Notice u/s 274 read with section 271A of the Income Tax Act, 1961. The word maintained and retained has been used in section 271A of the Act .If assesseee fails to maintain or fails to retain such books of accounts and other documents . The Income tax authority may direct that the assessee shall pay penalty u/s 271A of the Act for a sum of Rs. 25000.00
Section 273B will protect the assessee if he proves there was reasonable cause for the said failure.
Element of deliberateness is required for violating statutory obligation for imposing of penalty u/s 271A of the Act , 1961
The liability to produce books of Accounts by the assesseee shall not be considered as such as he has not maintained the books of accounts . The bonafide belief of the assessee regarding maintenance of books but not retained, circumstantially not able to produce , shall never lead to condemn the explanation of the assessee as false inviting imposition of penalty u/s 271A of the Act , 1961
At the time assessment proceedings u/s 147 /143(3). The assessee has already submitted reply which is in accordance with such books of accounts & other documents maintained by the assessee which may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. The assessee has maintained such books & documents as required u/s section 44AA of the Act.
The assessee has furnished adequate information, so as to enable the ITO to compute his total income in accordance with the provisions of this Act, the penalty levied under s. 271A cannot be sustained on the facts and circumstances of the present case.
Section 44AA(1) states that Every person carrying on legal……………………………. or any other profession as is notified by the Board in the official Gazette shall keep & maintain such books of accounts and other documents as may enable the Assessing officer to compute his total income in accordance with the provisions of this Act .
Every person carrying on business or profession (not being a profession referred to in sub-section (1) shall,-
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 rupess in any one of the three years immediately preceding the previous year ;
The assessee is a prop. and doing business under his own name and style and he deals in sale Purchase of fruits and vegetables, milk selling and sale-purchase of x-ray films.
He has maintained such books of accounts and documents which are required to enable the Assessing Officer to compute his income for the A.Y. 2010-11 as per section 44AA (1) & (2) of the Income Tax Act,1961.
The assessee has prepared the income & expenditure a/c on the basis of such books of accounts & documents maintained by him. After debiting all the expenses on day to day basis the profit comes to 3% to 4% i.e. say Rs. 3,24,000/- (4% of Rs. 81,00,000/-). But ultimately the assessee suffered heavy losses that year as per such books of accounts maintained by the assessee but to buy peace his surrendered his income of Rs. 3,24,000/- for the purpose of taxation.
The inability to produce books of accounts by the assessee shall not be considered as such as he has not maintained the books of accounts. But unavoidable circumstances (heavy losses) made the assessee not to produce the books of accounts.
A view has been taken by the Supreme Court in Cement Marketing Co. of India Ltd. V. Asstt. CST and Ors., wherein it held that ‘A return cannot be said to be false’ unless there is as element of deliberateness in it. Where the assessee does not include a particulars item in the taxable income under a bona-fide belief that he is not liable so to include it, it would not be right to condemn the return as a ‘false’ return inviting imposition of penalty. It is, therefore, requested that penalty proceedings be dropped.
Mere violation of the provisions of Section 269SS does not automatically invite levy of penalty u/s 271D of the Income Tax Act, 1961. Section 274 provides that no penalty shall be imposed until the assessee has been allowed reasonable opportunity of being heard. This necessarily implies that in a case where the assessee has explained that he acted in a bona-fide and his conduct was not contumacious and dishonest, no penalty can be imposed. Reliance in this regard is placed on the often cited judgment in this case of Hindustan Steel Ltd. V. State of Orissa (Supra) where the Hon’ble Supreme Court has held:
“An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in a conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to imposed the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona-fide belief that the offender is not liable to act in a manner prescribed by the statute.”
It is requested that the penalty proceedings be dropped as the assessee is not dishonest and there was no deliberate act to violate the provisions of the Act.
On the basis of above information kindly waive the notice u/s 274 read with section 271A of the Income Tax Act, 1961 dated 20.12.2017.
The following judgement favours the view of the author and must be read carefully .
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal filed by the assessee , pertaining to Assessment Year 2015-16, is directed against an order passed by the Commissioner of Income Tax(Appeals)-11, Kolkata which in turn arises out of penalty order passed by the Assessing Officer u/s.271A of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), dated 28.06.2018.
2. The grounds of appeal raised by the assessee are as follows:
1. That the imposition of penalty u/s 271A is bad in law.
3. The brief facts qua the issue are that the return of income of the assessee was filed on 30.03.2017 declaring total income of Rs. 2,33,290/-. The assessee’s case A sh o k Ku ma r Du t ta ITA No.106/Kol/2019 Assessment Year:2015-16 was selected for scrutiny through ‘CASS’ u/s 143(2) of the Act. The assessment was completed u/s.143(3) of the I.T. Act, 1961 on 08.12.2017 determining total income to the tune of Rs 2,33,290/-. It was noticed that the assessee had made high value transaction in futures(derivative) in recognized stock exchange. Such transactions are business in nature. The business turnover of the assessee for the relevant financial year exceeded the financial limit for maintaining books of accounts u/s 44AA. Though the assessee filed his return in ITR-2 although assessee had responsibility to maintain books of accounts and get them audited as the transactions were of business nature, voluminous and exceeded the limit mentioned in section 44AB for getting them audited. As assessee failed to do so therefore notice u/s 271A was issued to him initiating penalty proceeding u/s 271B. Penalty proceeding u/s. 271A of the Income Tax Act, 1961 was initiated on 08.12.2017 by issuing show cause notice and fixing the date of hearing on 17.01.2018. A reply was submitted by the assessee during the penalty proceedings vide letter dated 17.01.2018 as follows:
” With reference to the above, I am hereby to inform you that the assessee is a retired senior citizen and making the investment in different areas only. Accordingly, he invests in shares and carries out the share and future and option transaction through three different recognized brokers during the previous year and all the accounts are maintained by them only and the assessee is getting the transaction statement only from them which already submitted before you, where the profit or loss earned or incurred by the assessee are shown. The assessee neither has any infrastructure for doing business nor any personnel deployed for business in the, office, As such the assessee doesn’t have any business set up, so he has not maintained any books of accounts on its own but his accounts are maintained by recognized broker on behalf of him for all share and F & O transaction and only copies of all the documents are with him.
In this connection, I would like to submit that the entire income from the shares of the assessee can be classified either earnings of Capital transactions where capital gain/loss has arisen or from speculative income, So the assessee has no business income.
As per the decision of ITAT Delhi Bench, between ACIT, Circle-19(1) Vs. M/s Arora and Bharat Associates, penalty u/s 271A and 271B is not applicable. Copy of judgment is enclosed herewith for your perusal. Therefore my humble request to kindly waive the above mentioned penalty and oblige.”
4. The Assessing Officer had gone through the reply of assessee and noticed that the reply of the assessee is perused carefully. The assessee cited the decision of Pa g e | 2 A sh o k Ku ma r Du t ta ITA No.106/Kol/2019 Assessment Year:2015-16 ITAT Delhi Bench, between ACIT, Circle-19(1) vs. M/s Arora and Bharat Associates. At the last para of the appellate order it is clear that in case of transactions without delivery like commodity transaction, the amount of turnover for the purposes of section 44AB of the Act shall be only profit and loss and not the whole turnover embedded therein. And even in the light of above decision the assessee was liable to maintain books of accounts and get them audited as his total turnover was of Rs. 1,51,03,566/-. The Assessing Officer also noted that in the instant case the aggregate figure of profits and losses i.e. favourable and unfavourable balances of assessee’s transactions in Future (derivatives) is found to be Rs. 1,51,03,566/- which exceeds the limit envisaged in section 44AA of Income Tax Act, 1961 for maintaining books of accounts. As the assessee failed to maintained the books of accounts u/s 44AA notice u/s 271A was issued initiating penalty proceeding u/s 271A. The assessee in this case might have filed his return of income in Form no. ITR-2 to avoid to maintain books of accounts and get them audited u/s 44AB.
In view of above, Assessing Officer satisfied that it is a fit case for imposition of penalty u/s 271A of the Act. Considering the facts and circumstances of the case, a penalty Rs. 25,000/- was imposed on the assessee u/s 271A.”
5. Aggrieved by the penalty imposed by the Assessing Officer u/s 271A of the Act, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the penalty imposed by the Assessing Officer observing the following:
“3. I have considered the facts of this case and I find that the appellant has not maintained any books of accounts whatsoever. It may be mentioned here that there are prescribed ways of maintaining the books of accounts. What the appellant has talked of is merely an account of share and F&O transactions of the appellant. But books of accounts are much more than this. Thus, the books record the day-to-day financial transactions the outstanding balance, investments etc. In other words, the books of accounts have all the detail required to furnish the return of income. Therefore, the accounts maintained by the broker of the appellant cannot be compared with the regular books of accounts .
4. Hence it is held that the appellant has defaulted by not maintaining the regular books of accounts and therefore he is liable to face penalty u/s 271A.”
6. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
7. The ld. Counsel for the assessee relied on the submissions made before the authorities below whereas the ld. DR has primarily reiterated the stands taken by the Assessing Officer which we have already discussed in our earlier para and the same is not being repeated for the sake of brevity.
8. We have heard both the parties and perused the material available on record. We note that the main reason to impose the penalty u/s 271A is that the figures shown in the profit & loss account i.e. favourable and unfavourable balances of assessee’s transaction in future derivatives was found to be Rs. 1,51,03,560/- which exceeds the limit envisaged in section 44AAof the Act for maintaining books of accounts. Since, the assessee failed to maintain the books of accounts u/s 44AA of the Act therefore the Assessing Officer imposed penalty to the tune of Rs. 25,000/-. We note that this issue is squarely covered in favour of the assessee by the Hon’ble Delhi High Court in the case of Mehta Parvesh vs. ITO 60 TTJ (Del) 278 wherein it was held as follows:
“4. I have carefully considered the submissions made by the learned representatives of the parties. The assessee submitted the computation of income for both the years under consideration at an income of Rs. 40,000 and Rs. 42,000 respectively. The assessee also enclosed with the returns of income a statement of affairs giving the details of assets and liabilities as at the beginning of the year as well as on the close of the year. The declared income was estimated by taking into consideration the net increase in assets along with the treadings made by the assessee-firm and the household expenses. The details so furnished by the assessee could enable determination of taxable income in a reasonable manner. The provisions of s. 44AA was required to keep and maintain such books of accounts and documents, as may enable the AO to compute his total income in accordance with the provisions of the IT Act. Sub-s. (3) of s. 44AA authorises the Board to prescribe by rules the books of accounts and other documents to be kept and maintained and the particulars to be contained therein and the form and the manner in which and the place at which such books of accounts shall be kept and maintained. The Board has not yet prescribed any rule so far as persons deriving income from business are concerned. It has only prescribed r. 6F requiring the persons deriving income from profession to maintain the specified books of accounts. Since the Board has not prescribed the necessary rules relating to maintenance of accounts by the persons carrying on business, and as the assessee has furnished adequate information, so as to enable the ITO to compute his total income in accordance with the provisions of this Act, the penalty levied under s. 271A cannot be sustained on the facts and circumstances of the present case. I, therefore, cancel the said penalties for both the years under consideration.”
Respectfully following the judgment of the Hon’ble Delhi High Court in the case of Mehta Parvesh supra we note that it is not a fit case to impose penalty u/s 271A of the Act and hence we delete the penalty of Rs. 25,000/-
9. In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 15.05.2019.
This is just a view of the author that no penalty is leviable u/s 271A of the Act when there was no deliberate act on the part of the assessee violating the statutory provisions of the act and he was under bonafide belief that his calculation of income is not false .