ITAT: No Penalty Over T.O. Limitation U/S 44AB for Books of Account

Due to the turnover limit specified, the Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has revoked the penalty associated with the audit requirement mandated by Section 44AB of the Income Tax Act, 1961.

The appellant, Bangla Readymade Garments Mfg. and Traders Welfare Association, represents a collective of individuals formed with the objective of safeguarding the interests of garment manufacturers and traders.

In this matter, the Assessee has lodged an appeal against the decision of the Commission of Income Tax (Appeals) which upheld the penalty imposed by the Assessing Officer under Section 271B of the Income Tax Act, pertaining to the delayed submission of the audit report.

Anil Kochar, the assessee’s counsel, maintained that the association’s gross revenue consisted solely of the service fees it was paid to facilitate its members’ payments of sales tax into the government treasury and other operations. Additionally, it was claimed that the assessing officer mistook the purported cash deposit for a turnover.

The assessee’s legal representative further claimed that because the turnover was below the threshold established by Section 44AB of the Income Tax Act, the assessee was exempt from the requirement to have the books of accounts audited and that no fine was thereby imposed under Section 271B of the Income Tax Act.

The respondent’s counsel, Ranu Biswas, argued that the assessee had failed to specify why it had received the huge amount of money from its members and deposited it in the government treasury for sales tax. It was further argued that since the assessee could explain the origin of the alleged cash deposit, it had to be viewed as part of the assessee’s business turnover and subject to audit under Section 44AB of the Income Tax Act.

The bench noted that the limit provided under Section 44AB of the Income Tax Act was Rs. 1 crore in the audit of a person conducting business. Under Section 44AB of the Income Tax Act, the assessee was required to have the books of accounts audited if the business’s sales turnover or gross revenues, as the case may be, exceeded or exceeded Rs. 1 crore.

Furthermore, it was observed that the assessee was actively involved in commercial activities, and their annual revenue amounted to Rs. 32,38,340, which was below the aforementioned threshold of Rs. 1 crore.

Consequently, the assessee was exempted from the requirement of auditing their books of accounts under Section 44AB of the Income Tax Act. Therefore, in light of this finding, it is possible to eliminate the penalty imposed for non-compliance with section 271B of the Income Tax Act while considering the grant of the assessee’s appeal.