ITAT rejects co.’s claim of bona fide belief for no audit requirement, as books were prepared under a CA’s guidance

Case Details: Benchmarrk Realty LLP v. DCIT - [2023] 147 taxmann.com 391 (Pune-Trib.)

Judiciary and Counsel Details

• • S.S. Godara, Judicial Member & Dr Dipak P. Ripote, Accountant Member
  • Kishor B. Phadke, AR for the Appellant.
  • Ramnath P. Murkunde – DR for the Respondent.

Facts of the Case

Assessee, a Limited Liability Partnership, was engaged in the business of construction and development of property and followed the percentage completion method of accounting. During the scrutiny proceedings, the Assessing Officer (AO) asked the assessee to furnish tax audit report along with other documents. In response, the assessee claimed that it was under bona fide belief that an audit was not required as there was no sale and it had only received advances from customers against the bookings.

Unsatisfied with the explanation, the AO levied a penalty under section 271B for failure to get the account books audited as per section 44AB.

The aggrieved assessee preferred an appeal to CIT (A), wherein CIT(A) affirmed the penalty levied by the AO. The matter then reached the Pune Tribunal.

ITAT Held

The Tribunal held that the assessee follows the percentage completion method of accounting and shows profits in its Profit and Loss Account. For the Assessment Year in the appeal, i.e., 2015-16, Section 44AB states that it is mandatory for an assessee, whose total sales turnover or gross receipts exceeds Rs. 1 crore, to get books of account audited. The legislature has used three words sales, turnover, and gross receipts. Therefore, if any one of the sales, turnover, or gross receipts is more than the prescribed limit the provisions of section 44AB will be applicable.

In the instant case, a gross profit of more than Rs. 4 crores has been declared by the assessee which reveals that the gross receipts were more than Rs. 1 crore. Therefore, the assessee was under obligation to get the books of account audited as per section 44AB.

Merely an explanation was provided by the assessee for the non-furnishing of the Audit report. Since the Balance Sheet and Profit and Loss Accounts were prepared by the professionals and signed by CA, the explanation seemed an eyewash as the assessee is a builder having the advice of professionals like CA.

Consequently, the penalty levied by the AO was upheld.

List of Cases Reviewed

• • Bajrang Oil Mills v. ITO [2007] 163 Taxman 154/295 ITR 314/207 CTR 1 (Raj.) (para 5.6) followed.

List of Cases Referred to

• • Bajrang Oil Mills v. ITO [2007] 163 Taxman 154/295 ITR 314/207 CTR 1 (Raj.) (para 5.4)
  • Anahaita Nalin Shah v. Dy. CIT [2014] 43 taxmann.com 206/149 ITD 171 (Mum.) (para 5.5)
  • Shri Swastik Steels (P.) Ltd. v. Asstt. CIT [2003] 264 ITR 447/183 CTR 409 (Bom.) (para 5.7).