If books of accounts are not maintained, foundation of audit collapses and therefore penalty cannot be levied for not getting the accounts audited.

37. Bhaveshbhai Haribhai Kanani vs. ITO  ITA No. 254/RJT/2025 A.Y.:  2018-19 Date of Order: 5.8.2025 Sections:  44AB, 271B

If books of accounts are not maintained, foundation of audit collapses and therefore penalty cannot be levied for not getting the accounts audited. 

FACTS

The assessee, an individual, engaged in the business of trading of brass scrap, filed his return of income declaring therein a turnover of ₹ 1,03,43,628 and offered net profit of ₹ 7,91,012 as his income. The income declared in the return on an admitted turnover worked out to 7.65%.  In the course of assessment proceedings, the Assessing Officer (AO) noticed a further turnover of ₹ 11,93,30,453 and that assessee had declared income under section 44AD as “no account case”, he issued a show cause notice as to why the provisions of section 44AB have not been complied with.

The AO estimated the income to be 4% of total turnover of ₹ 11,93,30,453 which worked out to ₹ 44,73,218.  After reducing from this amount, the profit of ₹ 7,91,012 offered in the return of income, the balance of ₹ 39,82,206 was added to the returned income.

Since the assessee had