Levy of penalty when one business is audited under section 44AB and the rest are not audited.

Issue:

Raj is engaged in the business of trade in textiles and also manufacture of certain industrial items. The units are located at different places and there is no interlacing or intermixing of funds. The assessee has made annual turnover of more than Rs.100 lakhs in both the businesses. While the accounts of textile business were audited under section 44AB of the Act, the account books of the other business was not audited. The Assessing Officer computed 0.5% of the turnover of both the businesses and levied maximum penalty of Rs.1 lakh. Is he justified?



Opinion

Section 44AB mandates that every person must get his books of account audited where the turnover, sales or gross receipt exceeds Rs.60 lakhs in a year. Section 44AD being a presumptive provision will apply where the turnover does not exceed Rs.60 lakhs. If the assessee covered by section 44AD does not offer income at 8% or more of the turnover, sales etc., then also the books of account are to be audited as per section 44AB(d).

Factually, the assessee in this case, has two businesses located at different places and both having turnover exceeding Rs.100 lakhs. The presumptive provision contained in section 44AD hence cannot be applied.

The assessee has obtained his books of account of the textile business audited as per section 44AB and whereas the unit engaged in manufacture of some industrial items was not subjected to audit under section 44AB.

The Assessing Officer has aggregated the turnover of both the businesses and levied 0.5% of the turnover or Rs.1 lakh whichever is less as penalty. In this case, the monetary limit of Rs.1 lakh is the penalty leviable since the turnover of both the businesses had exceeded Rs.100 lakhs.

When the assessee has subjected the books of account liable for audit under section 44AB such business could not be made liable for penalty under section 271B. In Asstt. CIT v. Smt.Bharti Sharma (2011) 44 SOT 230 (Del) the assessee had carried on two businesses of which only one of them was subjected to audit under section 44AB but the Assessing Officer aggregated the turnover of both the businesses and levied penalty. The tribunal held that since the assessee had failed to get the books of account audited in respect of one business, she could be made liable to pay penalty only in respect of such business and not on the total turnover of both the businesses.

The tribunal held that nothing has been provided in law or rules where the assessee having more than one business but gets books of account audited in respect of one business and fails to get the accounts audited in respect of others. Section 271B is also silent about such a situation. The tribunal referred to R.B.Jodha Mal Kuthiala v. CIT (1971) 82 ITR 570 (SC) and held that equitable considerations though not applicable in interpreting tax laws yet it has to be interpreted reasonably and in consonance with justice. The tribunal accordingly held that penalty under section 271B must be confined to the business for which audit was not conducted as per section 44AB and such penalty cannot be levied in respect of business for which such audit under section 44AB was made.

Position under DTC: Section 88(1) prescribes the monetary limit for getting the books of account audited. The limits are Rs.25 lakhs in the case of persons carrying on any profession and Rs.100 lakhs for persons carrying on business. The penalty provision is contained in section 232(1)(a) and the quantum is, not less than Rs.50,000 but which shall not exceed Rs.2 lakhs. This would mean that some discretion is vested with the Assessing Officer for levy of penalty. The procedure for levy of penalty is contained in section 233 of the DTC.

Source: The Tax Referencer, Volume 120 dt.01.08.2011
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