Case Law Details
IN THE ITAT AGRA BENCH
Ashok Kumar Varshney
v.
Income-tax Officer, 3(4), Hathras
IT APPEAL NO. 160 (AGRA) OF 2009
[ASSESSMENT YEAR 2005-06]
SEPTEMBER 7, 2012
ORDER
Bhavnesh Saini, Judicial Member – This appeal by the assessee is directed against the order of the ld. CIT(A), Ghaziabad dated 05.12.2008 for the assessment year 2005-06 confirming levy of penalty u/s. 271-A of the IT Act.
2. The assessee in column No. 9 of the appeal papers stated 30th January, 2009 as the date of communication of the order appealed against. However, the appeal is filed in the office of the Tribunal on 20.04.2009. According to the office, the appeal is time barred by 20 days. The assessee filed application for condonation of delay. It was submitted that the assessee had fallen ill and remained confined to bed from 20.03.2009 to 18.04.2009. Medical certificate of Dr. Rajesh Gupta is filed in support of the claim. It is also supported by the affidavit of the assessee. The ld. counsel for the assessee, therefore, contended that the assessee was prevented by sufficient cause from filing the appeal within the period of limitation and nominal delay may be condoned. The ld. DR has no objection on condonation of delay. Considering the explanation of the assessee supported by medical certificate and affidavit of the assessee and particularly when the DR has no objection, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the period of limitation. The delay in filing the appeal is, accordingly, condoned.
3. Briefly, the facts of the case are that the assessee filed return of income on 31.03.2006 declaring total income of Rs. 76,620/-. The assessee declared income from running of retail cloth shop. The case was selected for scrutiny on the basis of AIR information. As per AIR information, the total transactions of Rs. 29,92,410/- were made on different dates by the assessee through his bank account with Syndicate Bank, Hathras. During the course of assessment proceedings, full information in regard to other bank accounts were also collected from Syndicate Bank, Hathras and it was found that the assessee has another account in his name through which the transaction of Rs. 61,000/- has been made during the year under consideration. The assessee was directed to produce the books of account alongwith bills and vouchers, but the assessee replied that he has not maintained any books of account. The profit was shown on estimate basis only. It was also explained that the transactions made in both the bank accounts are only with regard to the sales of cloths and nothing else. However, the assessee did not produce anything before the AO for verification of income declared in the return. In these circumstances, the AO did not find any alternate except to treat the total transactions of both the bank accounts as sale of cloths made during the year under consideration and profit was computed by applying the provisions of section 44AF to ascertain the net profit from business. The AO, after finding credit entries etc. computed the total transactions in both the accounts at Rs. 30,66,153/- (Rs. 30,05,153 + Rs. 61,000/-) and by applying profit of 5% as per section 44AF, the net profit was determined at Rs. 1,53,308/-. The penalty proceedings u/s. 271-A was initiated for non-maintenance of books of account. The assessee submitted in response to the penalty notice that the assessee accepted the application of provisions of section 44AF during the course of assessment proceedings, as he had not maintained any books of account and tax levied thereon has been paid. The assessee co-operated with the department and has no bad intention and income was declared in good faith. Therefore, the notice of penalty should be vacated. The AO, accordingly, found that the assessee had not maintained any books of account or other documents for his business activities to arrive at the correct figure of income. The assessee admitted that no books of account have been maintained for the business. Therefore, 5% profit was applied as per section 44AF. Since the assessee failed to keep and maintain any books of account and documents etc. as required u/s. 44AA of the IT Act, therefore, the assessee is liable to penalty and accordingly, penalty of Rs. 25,000/- was imposed u/s. 271A of the IT Act vide separate order.
3.1 The penalty order was challenged before the ld. CIT(A) and the same contentions were reiterated. The ld. CIT (A) found that the turnover of the assessee exceeded Rs. 10,00,000/- from the business. Therefore, the assessee was liable to maintain the books of account as per provisions of section 44AA(2) and further the assessee has claimed his income to be lower than the profits and gains so deemed of the business. Therefore, provisions of section 44AA are applicable in this case. The ld. CIT(A) also found that the assessee has not been able to furnish any cogent reasons for non-maintenance of books of account and accordingly, penalty was confirmed and the appeal of the assessee was dismissed.
4. The ld. counsel for the assessee reiterated the submissions made before the authorities below and submitted that when income was computed u/s. 44AF, penalty should not be levied. He has also submitted that according to section 44AA (2) when the assessee keeps and maintains such books of account and other documents enabling the AO to compute the business income of the assessee and the assessee produced bank account to the AO showing the total turnover made through the above bank accounts, the assessee made sufficient compliance. He has submitted that when the provisions of section 44AF are applied, there is no need to maintain any books of account. The ld. counsel for the assessee relied upon the following decisions :
(i) Asstt. CIT v. Aggarwal Construction Co. [2007] 106 ITD 129 (Chd.) (TM), in which it was not recorded in the assessment order that the AO was unable to compute income of the assessee from business of contractor. The AO admitted that records of income and expenditure were available in the books, therefore, no failure to comply with the provisions was found.
(ii) Blue Heaven Construction v. ITO [2010] 39 SOT 39 (Kol), in which the AO observed, as the assessee is developer and builder in civil construction had failed to comply with “AS-7” prescribed by ICAI and hence, there was violation of provisions of section 44AA. Penalty was imposed. Penalty was cancelled where the assessee maintained books of account which were produced before the AO. The only grievance was that the assessee has failed to comply with certain requisition as per accounting standard “AS-7”.
(iii) CIT v. Babu Reddy [2010] 38 DTR (Ker) 147, in which it was held that in the absence of prescribed format for civil contractors, no books of account have been prescribed under Rules for business of Civil Contractor and the AO accepted the return on the basis of books of account produced by him. Therefore, no penalty has to be levied.
(iv) Sant Construction Co. v. ITO [1996] 86 Taxman 268 (Delhi) (Mag), in which the assessee was a civil contractor and no difficulty was felt by the AO in making assessment for lack of complete records.
(v) Mehta Parvesh v. ITO [1998] 60 TTJ (Delhi) 278, in which, it was held that CBDT has not yet prescribed any rule for maintenance of specific books as far as persons deriving income from business are concerned. Therefore, penalty is not leviable because the assessee furnished adequate information so as to enable the AO to compute his total income in accordance with the provisions of section 44AF.
5. On the other hand, the ld. DR relied upon the orders of the authorities below and submitted that the assessee claimed lower profit as against the provisions of section 44AF in the return of income. Therefore, provisions of section 44AA(2)(iii) and sub-clause (5) of section 44AF would apply in the case of the assessee.
6. We have considered the rival submissions and gone through the orders of the authorities below. It would be relevant to reproduce relevant provisions of the Act applicable to the assessment year under appeal for better understanding of the assessee’s case.
Section 271A of the IT Act provides –
“Failure to keep, maintain or retain books of account, documents, etc.
271A. Without prejudice to the provisions of section 271, if any person fails to keep and maintain any such books of account and other documents as required by section 44AA or the rules made thereunder, in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules, the [Assessing] Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum of twenty-five thousand rupees.”
Section 44AA of the IT Act provides –
“Maintenance of accounts by certain persons carrying on profession or business.
44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
(2) Every person carrying on business or profession not being a profession referred to in sub-section (1) shall,-
(i) if his income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lakh rupees in any one of the three years immediately preceding the previous year; or
(ii) where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed ten lakh rupees, during such previous year; or
(iii) where the profits and gains from the business are deemed to be the profits and gains of the assessee under section 44AD or section 44AE or section 44AF or Section 44BB or section 44BBB], as the case may be, and the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during such previous year;
keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
(3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe, by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained.
(4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-section (1) or sub-section (2) shall be retained.”
The provisions of section 44AF of the IT provide as under :
“Special provisions for computing profits and gains of retail business.
44AF. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee engaged in retail trade in any goods or merchandise, a sum equal to five per cent of the total turnover in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession” :
Provided that nothing contained in this sub-section shall apply in respect of an assessee whose total turnover exceeds an amount of forty lakh rupees in the previous year.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :
Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.
(3) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the total turnover or, as the case may be, the income from the said business shall be excluded.
(5) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.”
6.1 According to section 271A, if the assessee fails to keep and maintain any such books of account and other documents as required by section 44AA and the Rules in any previous year, penalty is leviable. Section 44AA(2)(i) and (ii) provides that every person carrying on business shall keep and maintain such books of account and other documents as may enable the AO to compute his total income in accordance with the provisions of this Act. If his income from business exceeds Rs. 1,20,000/- or his total sales, turnover or gross receipts, as the case may be in any business exceed or exceeds Rs. 10,00,000/- in one of the three years immediately preceding the previous year. According to section 44AA(2)(iii), noted above, the assessee shall have to maintain such books of accounts and other documents where the profit and gains from business is deemed to be the profits and gains of the business under sections 44AD or 44AE or 44AF or 44BB or 44BBB, as the case may be, and assessee claimed his income to be lower than the profits and gains so deemed to be profit & gains of his business during such previous year. The provisions of section 44AF(5) also specify that the assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited. Considering the above provisions to the facts of the case, it is clear that the assessee did not maintain any books of account or other documents to show his correct income to support the income declared in the return. The assessee furnished return of income at Rs. 76,620/- which was not filed in accordance with the provisions of section 44AF of the IT Act. Further, the assessee claimed lower profit and gains as against the provisions of section 44AF. Therefore, it was mandatory for the assessee to keep and maintain such books of account and other documents as required u/s. 44AA(2)(iii) of the Act. Admittedly, the total turnover, sales or gross receipts of the assessee are more than Rs. 10.00 lacs and the assessee failed to support its claim of lower profit. Therefore, merely because the AO computed income subsequently with the aid of section 44AF would not absolve the assessee from maintenance of account books and other documents as required by law. The AO has mentioned that nothing was produced before him for verification of the income declared in the return of income. The AO did not find any alternate except to estimate the income u/s. 44AF. Thus, the assessee did not maintain any books of account and other documents so as to enable the AO to compute his total income in accordance with the provisions of the Act. Therefore, the provisions of section 44AA(2)(iii) and 44AF(5) would clearly apply in the case of the assessee. The provisions of section 44AF(4) would apply to such business referred to in sub-section (1) for computing the income from such business. Since the assessee did not file return of income as per provisions of section 44AF and claimed lower profit in the return of income, therefore, penalty is attracted in the case of the assessee. The decisions cited by the ld. counsel for the assessee would not support the case of the assessee and are clearly distinguishable on facts. Considering the totality of the facts and circumstances, we do not find any justification to interfere with the orders of the authorities below. Further, the ld. CIT(A) has specifically noted in the impugned order that the ld. counsel for the assessee has not been able to furnish any cogent reasons for non-maintenance of accounts. During the course of arguments before us also, the ld. counsel for the assessee has not explained any reasonable cause which prevented the assessee from maintaining the books of account in accordance with law. Considering the totality of the facts and circumstances, we do not find any merit in the appeal of the assessee. The same is, accordingly, dismissed.
7. In the result, the appeal of the assessee is dismissed.
