K.V.V.Prasad, Visakhapatnam V. The Income Tax Officer, Ward-1, , Palacole

ITA 78/VIZ/2019

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2529 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 21-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Capital asset; Business income; Cost of acquisition; Reasonable cause; Set aside
• Section: 143(3); 250

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 78 /VIZ/201 9 ( / ASSESSMENT YEAR : 20 08 - 09 ) SRI K.V.V.PRASAD PLOT NO.301, VYTLA RESIDENCE BALAJINAGAR SIRIPURAM VISAKHAPATNAM [PAN : A FNPV7912C ] VS. INCOME TAX OFFICER WARD - 1 PALA KOL ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N.HARI , AR / RESPONDENT BY : SMT SUMAN MALIK, DR / DATE OF HEARING : 1 1 . 0 6 . 201 9 / DATE OF PRONOUNCEMENT : 21 .06 . 201 9 / O R D E R P ER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)], R A JAMAHENDRAVARAM VIDE ITA NO.10306/2013 - 14/CIT(A)/RJY DATED 28.11.2018 FOR THE ASSESSMENT YEAR (A.Y.) 2008 - 09. 2 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE LEVY OF PENALTY U/S 271B OF THE INCOME TAX ACT, 1961 (IN SHORT ACT). IN THE INSTANT CASE, THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. NIL ON 28.07.2008 AND THE ASSESSMENT WAS COMPLETE D U/S 143(3) ON TOTAL INCOME OF RS.3,40,22,207/ - UNDER THE HEAD BUSINESS INCOME. SINCE THE ASSESSING OFFICER (AO) HAS TREATED THE INCOME UNDER THE HEAD BUSINESS INCOME AND THE GROSS RECEIPTS EXCEEDED THE SPECIFIED LIMIT U/S 44AB, THE AO INITIATED PENA LTY PROCEEDINGS U/S 271B OF THE ACT. THE ASSESSEE FILED REPLY REQUESTING TO KEEP THE PENALTY PROCEEDINGS IN ABEYANCE. HOWEVER, IN VIEW OF THE PROVISO TO SECTION 275(1) OF THE ACT, THE AO COMPLETED THE PENALTY PROCEEDINGS LEVYING PENALTY OF RS.1,00,000/ - . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, RESIDENT OF PALAKOL IS A MECHANICAL ENGINEER. HE LAST WORKED FOR PETROFACT E&C INTERNATIONAL LTD., JEBEL ALI, DUBAI UPTO 19.03.2008 AND THEREAFTER HE RETURNED TO INDIA PERMANENTLY. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008 - 09, THE ASSESSEE HAD RECEIVED THE SALE PROCEEDS FROM THE SALE OF DISPUTED PROPERTY AND PAID THE ADVANCE TAX OF RS.21,30,000/ - . THE ASSESSEE FILED THE RETURN OF INCOME DECLARING NIL INCOME AND CLAIMED THE REFUND O F THE ENTIRE AMOUNT OF ADVANCE TAXES PAID ALONG WITH DETAILED NOTE 3 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM ON LONG TERM CAPITAL GAINS, WHEREIN, HE HAS MENTIONED THE COMPLETE DETAILS OF THE TRANSACTION AS UNDER : * NOTE REGARDING LONG TERM CAPITAL GAINS AN AGREEMENT OF SALE - C UM - GENERAL POWER OF ATTORNEY WAS EXECUTED BY SHRI R.K.MITTAL ON 10.10.2002 FOR THE SALE OF 9507 SQ.YDS. IN T.S.NO.20/1A, 20/2 AND 20/3 AT SOMAJIGUDA, HYDERABAD IN FAVOUR OF THE ASSESSEE @RS.28,100/ - PER SQ.YD. IN RESPECT OF THE SAID PROPERTY, LITIGATION IS PENDING IN THE COU RT SINCE 1996. THE AMOUNTS PAID BY THE ASSESSEE TO SRI R.K.MITTAL WERE ENDORSED ON THE BACK OF THE AGREEMENT. THE ASSESSEE ALONG WITH OTHERS ENTERED INTO A TRIPARTITE AGREEMENT ON 12.11.2007 WHEREBY THE RIGHTS CONFERRED ON HIM BY THE ABOVE SAID AGREEMENT ARE TO BE VESTED IN M/S FORTUNA INFRASTRUCTURE INDIA PVT. LTD., HYDERABAD. IT IS SUBMITTED THAT THE AGREEMENT RIGHTS TRANSFERRED BY THE ASSESSEE DID NOT HAVE ANY COST OF ACQUISITION. THOUGH SOME PAYMENTS WERE MADE UNDER THE AGREEMENT THESE AMOUNTS WERE T OWARDS THE CONSIDERATION PAYABLE UNDER THE AGREEMENT BY THE ASSESSEE AND WOULD HAVE BEEN ADJUSTED AGAINST THE SAME AT THE TIME OF REGISTRATION OF SALE DEED IN FAVOUR OF THE ASSESSEE IN THE NORMAL COURSE. IN OTHER WORDS, THE AMOUNTS PAID UNDER THE AGREEMEN T BY THE ASSESSEE WERE ONLY ADVANCES AND THEY WERE NOT THE COSTS INCURRED FOR OBTAINING THE AGREEMENT RIGHTS. UNDER THESE CIRCUMSTANCES, IT IS SUBMITTED THAT THE AMOUNTS REALIZED BY THE ASSESSEE ON THE TRANSFER OF AGREEM E N T RIGHTS IN FAVOUR OF M/S FORTUNA INFRASTRUCTURE (INDIA) PVT. LTD. DO NOT CONSTITUTE TAXABLE CAPITAL GAINS IN VIEW OF THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. B.C.SRINIVASA SETTY (1981) 128 ITR 294 (SC) AND FOLLOWED IN CIT VS. DHANARAJDUGAR (1982) 137 ITR 350 (CAL.). ANOTHER ANGLE TO THE ISSUE IS THAT THE RIGHT UNDER AN AGREEMENT OF SALE IS A MERE RIGHT TO SPECIFIC PERFORMANCE OR A RIGHT TO SUE AND THEREFORE NOT TRANSFERABLE U/S 6(E) OF THE TRANSFER OF PROPERTY ACT, 1882 AND HENCE SUCH RIGHT DID NOT CO NSTITUTE A CAPITAL ASSET AND HENCE THE TRANSFER OF AGREEM E N T RIGHT WOULD NOT GIVE RISE TO TAXABLE CAPITAL GAINS. REFERENCE IN THIS CONTEXT MAY KINDLY BE MADE TO CIT VS. J.DALMIA (1984), 149 ITR 250 (DEL) AND CIT VS. R.DALMIA (DECD) (1987) 163 ITR 517 (DEL .) UNDER THESE CIRCUMSTANCES, THE ASSESSEE SUBMITS THAT THE TRANSFER OF AGREEMENT RIGHTS UNDER THE TRIPARTITE AGREEMENT DID NOT GIVE RISE TO TAXABLE CAPITAL GAINS. FOR DETAILED APPRECIATION OF ALL THE ASPECTS INVOLVED A COPY OF THE AGREEMENT OF SALE CUM P OWER OF ATTORNEY DT.10.10.2002 EXECUTED IN FAVOUR OF THE ASSESSEE AND A 4 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM COPY OF THE REGISTERED TRIPARTITE AGREEMENT DATED 12.11.2007, WHICH ARE ENCLOSED, MAY KINDLY BE PERUSED. THE AO HAS TAKEN UP THE CASE FOR SCRUTINY AND ASSESSED THE RECEIPT OF ADVAN CE OF RS.3,40,00,000/ - AS BUSINESS INCOME AND BROUGHT TO TAX. SINCE THE AO TREATED THE RECEIPT AS BUSINESS INCOME AND THE RECEIPTS EXCEEDED THE SPECIFIED LIMIT OF RS.40,00,000/ - , THE AO INITIATED PENALTY PROCEEDINGS U/S 271B OF THE ACT. ACCORDINGLY LEVIE D THE PENALTY OF RS.1,00,000/ - FOR NON - MAINTENANCE OF BOOKS OF ACCOUNTS , FOR ASSESSEES FAILURE TO GET THE ACCOUNTS AUDITED AS REQUIRED U/S 44AB OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD RECEIVED RS.3.4 CRORES AS ADVANCE AND OFFERED THE TOTAL RECEIPT FOR CAPITAL GAINS AND PAID ADVANCE TAX. THEREFORE, ADMISSION OF CAPITAL GAINS ITSELF IS REASONABLE CAUSE FOR NOT GETTING THE ACCOUNTS AUDITED. THEREFORE, ARGUED THAT TH E ASSESSEES CASE SQUARELY FALLS UNDER THE EXCEPTION PROVIDED U./S 271B IN AS MUCH AS THERE IS REASONABLE CAUSE FOR NOT GETTING THE ACCOUNTS AUDITED, HENCE THERE IS NO CASE FOR PENALTY U/S 271B , ACCORDINGLY REQUESTED THE LD.CIT(A) TO CANCEL THE PENALTY IM POSED BY THE AO. THE LD.CIT(A) CONSIDERED THE EXPLANATION OF THE ASSESSEE AND OBSERVED THAT THE AO PASSED THE ORDER TREATING THE 5 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM INCOME RECEIVED BY THE ASSESSEE AS BUSINESS INCOME INSTEAD OF LONG TERM CAPITAL GAINS AS ADMITTED BY THE ASSESSEE. THE ISSUE H AS TRAVELLED UPTO THE TRIBUNAL AND THE TRIBUNAL ALSO CONFIRMED THE ACTIVITY OF THE ASSESSEE AS ADVENTURE IN NATURE OF TRADE, THEREFORE, HELD THAT THE ASSESSEE IS REQUIRED TO GET HIS ACCOUNTS AUDITED. FAILURE TO GET THE ACCOUNTS AUDITED ATTRACTS THE PENALTY U/S 271B. ACCORDINGLY CONFIRMED THE PENALTY IMPOSED BY THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE. 5. AGAINST THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.AR SUBMITTED THAT THE ASSESS EE HAD ENTERED INTO SALE TRANSACTION FOR PURCHASE OF PROPERTY UNDER LITIGATION AND ADMITTED THE INCOME AS ADVANCE. SINCE THE TRANSACTION WAS NOT FINALIZED, HE WAS UNDER THE IMPRESSION THAT THE AMOUNT I S NOT TAXABLE IN THE YEAR OF RECEIPT, BUT ONLY IT I S T AXABLE WHEN THE TRANSACTION I S COMPLETE. HENCE HE WAS UNDER THE BONAFIDE IMPRESSION THAT THE RECEIPT I S NOT AT ALL TAXABLE IN THE YEAR UNDER CONSIDERATION. HENCE, FILED THE RETURN OF INCOME ADMITTING NIL INCOME , ENCLOSING DETAILED NOTE ALONG WITH THE RET URN OF INCOME. SUBSEQUENTLY, THE ASSESSEE FILED A LETTER AGREEING TO TAX THE RECEIPT AS CAPITAL GAINS. HOWEVER, THE AO TREATED THE TRANSACTION AS BUSINESS TRANSACTION AND ASSESSED THE ENTIRE RECEIPT AS BUSINESS INCOME. SINCE IT IS A 6 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM SOLE TRANSACTION AND THE AMOUNT RECEIVED BY THE ASSESSEE WAS ONLY AN ADVANCE, BUT NOT FINAL CONSIDERATION, THE ASSESSEE WAS UNDER THE IMPRESSION THAT IT I S NOT TAXABLE IN THE YEAR UNDER CONSIDERATION. EVEN IF IT IS TAXABLE, THE SAME REQUIRED TO BE TAXED A S LONG TERM CAPITAL GAINS, HENCE, THE ASSESSEES CASE DOES NOT FALL UNDER THE PURVIEW OF SECTION 44AB OF THE ACT AND THERE IS NO CASE FOR LEVY OF PENALTY U/S 271B OF THE ACT. HENCE REQUESTED TO CANCEL THE PENALTY, 6. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND ARGUED THAT THE HONBLE ITAT HAS CONFIRMED THE ORDER OF THE AO HOLDING THAT THE TRANSACTION WAS IN THE NATURE OF TRADE, HENCE, THERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A). ACCORDINGLY REQUESTED TO CONFIRM THE ORDER OF THE LD.CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. FOR THE SAKE OF CLARITY AND CONVENIENCE WE EXTRACT THE FACTS OF THE CASE FROM PAGE NO.2 OF THE PENALTY ORDER WHICH READS AS UNDER THE ASS ESSEE ENTERED INTO AN AGREEMENT DATED 10.10.2002 WITH ONE SHRI RK MITTAL OF HYDERABAD FOR PURCHASE OF LAND ADMEAURING 9507 SQ.YDS AT SOMAJIGUDA, HYDERABAD AND PAID AN INITIAL ADVANCE OF RS.50,000/ - AND MADE CERTAIN PAYMENTS SUBSEQUENTLY. SHRI RK MITTAL WA S THE DECREE HOLDER FOR THE PROPERTY IN QUESTION. SUBSEQUENTLY, A TRIPARTITE AGREEMENT WAS ENTERED INTO BETWEEN 1) RK MITTAL (SELLER), THE ASSESSEE(SELLER) AND M/S FORTUNA INFRASTRUCTURE P.LTD. REPRESENTED BY SHRIP.C.ASHOK OF HYDERABAD. BY VIRTUE OF 7 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM THE SAID TRIPARTITE AGREEMENT, THE PROPERTY IN QUESTION GOT VESTED IN M/S FORTUNA INFRASTRUCTURE P.LTD., HYDERABAD. THE FINAL CONSIDERATION THAT ACCRUED TO THE ASSESSEE WAS RS.3,40,00,000/ - . THE AMOUNT WAS PHYSICALLY RECEIVED BY THE ASSESSEE DURING THE YEAR. THERE WAS A NOTHER TRIPARTITE AGREEMENT DATED 10.04.2010 BY THE SAME PARTIES. THE TRIPARTITE AGREEMENTS ENTERED ON 12.11.2007 AND 10.04.2010 ARE SIMILAR AND THERE IS NO SUBSTANTIVE CHANGE. IN THE SUPPLEMENTARY AGREEMENT DATED 10.04.2010, IT WAS AGREED UP ON THAT THE INITIAL AMOUNTS PAID BY VIRTUE OF THE TRIPARTITE AGREEMENT DATED 12.11.2007 WERE ACCEPTED AS FINAL AMOUNTS AND THAT NO FURTHER AMOUNTS WOULD BE PAYABLE. BARRING THIS THERE IS NOTHING DISTINGUISHABLE IN THE SUPPLEMENTARY AGREEMENT DATED 10.04.2 010. DURING THE SCRUTINY PROCEEDINGS THAT ENSUED THE CONTENTION OF THE ASSESSEE IS TWO FOLD. FIRSTLY, THE ASSESSEE CONTENDED THAT THE INCOME ARISING FR O M THE SAID TRANSACTION, IF ANY IS TAXABLE UNDER LONG TERM CAPITAL GAIN AND SECONDLY, SINCE A FINALITY WA S REACHED BY THE VIRTUE OF THE SUPPLEMENTARY AGREEMENT DATED 10.04.2010, THE INCOME WOULD ARISE IN THE PREVIOUS YEAR RELEVANT TO THE ASST.YEAR 2011 - 12 AND NOT IN THE ASST.YEAR 2008 - 09. FURTHER, THE ASSESSEE FILED A LETTER DATED 06.11.2010 BY WHICH HE AG REED TO BE ASSESSED AT RS.265/ - LAKHS BEING INCOME FROM CAPITAL GAINS, FOR THE ASST.YEAR 2008 - 09. THE ASSESSEE UNDERTOOK TO PAY THE CONSEQUENTIAL TAXES BEFORE 31.12.2010. THE ASSESSEE HOWEVER DID NOT PAYANY TAXES THEREAFTER. 7.1. WE ALSO EXTRACT THE OBSERVATIONS OF THE AO FOR WHICH THE AO TREATED THE BUSINESS TRANSACTIONS INSTEAD OF CAPITAL GAINS AND LEVIED THE PENALTY HOLDING THAT THE ASSESSEE IS LIABLE FOR PENALTY U/S 271B OF THE ACT. THE FOLLOWING OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 3 0.12.2010 AND APPELLATE ORDER DATED 30.11.2011 ARE RELEVANT : 1 . THE ASSESSEE WHILE ENTERING INTO AN AGREEMENT FOR PURCHASE OF LAND FROM RK MITTAL IS FULLY AWARE T H AT SHRI MITTAL IS ONLY A DECREE HOLDER AND THAT THE LAND IN QUESTION IS IN LITIGATION . 2 . DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSEE HIMSELF HAS ADMITTED THAT SUCH LANDS IN LITIGATION WOULD BE AVAILABLE FOR A CHEAPER PRICE AND ONCE THE LITIGATION IS CLEARED, THEY WOULD FETCH A HANDSOME PRICE. THEREFORE, THE IDEA IS TO TRADE IN SUC H LANDS NOT TO MAKE ANY INVESTMENT. FOR ANY INVESTMENT, SAFETY IS THE FIRST AND FOREMOST FACTOR FOR CONSIDERATION WHICH IS CONSPICUOUS BY ITS ABSENCE IN THE PRESENT DEAL. 3 . THE ASSESSEE ENTERED INTO A LAND DEAL FOR RS.26.71 CRORES. THE ASSESSEE DID NOT PO SSESS ADEQUATE MONEY TO FINALIZE THE DEAL. IT IS ONLY WITH THE INTENTION OF FINDING AN IMMEDIATE BUYER, THE ASSESSEE ENTERED INTO THE DEAL. 8 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM 4 . THAT THE AMOUNTS PAID AS ADVANCE DID NOT CONSTITUTE PAYMENT OF PART CONSIDERATION DOES NOT HOLD WATER. PART CONSID ERATION ALONE IS PAID AS ADVANCE. THEREFORE, THE CONTENTION THAT THERE IS NO CONSIDERATION INVOLVED IN THE SAID TRANSACTION AND HENCE THE TRANSACTION DOES NOT GIVE RISE TO TAX LIABILITY IS NOT TENABLE. 5 . THE PATTERN OF PAYMENTS TO RK MITTAL GIVES RISE TO S ERIOUS DOUBTS AS TO THE TIME OF PAYMENT. THE AMOUNT OF RS.50,000/ - WAS PAID AS ADVANCE BY THE AGREEMENT DATED 10.10.2002 AND THE BALANCE AMOUNTS WERE PAID TO HIM YEARS LATER I.E. IN FEB 2007. 6 . THE STAMP PAPER VERIFICATION DATED 10.10.2002 REVEALED THAT THE STAMP PAPERS SENT FOR VERIFICATION EITHER NOT SOLD BY THE STAMP VENDOR SHRI M.SATYANARAYANA OR THEY MIGHT HAVE OLD STAMP PAPERS, WHICH ARE TAMPERED WITH THE DATE OF PURCHASE. 7 . THE ASSESSEE HAS ENTERED INTO SIMILAR DEALS OF LAND PURCHASE WHERE THE LAND IN LI TIGATION WHICH CLEARLY ESTABLISHES THE FACT THAT THE ASSESSEE HAS BEEN CARRYING OUT THE BUSINESS OF PURCHASING OF LANDS IN LITIGATION AND SELLING THEM AT A HIGHER PRICE WHERE RISK AND MARGINS ARE HIGH. THEREFORE, THE PURCHASE OF LAND IN QUESTION CAN NO WA Y BE TERMED AS AN INVESTMENT, BUT IS ONLY A STOCK IN TRADE. 8 . THE CONSIDERATION RECEIVED BY THE ASSESSEE REPRESENTED CONSIDERATION RECEIVED IN RELINQUISHMENT OF RIGHTS ACQUIRED THROUGH AN AGREEMENT ENTERED INTO WITH RK MITTAL. EVEN THE BUYERS, M/S FORTUNE I NFRA P.LTD ARE FULLY AWARE THAT THE ASSESSEE CANNOT IMPROVE UPON THE TITLE. WHATEVER RIGHT THAT HE HAD ACQUIRED BY VIRTUE OF THE AGREEMENT DATED 10.10.2002 IS BEING TRANSFERRED FOR A DEFINITE CONSIDERATION. 9 . AS FAR AS THE ASSESSEE IS CONCERNED, THERE IS NO OBLIGATION IN HIS PART TO REFUND THE SALE CONSIDERATION RECEIVED EVEN IF IT WERE PROVED THAT THE TITLE WERE DEFECTIVE. HENCE IT CAN BE STATED THAT GAINS ACCRUED TO THE ASSESSEE ON THE DATE OF TRIPARTITE AGREEMENT DATED 10.11.2007 BECAME FINAL IN THE PREV IOUS YEAR RELEVANT TO THE A.Y. 2008 - 09. 10 . THE SUPPLEMENTARY TRIPARTITE AGREEMENT DID NOT CAST ANY ADDITIONAL BURDEN ON THE PART OF THE ASSESSEE. ON THE OTHER HAND, IT FREED THE ASSESS EE FROM THE ENCUMBRANCES / LITI GATION THAT COULD HAVE ENSUED SUBSEQUENTLY. THEREFORE, IT IS TRIPARTITE AGREEMENT DATED 10.11.2007 THAT DECIDES THE ISSUE THAT THE INCOME CHARGEABLE TO TAX IN THE A.Y. 2008 - 09. BY VIRTUE OF THE ABOVE OBSERVATIONS, IT IS CLEAR THAT THE ASSESSEE DERIVED BUSINESS INCOME DURING THE YEAR, THE RECEIPTS F R O M WHICH HAVE EXCEEDED THE FORTY LAKH LIMIT PRESCRIBED U/S 44AB OF THE ACT. IN VIEW OF THE FAILURE ON THE PART OF THE ASSESSEE TO GET HIS ACCOUNTS AUDITED, THE ASSESSEE IS LIABLE FOR PENALTY IN TERMS OF SEC 271B OF THE ACT. FROM THE PENALTY ORDER OF THE AO, IT IS OBSERVED THAT THE ASSESSEE MADE ONLY SINGLE TRANSACTION WHICH IS STATED TO BE ADVANCE FOR PURCHASE OF 9 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM LAND AND PROPERTY AND THERE WERE NO SERIES OF TRANSACTIONS. THE ASSESSEE WAS UNDER THE IMPRESSION THAT THE ADVANCE RECEIVED BY THE ASSESSEE WAS NOT TAXABLE IN THE IMPUGNED ASSESSMENT YEAR SINCE THE TRANSACTION WAS NOT FINALIZED. EVEN IF IT IS TO BE TAXED, THE SAME IS TO BE TAXED UNDER THE HEAD CAPITAL GAINS, BUT NOT UNDER THE HEAD BUSINESS INCOME. THAT WAS THE RE ASON THAT THE ASSESSEE DID NOT GET H IS ACCOUNTS AUDITED AS REQUIRED U/S 44AB OF THE ACT. THERE IS NO DISPUTE THAT THE TRANSACTION WAS SINGLE TRANSACTION. NO OTHER EXPENDITURE WAS ALSO CLAIMED BY THE ASSESSEE. THE AO DID NOT BRING ANY OTHER MATERIAL TO SU PPORT THAT THE ASSESSEE HAS CARRIED ON THE BUSINESS IN THE EARLIER YEAR OR SUBSEQUENT YEAR IN THE ASSESSMENT ORDER. THERE IS NO ISSUE OF COMPLEXITY INVOLVED IN THE RECEIPTS OF THE ASSESSEE. THE ASSESSEE IS A MECHANICAL ENGINEER, AS OBSERVED FROM THE ASSE SSMENT ORDER AND HE IS NOT ENGAGED IN THE BUSINESS, THERE ARE NO OTHER BUSINESS TRANSACTION CARRIED ON BY THE ASSESSEE AS BROUGHT OUT BY THE AO IN THE ASSESSMENT ORDER. THEREFORE, WE HOLD THAT THE ASSESSEE DID NOT GET THE ACCOUNTS AUDITED SINCE HE WAS UND ER THE BONAFIDE IMPRESSION THAT SALE TRANSACTION OF LITIGATED LAND AS CAPITAL GAINS BUT NOT BUSINESS AND THE SAME APPEARS TO BE REASONABLE CAUSE AS REQUIRED U/S 271B. ACCORDINGLY, WE HOLD THAT THERE IS REASONABLE CAUSE FOR NOT GETTING THE ACCOUNTS AUDITED , 10 I.T.A. NO .78/VIZ/2019 SRI K.V.V.PRASAD, VISAKHAPATNAM HENCE, THE PENALTY LEVIED BY THE AO IS UNSUSTAINABLE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND CANCEL THE PENALTY LEVIED BY THE AO. 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JUNE 2019. S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 21 .06.2019 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1. / THE ASSESSEE - SRI K.V.V.PRASAD, PLOT NO.301, VYTLA RESIDENCE BALAJINAGAR, SIRIPURAM, VISAKHAPATNAM 2. / THE REVENUE INCOME TAX OFFICER, WARD - 1, PALAKOL 3. THE PR. COMMISSIONER OF INCOME TAX , RAJAMAHENDRAVARAM 4. THE COMMISSIONER OF TAX (APPEALS), RAJAMAHENDRAVARAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM