKS OF ACCOUNT AS PRESCRIBED, DID NOT SUBMIT THEM FOR AUDIT UND ER THE BONAFIDE BELIEF THAT THE AUDIT IS NOT REQUIRED. LD. COU NSEL RELIED ON THE DECISION OF THE HON'BLE RAJASTAN HIGH COURT IN THE CASE OF BAJRANG OIL MILLS VS. ITO [295 ITR 314] (RAJ) IN SU PPORT OF THE CONTENTIONS. 8. LD.DR EXPLAINED THE FACTS, THE PROVISIONS OF LAW A ND RELIED ON THE ORDERS OF THE AUTHORITIES. 9. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. PENALTY U/S. 271B IS ATTRACTED FOR FAILURE TO GET ACCOUNTS AUDITED U/S. 44AB. EVEN THOUGH THE LAW PRESCRIBES THE LEVY OF PENALTY, IN CASE OF DEFAULT, THE SAME IS NOT AUTOMATIC AS PROVISIONS OF SECTION 273B GIVES RELIEF, WHEN THERE IS A REASONA BLE CAUSE. THE AO HAS TO EXAMINE THE SAME AS PER THE PROVISIONS. I N THESE CASES, THE TURNOVER HAS INCREASED MARGINALLY OVER THE LOWER L IMIT OF RS. 40 LAKHS PRESCRIBED U/S. 44AB FOR THE FIRST TIME DURING THE YEAR. EVEN THOUGH ASSESSEES ARE ON THE RECORD OF DEPARTMENT I N EARLIER YEARS, THERE IS NO NEED TO GET THE BOOKS AUDITED EARLIER . MOREOVER, THE PROVISIONS OF SECTION 44AD HAVE BEEN AMENDED SO A S TO PROVIDE RELIEF TO THE SMALL BUSINESS MEN UPTO TURNOVER OF RS. 6 0 LAKHS. IN ASSESSEES CASE(S), THE TURNOVER IS LESS THAN RS. 60 L AKHS. THEREFORE, THERE CAN BE A BONAFIDE BELIEF THAT BOOKS N EED NOT BE SUBJECTED TO AUDIT. MOREOVER, AS RIGHTLY CONSIDERED B Y THE HON'BLE I.T.A. NOS. 250, 251 & 252/HYD/2017 :- 5 - : HIGH COURT IN THE ABOVE REFERRED CASE OF BAJRANG OIL MILLS(SUPRA), THE AO HAS AN OPTION TO TREAT THE RETURNS AS DEFECTIVE, SH OULD HAVE GIVEN AN OPTION TO ASSESSEES FOR FURNISHING THE AUDIT R EPORT BEFORE CONSIDERING INITIATION OF PENALTY PROCEEDINGS. AO HAS NOT CONSIDERED THE RETURN AS DEFECTIVE. MOREOVER, THE BOO KS OF ACCOUNT ARE REJECTED AND IN TWO CASES INCOMES ARE ASSESSED U/S. 44AD FOR WHICH TURNOVER OF RS. 60 LAKHS IS THE LIMIT. IN OTHE R CASE ALSO, BOOKS ARE REJECTED AND ADDITION ON CLOSING STOCK VAL UATION WAS MADE, WHICH WAS SUBJECT MATTER OF APPEAL SEPARATELY. ON THE FACTS, RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOW N BY THE HON'BLE COURT IN THE CASE OF BAJRANG OIL MILLS VS. ITO (SUPRA), I AM OF THE OPINION THAT THERE IS REASONABLE CAUSE U/S. 273B AND A CCORDINGLY PENALTY U/S. 271B IS NOT WARRANTED. 10. IN THE RESULT, ALL THE APPEALS ARE ALLOWED, CANCEL LING THE PENALTIES SO LEVIED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 15 TH NOVEMBER, 2017 TNMM I.T.A. NOS. 250, 251 & 252/HYD/2017 :- 6 - : COPY TO : 1. P.D. USHA RANI, 2-93A, RAJA STREET, CHINTALAPATT ADAI, NAGARI, CHITTOOR DIST., 2. P.G. DHARMALINGAM, 2-93, RAJA STREET, CHINTALAPA TTADAI, NAGARI, CHITTOOR DIST., 3. P.G. NEELAMEGAM, 2, KAYANIKATTU STREET, CHINTALAPATTADAI, NAGARI, CHITTOOR DIST., 4. THE INCOME TAX OFFICER, WARD-2(1), TIRUPATI. 5. CIT (APPEALS)-TIRUPATI. 6. PR.CIT-TIRUPATI. 7. D.R. ITAT, HYDERABAD. 8. GUARD FILE.