Summary: In Anita Basak Vs ACIT, Kolkata Tribunal examined whether penalty under Section 271A could be sustained when the assessee had maintained books of account that were duly audited under Section 44AB, but were rejected under Section 145(3) due to deficiencies noticed during a survey. Although the Assessing Officer found that books were not updated on the survey date, stock registers were incomplete, and item-wise closing stock details were missing, the assessee subsequently produced audited books, financial statements, and audit reports during assessment. The Tribunal held that Section 271A applies only in cases of complete failure to maintain books under Section 44AA or where income cannot be computed due to absence of books. Mere defects, non-updating, or rejection of books leading to estimation of income do not amount to non-maintenance. Since audited books were available and income was computable, the foundational condition for penalty was absent. Accordingly, the penalty was deleted and the assessee’s appeal was allowed.
Key issue:
Whether penalty under section 271A of the Income-tax Act, 1961 can be levied where the assessee has maintained books of account which were audited under section 44AB, but the Assessing Officer rejected the books under section 145(3) due to alleged deficiencies and estimated income.
Brief Facts:-
The assessee was subjected to assessment under section 143(3) vide order dated 12.04.2021.
A survey under section 133A was conducted on 29.01.2018, during which the survey team observed that:
Books of account were not updated on the date of survey
Proper stock register was not maintained
Item-wise details of closing stock were not furnished
During assessment proceedings, the assessee furnished books of account, audited financial statements, and tax audit report under section 44AB.
Despite furnishing details, the Assessing Officer rejected the books of account under section 145(3) and estimated income at 18% of turnover.
Statutory Provisions Involved:
Section 271A – Penalty for failure to keep, maintain, or retain books of account as required under section 44AA
Section 44AA – Obligation to maintain books of account
Section 44AB – Mandatory tax audit
Section 145(3) – Rejection of books of account
Section 143(3) – Regular assessment
Section 133A – Survey proceedings
Action of AO:
Initiated penalty proceedings under section 271A on the ground that the assessee failed to maintain proper books of account.
Issued show cause notice dated 12.04.2021, which allegedly remained non-complied with.
After change of incumbent Assessing Officer, another show cause notice was issued.
Ultimately levied penalty of ₹25,000 under section 271A for failure to maintain books as required under section 44AA.
CIT(A) Order:
The Commissioner (Appeals) confirmed the penalty imposed by the Assessing Officer.
Held that non-maintenance of updated books, stock register, and item-wise closing stock justified levy of penalty under section 271A.
ITAT findings:-
The Tribunal observed that:
The assessee had maintained books of account, though they were not updated on the date of survey.
The books were audited under section 44AB, and audited balance sheet and profit & loss account were available on record.
ITAT observations:
Mere defects, shortcomings, or non-updating of books do not amount to complete failure to maintain books under section 44AA.
Rejection of books under section 145(3) and estimation of income cannot automatically lead to penalty under section 271A.
Section 271A applies only where no books are maintained or the Assessing Officer is unable to compute income due to absence of books, which was not the case here.
Reference of Other Case Law :
ACIT v. Aggarwal Construction Co. (2007) 106 ITD 129 (Chandigarh) (Third Member decision)-Held that rejection of books or estimation of income does not imply failure to maintain books under section 44AA.
Penalty under section 271A cannot be levied merely because accounts are unreliable or incomplete.
Failures dealt with under other penalty provisions cannot be imported into section 271A.
ITAT Decision:-
The Tribunal held that the foundational condition for levy of penalty under section 271A was not satisfied, as the assessee had maintained books of account duly audited under section 44AB.
Mere deficiencies or rejection of books under section 145(3) do not justify penalty under section 271A.
Accordingly, the order of the CIT(A) was set aside, and the Assessing Officer was directed to delete the penalty.
Appeal of the assessee was allowed.
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