Citation Codes

Equivalent Citations

citation codes

Case Number

ITA 106/RJT/2021

Disposition

allowed

Attorney(S)

Acts

INCOME TAX ACT 1961
section 44AB. 8 I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No9
section 44 AB. 7 I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No8
5 I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No6 Sachin Marotrao Rangari vs. ACIT Section 44AB,
Act. 11 I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No12
u/s. 44AB of the Income Tax Act, 1961"

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Smart Summary

Summary of Opinion: ITA No. 106/Rjt/2021 — Sachin Marotrao Rangari vs. ACIT

Factual and Procedural Background

This opinion arises from an appeal to the Income Tax Appellate Tribunal, Rajkot Bench (conducted through virtual court), challenging the order dated 21.06.2021 of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, which had confirmed levy of penalty under section 271B of the Income Tax Act, 1961 for the assessment year that the heading identifies as 2016-17.

The opinion records that the assessee is an individual (a salaried person) who also carried out transactions in shares and derivatives. The paper states that "for the assessment year 2015-16" the assessee filed his original return of income on 30.07.2016 declaring total income of Rs. 15,35,100/-. During scrutiny assessment proceedings the Assessing Officer noted total turnover/gross receipts of Rs. 82,26,82,172/-. On that basis the Assessing Officer concluded that the assessee was liable for audit under section 44AB but did not get his accounts audited, and accordingly initiated penalty proceedings under section 271B.

The assessee received a show cause notice dated 04.12.2018 and replied (08.12.2018) relying upon CBDT Circular No.6/2016 and the "Guidance Note on Tax Audit u/s. 44AB" issued by the Institute of Chartered Accountants of India (ICAI) to compute turnover for securities, derivatives and related transactions. Applying the ICAI guidance, the assessee computed turnover from derivatives, equity shares and mutual funds at Rs. 48,43,374/-, which is stated to be below the Rs. 1 crore threshold under section 44AB (as applied in the present case).

The Assessing Officer rejected the explanation, held that the ICAI guidance was not binding and levied penalty of Rs. 1,50,000/- under section 271B. The assessee appealed to the Commissioner (Appeals), who sustained the penalty. The assessee then appealed to the ITAT Rajkot Bench. The ITAT heard arguments on 19-09-2022 and pronounced the order on 28-09-2022, ultimately allowing the appeal and deleting the penalty.

Legal Issues Presented

Whether the turnover/gross receipts for transactions in derivatives, equity shares and mutual funds should be computed in accordance with the ICAI "Guidance Note on Tax Audit u/s. 44AB" (resulting in turnover of Rs. 48,43,374/-) or whether the Assessing Officer's computation of total contract value/gross receipts of Rs. 82,26,82,172/- must be treated as "turnover" for the purpose of section 44AB.
Whether penalty under section 271B can be levied where the assessee, relying on CBDT Circular No.6/2016 and the ICAI Guidance Note (and certain judicial authorities), bona fide believed that the audit threshold under section 44AB was not exceeded (i.e., whether there was a "reasonable cause" to avoid penalty).

Arguments of the Parties

Appellant's Arguments

The assessee relied on CBDT Circular No.6/2016 which allows taxpayers to decide whether gains/losses from sale of listed shares/securities should be treated as business income or capital gains.
The assessee relied heavily on the "Guidance Note on Tax Audit u/s. 44AB" issued by ICAI, which provides methods to compute turnover for speculative transactions, derivatives (futures and options), and delivery-based share transactions. Applying those methods the assessee's relevant turnover was Rs. 48,43,374/-, below the statutory threshold for audit in that year.
The assessee contended that the ICAI Guidance Note is an authoritative and recognized publication and relied upon its statement that turnover in speculative and derivative trades should be computed by aggregating favorable and unfavorable differences, including premiums and reverse trades, rather than using full contract values.
The assessee relied on judicial authorities including:
- CIT vs. Punjab Stainless Steel Industries ([2014] 46 taxmann.com 68) — to show recognition of the ICAI Guidance Note by the Supreme Court;
- ITO vs. Sachinam Trust ([2009] 320 ITR 445, Jurisdictional High Court) — to show circumstance where a bona fide belief based on authoritative guidance constituted "reasonable cause" against penalty under section 271B;
- ACIT vs. Hasmukh M. Shah ([2003] 85 ITD 99) — for the proposition that transactions of constituents handled by a broker may not constitute the broker's turnover under section 44AB.
The assessee contended that imposition of penalty under section 271B is discretionary ("may") and that where a reasonable cause is made out (as here by reliance on ICAI guidance and CBDT Circular), penalty should not be imposed.
The assessee specifically pleaded cancellation of the penalty of Rs. 1,50,000/- and requested stay of demand during pendency of the appeal.

Respondent's Arguments (Revenue)

The Departmental Representative supported the orders of the lower authorities (Assessing Officer and CIT(A)) and requested that the penalty be confirmed and the assessee's appeal be dismissed.
Implicit in the Department's position (as adopted by AO and CIT(A)) was the view that the ICAI Guidance Note is not binding on Income Tax authorities and that the Assessing Officer's computation of turnover (aggregate contract values resulting in Rs. 82,26,82,172/-) should be treated as turnover for section 44AB purposes.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT vs. Punjab Stainless Steel Industries ([2014] 46 taxmann.com 68) — (Supreme Court)	Recognition that the ICAI Guidance Note on Tax Audit under section 44AB is a published material of significance and can be relied upon when interpreting the meaning of "turnover" for tax audit purposes.	The Tribunal noted the Supreme Court's recognition of the Guidance Note and treated that recognition as supporting the assessee's reliance on ICAI guidance to compute turnover for section 44AB purposes.
ITO vs. Sachinam Trust ([2009] 320 ITR 445) — (Jurisdictional High Court)	Where an assessee bona fide believed in the applicability of a particular interpretation published in a professional body's manual/guidance, such bona fide belief can constitute "reasonable cause" to avoid penalty under section 271B.	The Tribunal relied on this authority to support the proposition that a bona fide belief founded on authoritative guidance may amount to reasonable cause, militating against imposition of penalty under section 271B.
ACIT vs. Hasmukh M. Shah ([2003] 85 ITD 99) — (Co‑ordinate Bench of Tribunal)	Principle that a stockbroker acting for constituents may not be regarded as having the sale/turnover of constituents as his own; the word "turnover" in section 44AB must be applied appropriately to avoid mischief.	The assessee cited this decision to show that transactions may not be includible in the assessee's turnover; the Tribunal recorded this precedent as supporting the assessee's position regarding proper construction of "turnover".
Chander Prakash Batra (ITA No. 4305/Delhi/2011 dated 14.11.2014) — (Delhi Bench)	Referenced by the assessee (as favourable authority) in relation to turnover computation for securities/transactions.	The Assessing Officer had held this decision not to be applicable to the assessee's case; the decision is recorded in the factual matrix as one relied upon by the assessee but not accepted by AO (and it is not shown that the Tribunal relied upon it).

Court's Reasoning and Analysis

The Tribunal examined the factual matrix and authorities relied upon by the parties. It noted the following elements of analysis, as recorded in the opinion:

The ICAI Guidance Note sets out specific methods for computing "turnover" for different classes of securities transactions:
- Speculative transactions: aggregate of positive and negative differences;
- Derivatives (futures and options): total of favourable and unfavourable differences; premiums received on sale of options; and differences on reverse trades;
- Delivery-based transactions: total value of the sales.
The assessee applied these rules and computed turnover from derivatives, equity shares and mutual funds at Rs. 48,43,374/-, which is below the threshold (Rs. 1 crore as treated for the year in question), and therefore would not attract audit under section 44AB as per that computation.
The Tribunal observed that section 271B uses the word "may" (in the penalty provision), indicating that levy of penalty is discretionary and not mandatory. The Tribunal further referred to section 273B which provides that no penalty "shall" be imposed where the assessee proves reasonable cause for the failure; thus if reasonable cause exists, the discretion should be exercised in favour of not imposing penalty.
The Tribunal noted that the assessee had relied upon CBDT Circular No.6/2016 (allowing taxpayers to choose characterization of gains/losses in shares/securities) and the ICAI Guidance Note, and had a bona fide belief in the correctness of that approach.
The Tribunal considered judicial authority: it referenced the Supreme Court decision in CIT vs. Punjab Stainless Steel Industries recognizing the Guidance Note; the Jurisdictional High Court decision in ITO vs. Sachinam Trust where a bona fide belief based on professional guidance resulted in deletion of penalty; and the Tribunal's own Co-ordinate Bench decision in ACIT vs. Hasmukh M. Shah on the meaning of "turnover" in sharebroker contexts. The Tribunal took these authorities as supportive of the assessee's position and as showing recognition of the Guidance Note and the possibility of reasonable cause.
Given the above, the Tribunal concluded that the explanations advanced by the assessee (reliance on ICAI Guidance Note and CBDT circular, and the bona fide belief that audit threshold was not exceeded) had been improperly ignored by the Assessing Officer and the CIT(A). The Tribunal found that those explanations, in the light of the cited authorities, constituted reasonable cause and warranted deletion of the penalty.

Holding and Implications

Holding: The Tribunal allowed the assessee's appeal and deleted the penalty levied under section 271B of the Income Tax Act, 1961. The order records: "the grounds raised by the Assessee is allowed and the appeal filed by the assessee is hereby allowed." The penalty of Rs. 1,50,000/- imposed by the Assessing Officer was therefore deleted.

Implications:

Direct effect on the parties: the penalty imposed on the assessee under section 271B is set aside and the appeal is allowed in favour of the assessee.
Reasoning-wise, the Tribunal relied on recognition of the ICAI Guidance Note by higher authorities and on the concept of "reasonable cause" to decline exercise of discretion to impose penalty. The opinion does not explicitly claim to lay down a new precedent; it applies and relies on existing authorities and guidance to the facts of this case. No broader binding precedent beyond the decision's persuasive value is stated in the opinion.

Order pronounced in open court on 28-09-2022. Members: Waseem Ahmed (Accountant Member) and T.R. Senthil Kumar (Judicial Member).

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Shri Sachin Marotrao Rangari, Rajkot v. The ACIT Cir-1, Gandhidham, Gandhidham

IN THE INCOME TAX APPELLATE TRIBUNAL

RAJKOT BENCH, RAJKOT

(Conducted Through Virtual Court) Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member

ITA No. 106/Rjt/2021 Assessment Year 2016-17
Sachin Marotrao Rangari Office No. 302, kamdhenu Commercial Complex, Raghuvir Para Street No. 7, Opp. Bank of Maharashtra, Dhebar Road Oneway, Rajkot PAN No: AKSPR4839A (Appellant)	Vs	The ACIT Circle-1, Gandhidham (Respondent)

Appellant by : Shri Fenil Mehta, A.R.

Respondent by : Shri B.D. Gupta, Sr.D.R.

Date of hearing : 19-09-2022

Date of pronouncement : 28-09-2022

आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

This appeal is filed by the Assessee challenging the order dated 21.06.2021 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as "NFAC"), as against the confirming of levy of penalty u/s.

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No² Sachin Marotrao Rangari vs. ACIT 271B of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') relating to the Assessment Year (A.Y) 2016-17.

2. The brief facts of the case is that the assessee is an individual and a salaried person and also entered into shares and derivative transactions. For the assessment year 2015-16, the assessee filed his original Return of Income on 30.07.2016 declaring total income of Rs. 15,35,100/-. During scrutiny assessment proceedings, it was noticed that the total turnover/gross receipts of the assessee was Rs. 82,26,82,172/-. Thus the assessee was liable to get his accounts audited and furnish Audit Report u/s. 44AB of the Act, as the assessee has failed to get his books audited, the assessee shall be deemed to be in default and penalty u/s. 271B is initiated.

2.1. The assessee vide show cause notice dated 04.12.2018 issued as to why u/s. 271B penalty not be levied. In response the assessee vide its reply dated 08.12.2018, invited the kind attention of the Assessing Officer to the CBDT Circular No. 6/2016 dated

2 9.02 .2 016 which clarified the tax payers to decide whether the gains or losses from sale of listed shares/securities should be treated as business income or as capital gain for tax purposes. The tax payers had given an option to decide to treat the income arising from such transfer as business income or capital gains and the A.O. was not put it to dispute. Further the assessee was of the bonafide belief that in case of shares, cash and commodity trading only the net result considering the profit or loss shall be considered

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No³ Sachin Marotrao Rangari vs. ACIT as turnover, as the assessee believed the same are also for securities. As the assessee computed the net loss arising from the sale of shares and commodities was a loss of Rs. 7,23,872/-. The provisions of Section 44AB which prescribes the turnover in business or profession exceeds 100 lakhs when the assessee should get his books audited under 44AB. The assessee further relied upon the Delhi Benches Tribunal decision in the case of Chander Prakash Batra in ITA No. 4305/Delhi/2011 dated 14.11.2014 and pleaded that no penalty u/s. 271B leviable in the assessee's case.

2.2. The above explanation was not accepted by the Assessing Officer and held that ignorance of law is not an excuse for non- compliance of the statutory provisions of law. The case law relied upon by the assessee Chander Prakash Batra is not applicable to the assessee's case and thereby levied penalty of Rs. 1,50,000/- u/s. 271B of the Act.

3 . Aggrieved against the same, the assessee filed an appeal before the ld. CIT(A). During the appellate proceedings, the assessee submitted that he has carried transactions in shares, mutual funds and derivatives (Futures and options) with two brokers namely Axis Direct and R.K. Global Shares & Securities Ltd. The assessee also submitted "Guidance Note on Tax Audit u/s. 44AB of the Income Tax Act, 1961" issued by the Institute of Chartered Accountants of India (ICAI) as follows: "5.14 The turnover or gross receipts in respect of transactions in shares, securities and derivatives may be determined in the following manner.

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No⁴ Sachin Marotrao Rangari vs. ACIT

(a) Speculative transaction: A speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including sfocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Thus, in a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so as fo result in the sale as per value of contract note. The contract r.sseff/ed otherwise and squared up by paying out the difference which may be positive or negative. As such, in such transaction the difference amount is 'turnover'. In the case of an assessee undertaking speculative transactions there can be both positive and negative differences arising by settlement of various such contracts during the year. Each transaction resulting into whether a positive or negative difference is an independent transaction. Further, amount paid on account of negative difference paid is not related to the amount received on account of positive difference. In such transactions though the contract notes are issued for full value of the purchased or sold asset the entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions for determining the liability to audit vide section 44AB.

(b) Derivatives, futures and options; such transactions are completed without the delivery of shares or securities. These are also squared up by payment of differences. The contract notes are issued for the full value of the assets purchased or sold but entries in the books of account are made only for the differences. The transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in such types of transactions is to be determined as follows.

(i) The total of favourable and unfavourable differences shall be taken as turnover.

(ii) Premium received on sale of options is also to be included in turnover.

(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

(c) Delivery based transactions: Where the transaction for the purchase or sale of any commodity including stocks and shares is delivery based whether intended or by default, the total value of the sates is to be considered as turnover."

1.4. In view of the above guidelines, turnover for determining the liability to tax audit u/s.44AB of the Income Tax Act, 1961 in respect of each class of assets in which the appellant has carried out transactions, is to be considered as tabulated hereunder:

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No⁵ Sachin Marotrao Rangari vs. ACIT

Sr. No.	Asset Class	Turnover will be
1	Derivatives	The total of favourable and unfavourable differences. Premium received on sale of options. In respect of any reverse trades entered the difference thereon
2	Equity Shares – Speculative	The aggregate of both positive and negative differences.
3	Equity Shares – Long Term	The total value of the sales
4	Equity Shares – Short Term
5.	Mutual Fund – Long Term
6.	Mutual Fund- Short Term

3.1. As per the Guidance Note the total turnover from derivatives Equity Shares, Mutual Fund is Rs. 48,43,374/- which does not exceed Rs.1 crore as specified in Section 44AB of the Act. Therefore the assessee is not liable to get his books audited and furnish the report u/s. 44AB of the Act. Therefore no question of levying penalty u/s. 271B of the Act. The ld. CIT(A) held that the turnover in cases of Speculative transaction involving derivatives is not defined in Section 44AB of the Act. Thus one need not apply normal meaning of "turnover". Accordingly the turnover/gross receipts of the assessee from the transaction of Rs. 82,26,82,172/- as computed by the A.O. has to be construed as "turnover" for the purpose of Section 44AB of the Act. The Guidelines given by the ICAI cannot be directly imported here since the same is not binding for the Income Tax proceedings. Further CBDT has also not issued any notification/circular to the effect that for the purpose of

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No⁶ Sachin Marotrao Rangari vs. ACIT Section 44AB, the "turnover" as computed as the Guidance Note of the ICAI is required to be considered. Therefore the assessee was liable to get his accounts audited u/s. 44AB of the Act. Having not done A.O. is correct in levy of penalty u/s. 271B of the Act and thus dismissed the appeal filed by the assessee.

4. Aggrieved against the same, the assessee is in appeal before us with the following grounds:

1. That the learned CIT(Appeals) has grievously erred in contending that the turnover in cases of speculative transactions involving derivatives is not defined in section 44AB and therefore normal meaning of "turnover" as is generally understood is to be applied.

2. That the learned CIT(Appeals) has grievously erred in contending that the total turnover /gross receipts of the appellant from the transaction (Rs 82,26,82,172.32/-) as computed by the AO has to be considered as turnover for the purpose of section 44AB of the Act.

3. That the learned CIT(Appeals) has grievously erred in not considering the guidance note as issued by the Institute of Chartered Accountants of India (ICAI).

4. That the Learned CIT(Appeals) has grievously erred in upholding the action of the learned AO in levying penalty u/s.271B of the Income Tax Act, 1961.

5. Kindly stay the demand during pendency of the appeal.

5. Ld. Counsel Mr. Fenil Mehta reiterated the arguments made before the lower authorities and strongly relied upon by the guidelines issued by the Institute of Chartered Accountants of India (ICAI) and relied upon judgment of Hon'ble Supreme Court in the case of CIT vs. Punjab Stainless Steel Industries reported in [2014] 46 taxmann.com 68 wherein it was held that the ICAI has published same material under the head 'Guidance Note' on Tax Audit under Section44AB of the IT Act. "Interpreting the meaning of

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No⁷ Sachin Marotrao Rangari vs. ACIT turnover by ICAI which is having a statutory recognition". The said material has been published so as to guide the members of the ICAI. In our opinion, when a recognized body of Accountants, after due deliberation and consideration publishes certain material for its Members, one can rely upon the same.

5.1. The Ld. Counsel further relied upon by the Jurisdictional High Court in the case of ITO vs. Sachinam Trust [2009] 320 ITR 445 wherein the Hon'ble jurisdictional High Court deleted the penalty levied u/s. 271B of the Act is as follows:

Section 271B of the Income-tax Act, 1961 - For failure to get accounts audited - Where in view of Tax Audit Manual published by Bombay Chartered Accountants' Society, which contained legal opinion of eminent counsel that in case of a person carrying on banking business, appropriate expression to be considered for deciding applicability of provisions of section 44AB would be term 'gross receipts', assessee, carrying on business of financing, bona fidely believed that gross receipts of interest and not gross amount of advance, would constitute basis for ascertaining limit of Rs. 40 lakhs so as to attract section 44AB, penalty on assessee was not leviable [Assessment year 1992-93] [In favour of assessee]

5.2. The Ld. Counsel further relied upon the Co-ordinate Bench of this Tribunal decision in the case of ACIT Vs. Hasmukh M. Shah reported in [2003] 85 ITD 99 wherein it was held as follows:

"In the instant case, the transactions of sale and purchase of shares done by the assessee as a stockbroker for and on behalf of his constituents were far in excess of the ceiling limit of Rs. 40 lakhs. If such transactions were to be considered as sales and turnover of the assessee, the case would be hit by the mischief of section 44 AB.

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No⁸ Sachin Marotrao Rangari vs. ACIT The word 'turnover' as appearing in section 44AB is not appropriate to the transaction which is done by an agent in the way of bringing together a buyer and a seller for brokerage or commission. The commission is the charge for his labour of bringing together the two parties to the transactions of sale and purchase of shares and the transaction cannot amount to his 'sale, turnover or receipts'. As a sharebroker, an assessee does not have any interest whatsoever in the goods agreed to be purchased or sold on behalf of his constituents.

There is no dispute that the sharebroker does not sell the goods of his principal as his own and only charges commission for bringing the two parties together for the purpose of sale and purchase. A sharebroker has no authority whatsoever to treat the goods as his awn. His only interest in the goods is to receive his brokerage on the transaction from the principals. The sharebroker would, therefore, not obviously come within the ambit of section 44AB. Regarding the Circular No. 452, dated 17-3-1986, it may be pointed out that by applying the principles laid down in the said circular, it is clear that a stockbroker, like a kachcha arathia in foodgrains is merely entitled to brokerage and does not have any domain over the goods and is not interested in the profits and losses made by his constituent. Similarly, like a kachcha arathia, a stockbroker acts only as an agent of his constituent and never acts as a principal. So -whatever be the modalities of the transactions for the purchase and sale of shares made by the sharebroker for and on behalf of his constituents, the position is undisputed that he does not have any interest whatsoever in the transactions except brokerage for the services rendered by him in bringing the purchaser and seller together. Thus, the CBDT's circular cited by the Assessing Officer rather supported the case of the assessee that the transactions in the accounts of the constituents were not to be considered for the purposes of turnover under section 44AB.

Regarding the interpretation of the word 'turnover' as made by the Institute of Chartered Accountants in the context of section 44AB, the publication, 'Guidance Note on Tax Audit' under section 44AB published by the Institute of Chartered Accountants of India is relevant. Applying the said principles, it will be clear that the shares purchased/sold by the sharebroker for and on behalf of his constituent do not belong to the broker and therefore, the transactions cannot be considered as his transactions for the purposes of section 44AB.

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No⁹ Sachin Marotrao Rangari vs. ACIT

5.3. Thus the assessee was of the bonafide belief that his turnover of Rs. 48,43,374/- which has not exceeded Rs. 1 crore as specified in the provisions of Section 44AB of the Act. Penalty cannot be levied for not getting audited the books of account u/s. 271B of the Act. Therefore pleaded to cancel the penalty of Rs. 1,50,000/- levied u/s. 271B of the Act and allow the appeal of the assessee.

6. Per contra the ld. D.R. Mr. B.D. Gupta appearing for the revenue supported the order passed by the Lower Authorities and pleaded to confirm the same and thereby dismissed the assessee's appeal.

7. We have heard both sides arguments and perused the materials available on record including the Paper Book and Case Laws filed by the assessee. The assessee vide its reply letter dated 08.12.2018 brought to the attention of the A.O., CBDT Circular No. 6/2016 which clarified the tax payers to choose whether the gains or losses from sale of listed shares/securities either should be treated as Business Income or Capital Gains. Further the assessee is of the bonafide belief that the net result in the trading of shares, cash and commodity shall be considered as "turnover" as per the Guidance Note issued by the Institute of Chartered Accountants of India (ICAI). Thus the total turnover from Derivatives, Equity Shares and Mutual Fund is Rs. 48,43,374/- which does not exceed Rs. 1 crore specified u/s. 44AB of the Act for the present Assessment Year 2016-17. Therefore the assessee is not liable to get his books audited and furnish audited report u/s. 44AB of the Act and consequently penalty cannot be levied u/s. 271B of the Act. The

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No¹⁰ Sachin Marotrao Rangari vs. ACIT imposition of penalty under section 271B of the Act is not mandatory, rather it is discretionary, because if the assessee proves that there was a "reasonable cause" for the said failure, then the Assessing Officer ought to have considered the same and then proceed with levying penalty. For better understanding, Section 271B is extracted as follows:

271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or [furnish a report of such audit as required under section 44AB], [Assessing] Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of [one hundred fifty thousand rupees], whichever is less.]

7.1. A perusal of the above provision shows that the Parliament has used the words "may" and not "shall", thereby making their intention clear in as much as that levy of penalty is discretionary and not automatic. The said conclusion is further justified by Section 273B of the Act namely "penalty not to be imposed in certain cases". A careful reading of Section 273B encompasses that certain penalties "shall" be imposed in cases where "reasonable cause" is successfully pleaded. It is seen that penalty imposable u/s 271B is also included therein. By the said provisions, the Parliament has unambiguously made it clear that no penalty "shall be" imposed, if the assessee "proves that there was a reasonable cause for the said failure". As noticed, if the statutory provision shows that the word "shall" has been used in Section 271B, then the imposition of penalty would have been mandatory. Section 271B as extracted above further throws light on the legislative intent as it specifically provides that no penalty "shall' be

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No¹¹ Sachin Marotrao Rangari vs. ACIT imposed if the assessee proves "that there was reasonable cause for the said failure".

7.2. Further the Hon'ble Supreme Court in the case of Punjab Stainless Steel Industries (cited supra) recognize the Guidance Note issued by ICAI. The Jurisdictional High Court in the case of Sachinam Trust (cited supra) also held that the appropriate expression to be considered for deciding the applicability of the provisions of section 44AB would be the term 'gross receipts', the assessee, carrying on the business of financing, bona fidely believed that gross receipts of interest, and not gross amount of advances, would constitute the basis for ascertaining the limit of Rs. 40 lakhs so as to attract section 44AB, the assessee could be said to have a reasonable cause for not getting its accounts audited under section 44AB, and as such no penalty could be imposed on the assessee.

7.3. In the facts of the present case, it is seen that the explanations offered by the assessee have been ignored by the Assessing Officer as well as Ld. CIT(A) on the ground that the Guidance Note issued by the ICAI is not binding on the Income Tax Authorities whereas

the Hon'ble Supreme Court and Co-ordinate Bench of the Tribunal recognizes the same and applicable in the case of the assessee. 7.4. For the above reasons, we have no hesitation in deleting the penalty levied u/s. 271B of the Act.

I.T.A No. 106/Rjt/2021 A.Y. 2016-17 Page No¹² Sachin Marotrao Rangari vs. ACIT

8. In the result, the grounds raised by the Assessee is allowed and the appeal filed by the assessee is hereby allowed. Order pronounced in the open court on 28-09-2022 Sd/- Sd/-

(WASEEM AHMED) (T.R. SENTHIL KUMAR)

ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 28/09/2022

आदेश क त ल प अ े षत / Copy of Order Forwarded to:-

1. Assessee

2. Revenue

3. Concerned CIT

4. CIT (A)

5. DR, ITAT, Ahmedabad

6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, राजकोट

Shri Sachin Marotrao Rangari, Rajkot v. The ACIT Cir-1, Gandhidham, Gandhidham

Summary of Opinion: ITA No. 106/Rjt/2021 — Sachin Marotrao Rangari vs. ACIT

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments (Revenue)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Shri Sachin Marotrao Rangari, Rajkot v. The ACIT Cir-1, Gandhidham, Gandhidham

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