1. This appeal is directed against the imposition of penalty of Rs. 765 imposed on the assessee under Section 271A of the Income-tax Act, 1961 ('the Act'). On the date of hearing none attended on behalf of the assessee even though the notice had been served on the assessee nor there was any application for adjournment. Accordingly, the appeal was heard ex parte and is being disposed of on the basis of the material on record and after taking into account the submissions of the learned departmental representative.
2. Section 271A, so far as it is relevant for the purpose of the present appeal reads, inter alia, as follows: ... if any person, without reasonable cause, 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 ...the Income-tax Officer ...may direct that such person shall pay, by way of penalty, a sum which shall not be less than 10 per cent but which shall not exceed fifty per cent of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income.
3. In the present case, the assessee, who is a contractor, had filed his return of income for the assessment year 1980-81 declaring an income of Rs. 53,000. It is not clear from the order of the ITO as to on what amount the assessment in question was made.
4. Inasmuch as the assessee had not maintained the books of account, the ITO initiated the penalty proceedings under Section 271A against the assessee and as a satisfactory explanation for non-maintenance of the books of account was not forthcoming from the assessee, the ITO imposed on the assessee a penalty of Rs. 765. How the aforesaid figure of Rs. 765 has been worked out is not clear from the order of the ITO.5. The assessee appealed against the aforesaid order of the ITO to the learned AAC and pleaded before her that the assessee maintained a bank account in which all the contract receipts were reflected and that for the purpose of his assessment, the aforesaid bank account was enough and that no set of books of account has been prescribed yet under Section 44AA of the Act and that, therefore, it could not be said that the assessee had violated the provisions of Section 44AA.6. The learned AAC accepted the above plea of the assessee and deleted the penalty in question by observing, inter alia, as follows: However, considering the facts and circumstances of the case, I find, there is merit in the case of the assessee. Section 44AA(2) does not prescribe any types of accounts which has to be maintained by a person carrying on business or profession. What is required by that section is to keep such books of account or other documents from which the ITO can be able to compute the total income of the assessee. In the present case, since the assessee has maintained a bank account, which enabled the ITO to compute the income of the assessee, I direct the ITO to delete the penalty imposed in this case.
7. The aforesaid order of the learned AAC is assailed by the department as unsustainable in law and on fact. According to the learned departmental representative, the maintenance of a bank account was not enough for ascertaining the profit of the assessee and, therefore, it could not be said that the assessee had maintained the books of account in terms of Section 44AA. The requirement of Sub-section (1) of Section 44AA is that an assessee shall maintain such books of account and other documents as may enable the Income-tax Officer to compute his total income in accordance with the provisions of this Act. A mere maintenance of a bank account could not enable the ITO to compute the assessee's total income in accordance with the provisions of the Act.
Therefore, the learned AAC had, according to the learned departmental representative, erred in accepting the assessee's plea and deleting the penalty on that account.
8. We have given a careful consideration to the above submissions of the learned departmental representative. There appears to us that there is merit in the above contention of the learned departmental representative. A bank statement is not the books of account maintained by the assessee. It is a copy of accounts maintained by the bank, which is supplied by the bank to the assessee. It cannot, therefore, be said that the assessee had maintained a bank account. Apart from it, it is not possible to ascertain the total income of the assessee on the basis of a mere bank account. The assessee was, therefore, definitely guilty without any reasonable cause of non-maintenance of such books of account and other documents as may enable the ITO to compute his total income in accordance with the provisions of the Act. The imposition of penalty for this default was, in our opinion, justified.
9. Despite it, however, we are unable to sustain the present penalty order because the ITO, who has imposed the penalty, has not been able to grasp the essential ingredients of this section, viz., 271 A, in terms of which alone penalty can be imposed by the ITO on the assessee.
From the wordings of the section, extracted by us above in extenso, it would be clear that the penalty in question can be imposed on the assessee with reference to tax 'which would have been avoided if the income returned by such person has been accepted as the correct income'. It is, therefore, clear that for the purpose of coming to a conclusion that penalty is imposable on the assessee in terms of Section 271 A, the ITO must apply his mind to the returned income and to the assessed income and then to satisfy himself that there is difference in the two, on account of which tax has been avoided. It is only after his coming to the conclusion that the tax has, in fact, been avoided that he has to find out as to whether there was a reasonable cause for not maintaining the books of account. If he is satisfied that there was no reasonable cause, he has to impose penalty within the given minimum and maximum limits which, according to the aforementioned section, is 10 per cent of the tax avoided or 50 per cent of such tax.
In the present case, the ITO has not worked out as to what is the tax avoided on account of the assessee's returning certain income. It was only after he had found out that there was avoidance of tax that he could have examined the question as to whether there was a reasonable cause for the assessee's non-maintenance of the books of account. In the present case, the assessee has not been able to point out the cause which should be regarded as reasonable for the maintaining the books of account. The penalty can, therefore, be imposed by the ITO on the assessee, but for the aforesaid purpose it was necessary for him to have found out the tax avoided, which he has not done. He has imposed an ad hoc penalty of Rs. 765 on the assumption as if no guidance has been laid down in the section for the purpose of imposition of the penalty. Prima facie, the above action of the ITO is contrary to law and as such it is not possible for us to sustain it.
10. In the result, the order of the learned AAC is sustained though for different reasons.