MAJITHA SALIM,KOLLAM V. THE ITO , KOLLAM

ITA 198/COCH/2023

AI Insights

The case involves Majitha Salim, a resident of Kollam, who during the demonetization period in India, deposited a substantial amount of cash claimed to be from her business activities. The Assessing Officer, after assessing her income and not finding her books audited as required under section 44AB of the Income Tax Act, imposed a penalty under section 271B. The CIT(A)/NFAC upheld this penalty, leading to the appeal before the Income Tax Appellate Tribunal. The Tribunal, considering the circumstances of the assessee being a new business owner and her lack of awareness of the tax provisions, annulled the penalty.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470398 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL; SNR
• Keywords: Business income; Reasonable cause; Ignorance of law
• Section: 144; 250; 22; 44AD; 12; 44AB; 273B; 271B; 44BB; 20

Judgement Text

"ITANo.198/Coch/2023 Majitha Salim, Kollam IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH: COCHIN BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.198/Coch/2023 Assessment Year: 2017-18 Majitha Salim Kunnelputhenveedu Naduvathucheri Puthenchantha PO Panmana Kollam 691 578 Kerala PAN NO : DRZPS8987K Vs. ITO Kollam APPELLANT RESPONDENT Appellant by : None Respondent by : Smt. Leena Lal, Snr. AR Date of Hearing : 02.12.2024 Date of Pronouncement : 26.12.2024 O R D E R PER KESHAV DUBEY, JUDICIAL MEMBER: This appeal at the instance of the assessee is directed against CIT(A)’s order dated 13.2.2023 having DIN & Order No.ITBA/NFAC/S/250/2022-23/1049661488(1) for the AY 2017- 18 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). 2. The assessee has raised the following grounds of appeal: ITA No.198/Coch/2023 Majitha Salim, Kollam Page 2 of 10 ITA No.198/Coch/2023 Majitha Salim, Kollam Page 3 of 10 3. Brief facts of the case are that during the demonetization period i.e. from 09.11.2016 to 30.12.2016 the assessee deposited the cash of Rs. 33,00,000/- which she claimed to be sourced from business of retail and wholesale trading of rice, grocery, cattle and poultry feed etc. carried out in the name and style of M/s. Ayani Kattil agencies. The total sales turnover during the year was Rs. 1,58,53,270/-. The assessee submitted that she had filed VAT returns however due to ignorance, income tax returns were not filed in time and accordingly requested to consider 8% profit on total turnover. The AO after considering the submission made by the assessee and based on the material facts available on record completed the assessment proceeding u/s. 144 of the Act on 02.12.2019 by estimating total income at 8% of the total turnover of Rs. 1,58,53,270/- which worked out to Rs. 12,68,260/- 3.1 As the total turnover of the assessee during the year under consideration exceeded Rs. One crore, the AO was of the view that the assessee is liable to get her books audited u/s. 44AB of the Act. However, as the assessee has failed to get accounts audited u/s. 44AB of the Act, penalty proceedings u/s. 271B of the Act was initiated. In response, the assessee submitted her reply stating that she being a beginner in business commenced her business operations during the FY 2016-17 only. Further, she submitted that she was not fully aware of the provisions of the Income Tax Act and also did not get proper guidance from her tax consultant. 3.2 The AO did not accept the contention of the assessee by holding the same as not at all a reasonable cause and accordingly, levied the penalty of Rs. 79,266/- u/s. 271B of the Act. ITA No.198/Coch/2023 Majitha Salim, Kollam Page 4 of 10 4. Aggrieved by the penalty order passed by the AO u/s 271B of the Act, the assessee preferred an appeal before the ld. CIT (A) / NFAC. 5. The ld. CIT (A) / NFAC dismissed the appeal of the assessee on the grounds that assessee has failed to demonstrate with documentary evidences that she was not filing any return prior to the current year and none of her family member are having any taxable income and they all were unaware of such provisions of the Act. Further, ld. CIT (A) / NFAC held that ignorance of law is not a ground for violation of the same. Further, with regard to the medical reasons for the assessee’s inability to adhere to the Income Tax compliances, the ld. CIT (A) / NFAC doubted the medical certificate issued by the doctor by contending that no doctor maintains such record of his / her patient treatment of illness which occurred before 4 & 5 years respectively and can issue such certificate. Further, ld. CIT (A) / NFAC observed that the certificates were obtained on 18.09.2021 which is on the date of filing of the instant appeal and no such certificates were furnished before the AO and therefore upheld the imposition of penalty levied u/s. 271B of the Act amounting to Rs. 79,266/- by the AO. 6. Aggrieved by the order of the ld. CIT(A)/NFAC, the assessee has filed the present appeal before this Tribunal. 7. Before us, none appeared on behalf of the assessee. 8. The ld. D.R. on the other hand supported the orders of the authorities below and submitted that as there is a clear violation of section 271B of the Act to furnish the audit report as required u/s 44AB of the Act within the due date, the penalty levied may be sustained. ITA No.198/Coch/2023 Majitha Salim, Kollam Page 5 of 10 9. We have heard the rival submissions and perused the materials available on record. Since the total turnover of the assessee during the year under consideration exceeds Rs. One crore, the AO held that the assessee is liable to get her books audited u/s. 44AB of the Act. However, as the assessee has failed to get accounts audited u/s. 44AB of the Act, penalty u/s. 271B of the Act amounting to Rs. 79,266/- was levied by the AO. Before AO, the assessee submitted her reply stating that she being a beginner in business, commenced her business operations during the FY 2016- 17 only. Further, she also submitted that she was not fully aware of the provisions of the Income Tax Act and also did not get proper guidance from her tax consultant. Apart from the above, she took a medical ground before the ld. CIT (A) / NFAC for her inability to adhere to the Income Tax compliances. The ld. CIT (A) / NFAC doubted the medical certificate issued by the doctor by contending that no doctor maintains such record of his / her patient treatment of illness which occurred before 4 & 5 years respectively and can issue such certificate. Further, ld. CIT (A) / NFAC observed that the certificates were obtained on 18.09.2021 which is on the date of filing of the instant appeal and no such certificates were furnished before the AO. It is an undisputed fact that the assessment was completed in the case of the assessee u/s 144 of the Act vide order dated 02.12.2019 by estimating the total income @ 8% of the total turnover of Rs. 1,58,53,270/- which works out to Rs. 12,68,260/-. We find that the assessee being a beginner in the business operations was unaware about the provisions of the Income Tax Act and also due to lack of proper guidance from her tax consultant, she could not audit her books of accounts as per provisions contained in the sec 44AB of the Act. The Assessee also submitted that she commenced business operations only during the current FY 2016-17 which is the first year of her business operations. ITA No.198/Coch/2023 Majitha Salim, Kollam Page 6 of 10 9.1 Before proceeding further, it is appropriate to take note of section 44AB, 271B and 273B of the Act for the purpose of this case, which reads as follows: 44AB. Audit of accounts of certain persons carrying on business or profession. Every person,— (a)carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year [***]: [Provided that in the case of a person whose— (a)aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and (b)aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words \"one crore rupees\", the words \"[ten] crore rupees\" had been substituted:] [Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or] (b)carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or (c)carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or (d)carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or (e)carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, ] get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of ITA No.198/Coch/2023 Majitha Salim, Kollam Page 7 of 10 section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year: Provided [further] that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later: Provided [also] that in a case where such person is required by or under any other law to get his accounts audited , it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section. Explanation.—For the purposes of this section,— (i)\"accountant\" shall have the same meaning as in the Explanation below sub- section (2) of section 288; (ii)\"specified date\", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means [date one month prior to] the due date for furnishing the return of income under sub-section (1) of section 139. 271B. [ Failure to get accounts audited. [Inserted by Act 21 of 1984, Section 30 (w.e.f. 1.4.1985).] - If any person fails ][* * *] [ Omitted by Act 46 of 1986, Section 21 (w.e.f. 10.9.1986).] 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 44-AB] [ Substituted by Act 22 of 1995, Section 48, for certain words (w.e.f. 1.7.1995).], the [Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for \" Income-tax Officer\" (w.e.f. 1.4.1988).] 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 thousand rupees, whichever is less. 273B. [ Penalty not to be imposed in certain cases. - Notwithstanding anything contained in the provisions of [clause (b) of sub- section (1) of] [section 271, section 271-A] [Substituted by Act 4 of 1988, Section 114, for \" section 270, clause (a) or Clause (b) of sub-Section (1) of section 271, section 271-A, section 271-B, sub-Section (2) of section 272-A, sub-Section (1) of section 272-AA, sub-Section (1) of section 272-B\" (w.e.f. 1.4.1989).][, section 271- AA] [ Inserted by Act 14 of 2001, Section 94 (w.e.f. 1.4.2002).][, section 271 B, ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 271- BA] [Inserted by Act 14 of 2001, Section 94 (w.e.f. 1.4.2002).][, section 271-BB,] [ Inserted by Act 12 of 1990, Section 50 (w.r.e.f. 1.4.1990).] [section 271-C, section 271-CA] [ Substituted by Act 21 of 2006, Section 55, for \" section 271-C\" (w.e.f. 1.4.2007).][, section 271-D, section 271-E, ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 271-F, ] [Substituted by Act 26 of 1997, Section 55, for \" section 271-F\" (w.r.e.f. 1.4.1997).][section 271-FA,] [ Substituted by Act 18 of 2005, Section 61, for \" Section 271-FA\" (w.e.f. 1.4.2006).] [section 271FAB, section 271FB, section 271G, section 271GA] [Substituted 'section 271-FB, ITA No.198/Coch/2023 Majitha Salim, Kollam Page 8 of 10 section 271-G' by Finance Act, 2015 (No. 20 of 2015), dated 14.5.2015.][, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272-A, sub-section (1) of section 272-AA or ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 272-B or] [ Inserted by Act 20 of 2002, Section 106 (w.e.f. 1.6.2002).] [sub-section (1) or sub-section (1-A) of ] [Substituted by Act 21 of 2006, Section 55, for \" sub-section (1) of section 272-BB\" (w.e.f. 1.6.2006).][section 272-BB] [ Substituted by Act 20 of 2002, Section 106, for \" section 272-BB or\" (w.e.f. 1.6.2002).][or sub-section (1) of section 272-BBB or] [Substituted by Act 21 of 2006, Section 55, for \" sub-section (1) of section 272- BB\" (w.e.f. 1.6.2006).] [clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.]”. 9.2 An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. 9.3 Section 273B starts with the non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including section 271B, no penalty shall be imposable on the person or the assessee, as the case may be, for failure referred to in the said provisions, if he proves that there was reasonable cause for the said failure. A clause beginning with ‘notwithstanding anything’ is sometimes appended to a section in the beginning with a view to give the enacting part of the section in case of conflict, an overriding effect over the provision or Act mentioned in the non obstante clause. A non obstante clause may be used as a legislative device to modify the ambit of the provision or law mentioned in the non obstante clause, or to override it in ITA No.198/Coch/2023 Majitha Salim, Kollam Page 9 of 10 specified circumstances. The true effect of the non obstante clause is that in spite of the provision or the Act mentioned in the non obstante clause, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment. Therefore, in order to bring in application of section 271B in the backdrop of section 273B, absence of reasonable cause, existence of which has to be established by the assessee, is the sine qua non. 9.4 Levy of penalty under section 271B is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision, the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. ‘Reasonable cause’ as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences will follow. 9.5 Taking into cumulative effect of the explanations offered by the assessee and from a reading of the relevant provisions of 273B of the Act read with Section 271B and read with Section 44AB of the Act, we are of the considered opinion that assessee demonstrated that there was a reasonable cause for the said failure as per the provisions contained in section 273B of the Act as this ITA No.198/Coch/2023 Majitha Salim, Kollam Page 10 of 10 was her 1st year of business operations and she being a beginner in the business was not fully aware of the provisions of the Income Tax Act and also due to lack of proper guidance from her tax consultant, she could not audit her books of accounts as per provisions contained in the sec 44AB of the Act. Thus, it cannot be said to be without a reasonable cause within the meaning of Section 273B. 10. Above being the position, the ld.CIT(A) / NFAC’s non- consideration of the plea raised by the assessee about the existence of reasonable cause vitiate the order. On that score, the penalty levied u/s.271B in the instant case is not justified and as such, we annul the penalty levied u/s.271B of the Act by allowing the appeal of the assessee. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 26th Dec, 2024 Sd/- (Prashant Maharishi) Vice President Sd/- (Keshav Dubey) Judicial Member Bangalore, Dated 26th Dec,2024. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Cochin. "