Mere ignorance of the law regarding mandatory audit under Section 44AB is not reasonable cause for waiver of sentence: ITAT Hyderabad

The Hyderabad Bench of ITAT, consisting of SS Members Godara (Judicial Member) and A. Mohan Alankamony (Accounting Member), ruled that mere ignorance of the law with respect to the provisions of Section 44AB of the Income Tax Act for mandatory audit, cannot be considered reasonable cause under Section 273B to remove the penalty imposed on the assessee for failure to audit.

The rated Mohd Zaheeruddin was involved in stock and derivatives trading. During the tax year concerned, the turnover achieved by the assessee exceeded the limit threshold for the compulsory audit of the accounts as specified in article 44 AB of the law relating to tax on income. The Appraising Officer (AO) imposed a sanction on the appraisee under Section 271B for non-compliance with the provisions of Section 44AB. The assessee filed an appeal with the Commissioner of Income Tax (Appeals) (CIT(A)) against the AO’s order. The CIT(A) rejected the assessee’s claims that he was unaware of the provisions of Section 44AB regarding mandatory auditing since he was a salaried employee. The CIT(A) found that the assessee’s assertions could not be considered reasonable grounds under Section 273B to withdraw/cancel the sanction imposed on him. The CIT(A) therefore upheld the AO’s order. Against the order of the CIT(A), the Assessée appealed to the ITAT.

The assessee argued before the ITAT that he received salary income on a regular basis and that it was only in the relevant tax year that he had carried out certain transactions which required him to provide an auditor’s report under Section 44AB of the Income Tax Act. . The assessee therefore pleaded ignorance as a reasonable ground under section 273B to remove the sanction imposed on the assessee.

Section 271B of the Income Tax Act gives the assessor the power to impose a penalty on the assessee who fails to have their accounts audited during the relevant tax year or fails to provide the audit report required under Section 44AB. Section 273B provides that no sanction may be imposed on a person being assessed for failure to undertake a mandatory audit or provide the audit report as specified in section 44AB if the person being assessed proves that he there was reasonable cause for the breach.

The ITA considered that the case of the assessee was covered by the provisions of section 44AB since the turnover achieved by him had exceeded the basic threshold provided for in section 44 AB for the mandatory audit of accounts. ITA noted that the appraise failed to comply with the provisions of Section 44AB by not preparing the audit report and providing it to the appraising authority in a timely manner.

The ITA has ruled that mere ignorance of the law relied upon by the assessee with respect to the provisions of Section 44AB cannot be considered reasonable cause to waive the sanction imposed on the assessee under s. 271B.

The ITAT therefore rejected the Assessée’s appeal.

Case title: Mohd Zaheeruddin v Income Tax Officer, Hyderabad

Date: 21.03.2022 (ITAT Hyderabad)

Representative of the Appellant / Assignee: Mr. Naline Shah

Respondent’s Representative/Revenue: Mr. Swapnil Patil, Dominican Republic

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