In ITA No.1691/Del/2022- ITAT- Assessee's belief of inapplicability of Section 44AB of Income Tax Act in first year of business constitutes 'reasonable cause', eligible for protection under section 273B: ITAT (Delhi)
Members Shamim Yahya (Accountant) & Astha Chandra (Judicial) [22-05-2023]

Read Order: Mohammad Daud, v. ITO

Chahat Varma

New Delhi, May 23, 2023: The Delhi bench of the Income Tax Appellate Tribunal has ruled that since it was the assessee's first year of business and he genuinely believed that the provisions of section 44AB of the Income Tax Act did not apply to him, his explanation constituted a 'reasonable cause’. The assessee claimed to be a commission agent supplying milk on behalf of 'Amul Milk' in a specific area and receiving a fixed commission only. Therefore, the Tribunal held that the assessee was eligible for the protection provided under section 273B of the Income Tax Act.

Brief facts of the case were that the assessee, an individual, engaged in retail trading of Amul Dairy Products, failed to file his return. Initially, he claimed to have no knowledge of accounting and bookkeeping, however, in response to a subsequent notice, the assessee filed his return. The Assessing Officer (AO) completed the assessment, accepting the declared income but initiated penalty proceedings under section 271B of the Act for the assessee's failure to get his books of account audited by a qualified Chartered Accountant as required under section 44AB of the Act. During the appellate proceedings, the assessee explained that he was engaged in the business of supplying milk on behalf of Gujarat Co.op Milk Marketing Federation Ltd. (Amul) in the assigned area. The daily proceeds received by the assessee were deposited in his bank account and then transferred to the principal concern, Gujarat Co.op Milk Marketing Federation Ltd., on the same day. The assessee contended that he was providing services on behalf of the principal concern and the receipts were not related to him personally. Additionally, it was submitted that as it was the first year of the assessee's business, and he was not aware that section 44AB was applicable to him and there was no wilful default on his part. The explanation of the assessee was not accepted by the Commissioner of Income Tax (Appeals) [CIT(A)] who confirmed the impugned penalty.

The Tribunal said that no penalty shall be imposable on the person if he proves that there was reasonable cause for the failure as provided under section 273B of the Act.

The Tribunal also observed that the assessee got the tax audit done and submitted the tax audit report before the AO when he was made aware that initial receipts having been deposited by him in the bank account maintained by him necessitated tax audit as per the provisions of section 44AB. However, the AO and the Commissioner of CIT(A) disregarded this fact and imposed/confirmed the penalty.

The Tribunal concluded that the penalty imposed on the assessee was not sustainable.