Mere Ignorance Of Law With Respect To Compulsory Audit Under Section 44AB Is Not A Reasonable Cause For Deleting Penalty: ITAT Hyderabad

The Assessee Mohd Zaheeruddin was involved in trading of shares and derivatives. In the relevant assessment year, the turnover achieved by the Assessee exceeded the threshold limit for compulsory audit of accounts as specified under Section 44 AB of the Income Tax Act. The Assessing Officer (AO) imposed penalty on the Assessee under Section 271B for failure to comply with the provisions of Section 44AB. The Assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT (A)) against the order of the AO. The CIT (A) rejected the contentions made by the Assessee that he was not aware of the provisions of Section 44AB with respect to compulsory audit since he was a salaried employee. The CIT (A) held that the contentions made by the Assessee could not be held to be a reasonable cause under Section 273B for withdrawing/ cancelling the penalty imposed on him. The CIT (A) thus upheld the order of the AO. Against the order of the CIT(A), the Assessee filed an appeal before the ITAT.

The Assessee submitted before the ITAT that the Assessee was drawing salary income on a regular basis and it was only in the relevant assessment year that he had carried out certain transactions that had required him to furnish an audit report under Section 44AB of the Income Tax Act. The Assessee, therefore, pleaded ignorance as a reasonable cause under Section 273B for deleting the penalty imposed on the Assessee.

Section 271B of the Income Tax Act gives the Assessing Officer the power to impose penalty on the assessee who fails to get his accounts audited in the relevant assessment year or who fails to furnish the audit report as required under Section 44AB. Section 273B provides that no penalty shall be imposable on an assessee for failure to undertake compulsory audit of accounts or furnishing the audit report as specified under Section 44AB if the assessee proves that there was a reasonable cause for the said failure.

The ITAT held that the Assessee's case was covered within the provisions of Section 44AB since the turnover achieved by him had exceeded the basic threshold limit provided under Section 44 AB for compulsory audit of accounts. The ITAT noted that the Assessee had failed to comply with the provisions of Section 44AB by not preparing the audit report and furnishing it to the assessing authority within time.

The ITAT ruled that mere ignorance of law pleaded by the Assessee with respect to the provisions of Section 44AB cannot be said to be a reasonable cause for deleting the penalty imposed on the Assessee under Section 271B.

The ITAT thus dismissed the appeal of the Assessee.

Case Title: Mohd Zaheeruddin versus Income Tax Officer, Hyderabad

Dated: 21.03.2022 (ITAT Hyderabad)

Representative for the Appellant/Assessee: Mr. Nalin Shah

Representative for the Respondent/Revenue: Mr. Swapnil Patil, DR