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S.J. Agarwal and Co. Vs. the I.T.O. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Pune
Decided On
Judge
Reported in(2008)114ITD27(Pune.)
AppellantS.J. Agarwal and Co.
RespondentThe I.T.O.
Excerpt:
1. these two appeals filed by the assessee are directed against a common order dated 16-7-2004 passed by the cit(a) in the matter of penalty imposed under section 271b of the act for the a.y. 2001-02 and 2002-03.2. in these two appeals, the assessee has challenged the cit(a)'s order in confirming the penalty levied by the a.o under section 271b for not getting the books of accounts audited as required under section 44ab of the act.3. for the assessment year 2001-02 the return of. income showing total income at rs. 2,13,069 was filed by the assessee on 31-3-2003. from the return of income it was noticed that the assessee's turnover was rs. 1,21,88,750. similarly, the turnover for the a.y. 2002-03 was rs. 2,82,94,674. as the turnover of the assessee exceeded rs. 40.00 lakhs, the a.o has.....
Judgment:
1. These two appeals filed by the assessee are directed against a common order dated 16-7-2004 passed by the CIT(A) in the matter of penalty imposed Under Section 271B of the Act for the A.Y. 2001-02 and 2002-03.

2. In these two appeals, the assessee has challenged the CIT(A)'s order in confirming the penalty levied by the A.O Under Section 271B for not getting the books of accounts audited as required Under Section 44AB of the Act.

3. For the assessment year 2001-02 the return of. income showing total income at Rs. 2,13,069 was filed by the assessee on 31-3-2003. From the return of income it was noticed that the assessee's turnover was Rs. 1,21,88,750. Similarly, the turnover for the A.Y. 2002-03 was Rs. 2,82,94,674. As the turnover of the assessee exceeded Rs. 40.00 lakhs, the A.O has taken a view that the assessee was under an obligation to get its accounts audited by an Accountant before the specified date and furnish the audit report by that date as required Under Section 44AB of the Act. As the assessee did not file the return by the due date nor furnished the audit report by the specified date, the A.O initiated penalty proceedings Under Section 271B of the Act for the years under consideration. A show cause notice was therefore, issued. In reply thereto, the assessee has submitted that the notice Under Section 271B has been issued by the A.O by assuming that the assessee has been maintaining regular books of accounts and has failed to furnish the tax audit report as required Under Section 44AB of the Act within the specified date. It was further submitted that the assessee did not maintain regular books of accounts and as such the question of getting the same audited did or could not arise. It was therefore, submitted by the assessee that the assessee has committed an offence Under Section 44AA of the Act and thus liable to be penalized Under Section 271A of the Act and not Under Section 271B of the Act. In support thereof, the assessee relied on a decision of the Hon'ble Gauhati High Court in the case of Surajmal Parsuram Todi v. CIT 221 ITR 691.

4. The assessee's submissions were considered by the A.O. The A.O concluded that in the light of statements enclosed with the return of income, it was clearly proved that the assessee had maintained proper books of accounts and thus the penalty proceedings Under Section 271B were not initiated merely on presumption. The A.O's observations are as under: The submission made by the assessee has been considered carefully and it is noticed that the assessee has filed return of income and has annexed along with it statement of total income, Trading, profit and Loss Account and Balance sheet as on 31-3-2001. On going through these annexure it is observed that the assessee has minutely included all the items which are normally included in the Trading, P & L Account and the balance sheet and the figures are given to the last decimals. From this it can be concluded that the assessee has maintained proper books of accounts which can be audited and has failed to get these accounts audited as required Under Section 44AB of the Act. The penalty proceedings initiated Under Section 271B of the Act are therefore not initiated on any assumption, but on the clear-cut conclusion that the assessee has maintained proper books of accounts as brought out above.

5. In the light of the above conclusion drawn by the A.O., the A.O held that the assessee did maintain books of accounts which were not audited without any reasonable cause and the assessee has failed to furnish the audit report by the specified time as envisaged under the provisions of Section 44AB of the Act. He therefore, levied penalty amounting to Rs. 60,943 for A.Y. 2001-02 and Rs. 1,00,000 for AY. 2002-03 being half percent of the total turnover.

6. Being aggrieved, the assessee has preferred appeals before the CIT(A), before whom, the assessee reiterated the same contentions as were made before the A.O. After considering the A.O's order, assessee's submissions and the facts of the case, the CIT(A) upheld the A.O's order in levying the penalty Under Section 271B of the Act by discussing and observing the issue as under: 3. The Assessing Officer after consideration of the submissions of the appellant gave a finding that on verification of the statements of account of the appellant filed along with the return of income, it was noticed that the figures reflected in these accounts were very minutely given under each head and this could not be possible in absence of the books of account maintained. The Assessing Officer also noticed continuity of the appellant's account from the fact of appellant showing the closing stock of the Assessment Year 2001-2002 as the opening stock of the subsequent Assessment Year 2002-2003, which in the opinion of the Assessing Officer corroborated that the appellant had maintained regular books of account. Thus, the Assessing Officer observed that since the appellant had maintained regular books of account, which the appellant had failed to get audited under Section 44AB of the Income Tax Act, 1961, the penalty proceedings under Section 271B of the Income Tax Act, 1961 were not initiated on assumption, but were rightly initiated. In the opinion of the Assessing Officer, the decision relied by the appellant was not applicable to its case. According to the Assessing Officer, the acceptance of the default under Section 44AA of the Income Tax Act, 1961 by the appellant proved that the appellant was aware of the quantum of penalties for the defaults both under Section 44AA & 44AB of the Income Tax Act, 1961 and it was only a ploy to escape from the consequence of penalty under Section 271B of the Income Tax Act, 1961, which would have charged the appellant with more amount of penalty than the maximum penalty leviable under Section 271A of the Income Tax Act, 1961. Accordingly, the Assessing Officer was satisfied that the appellant had maintained regular books of account, which it failed to get audited as required under Section 44AB of the Income Tax Act, 1961 and, therefore, penalty under Section 271B of the Income Tax Act, 1961 was leviable on the appellant. Consequently, the impugned penalties were imposed upon the appellant, against which the present appeals have been filed.

4. During the course of the appellate proceedings also, the appellant's contention is that when it had not maintained any regular books of account, how did the question of auditing the same arise, which fact has been overlooked by the Assessing Officer before issuing the notice under Section 271B of the Income Tax Act, 1961. In support of this contention, the judgment of the Gauhati High Court reported in 142 CTR 209 and the decision of the Delhi ITAT reported in 56 ITD 470 were referred to. The appellant thus pleaded that in its case, absence of regular books of account absolved it from the obligation of complying with the provisions of Section 44AB, for which the provisions of Section 271A should have been applied for non-compliance of Section 44AA of the Income Tax Act, 1961. The appellant, therefore, pleaded for cancellation of the penalties levied for the Assessment Years under appeal.

5. I have considered the submissions of the appellant. As rightly pointed out by the Assessing Officer, the Trading, Profit & Loss Account of the appellant has been drawn up containing all the details of receipts & expenses squared off to single rupee, which implies that the appellant must have maintained some books account to cull out the figures of expenses, like material, labour, transport, diesel, repair, office, traveling, conveyance etc., besides the expenses like bank interest, sales-tax, depreciation etc. Such a precise drawing up of the Trading. Profit & Loss Account could not be possible, unless the appellant maintained records for quantifying the various expenses as well as the receipts, like commission, interest & hire purchase. I would, therefore, hold that the appellant was indeed maintaining the books of account, but while responding to the penalty notice issued under Section 271B of the Income Tax Act, 1961, raised a defence that no books of account were maintained to avoid the penal consequences of Section 271B of the Income Tax Act, 1961, which are more harsh that the penalty consequences under Section 271A of the Income Tax Act, 1961. I do not find any reason to differ with the findings of the Assessing Officer and the penalties levied for the Assessment Years under consideration are confirmed.

7. Still aggrieved, the assessee has preferred these appeals before the Tribunal.

1. The assessee has not maintained books of accounts. When books of accounts are not maintained, audit of the same cannot take place.

2. The Assessing Officer as well as the Commissioner of Income Tax (Appeals) have presumed that the books of accounts have been maintained. On the basis of the presumption Penalty cannot be imposed.

3. The Assessing Officer as well as the Commissioner of Income Tax (Appeals) have not adduced any evidence on maintenance of books of accounts. Simple furnishing of final accounts has been equated with maintained of books. Assumptions and estimates can not lead to penalty.

9. The ld. D.R, on the other hand, submitted that the assessee's stand that it did not maintain books of accounts is totally false in the light of materials and statements enclosed with the return of income.

He further submitted that all the statement of accounts annexed with the return of income have been taken into account by the A.O as well as by the CIT(A) for coming to a conclusion that the assessee did maintain records for quantifying the receipts as well as various expenses and as such the assessee was under obligation to get these records or documents or books of accounts, as the case may be, audited and to furnish the report thereof as required Under Section 44AB of the Act, and since the assessee has not given any satisfactory reason in not doing so, the authorities below were very much justified in levying the penalty.

10. I have heard both the parties on this issue and have deliberated upon the relevant provisions of law. There is no quarrel as to proposition that as and when any assessee does not maintain any accounts whatsoever, the question of getting the accounts audited as contemplated Under Section 44AB does not or could not arise. In other words, when a person does not maintain any accounts, there could not be any possibility of any default contemplated Under Section 44AB of the Act. However, before applying this proposition in a given case, it is necessary to ascertain and seen first as to whether the assessee was maintaining any accounts or not 11. Section 44AB of the Act requires every person carrying on business or profession with gross receipts or turnover or sales exceeding prescribed limits to get his "accounts" audited before the specified date and furnish by that date a report of such audit in the prescribed form duly signed and verified by such Accountant and setting forth such particulars as may be prescribed. Under Section 44AB of the Act the requirement is to get the "accounts" audited and to furnish the report of such audit by the specified date. In Section 44AB reference is made to the word "accounts" and not to the words "books of accounts" or "regular books of accounts" The requirement Under Section 44AB is to get the "accounts" audited. The "accounts" denotes a statement of the debits and credits or reckoning of business dealings. There are three broad categories of accounts, such as, nominal accounts, real accounts and personal accounts where concerned debits and credits of a transaction are recorded. The nominal accounts deal with revenue and expenditure, real accounts deal with assets and capital and personal accounts deal with list of creditors and debtors. Therefore, whatever records or documents where the entries (i) dealing with the revenue and expenditure; (ii) giving details of assets and liabilities and (iii) recording the details of creditors and debtors, are made, in whatever mode or form or manner, that would come within the term "accounts". It is altogether a different matter that though any person maintaining only accounts may not maintain the same so accurately or precisely and/or in such manner or system or a procedure and/or in such books or records as may be prescribed under any guidelines or rules or notifications issued from time to time by any lawful authority, but still the accounts whatsoever maintained by him would nonetheless be considered to be the "accounts" of his business or profession for the purpose of Section 44AB of the Act. Therefore, any records or books or documents whatsoever and in whatever manner or system are maintained or kept by any assessee in respect of revenue and expenditure, assets and capital and/or creditors and debtors of his business or profession are required to get audited by an accountant by the specified date and a report of such audit should have been furnished by such date to the ITO if assessee's turnover exceeded the prescribed limit as envisaged Under Section 44AB of the Act.

12. At this stage, a useful reference may be made to the provisions of Section 142(2A), where it has been provided that if, at any stage of the proceedings before him, the A.O. having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below Sub-section (2) of Section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the A.O. may require. The words used in Section 142(2A) are in pari material with the words used in Section 44AB of the Act, where also it is provided that every person carrying on business or profession shall, if his total sales, turnover or gross receipts exceed the specified limit in any previous year, get his account of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. In both the sections, the expression used by the legislature is "accounts" which are required to be got audited, and not the expression "books of accounts" or "regular books of accounts" or "such books of accounts as required to be kept and maintained under Section 44AA of the I.T. Act".

13. The expression "accounts" used in Section 142(2A) had come for interpretation before the Hon'ble Delhi High Court in two cases, namely, (i) Central Warehousing Corporation v. Secretary, Department of Revenue and Ors. and (ii) Rajesh Kumar, Proprietor, Surya Trading v. DCIT . In the latter case of Rajesh Kumar, Proprietor, Surya Trading v. DCIT (supra), the Division Bench of the Hon'ble Delhi High Court has held that there is no merit in the contention raised on behalf of the petitioner that the expression "accounts of the assessee" can only refer to the books of account of the assessee and not the other records available before the A.O. for examination or otherwise. The complexity of accounts of the assessee is to be determined not only by the books of account, but even by other documents which are available in the course of an assessment and at any stage subsequent thereto may become available to the A.O. To give a narrow meaning to the expression "accounts" so as to confine it to the books of account, submitted by the assessee simpliciter, would amount to giving an interpretation, which would completely defect the very object of the section. Similarly, in the former case of Central Warehousing Corporation v. Secretary, Department of Revenue and Ors.

(supra), the Division Bench of the Hon'ble Delhi High Court held that the expression "accounts" used in the Section 142(2A) is not merely the books of account of the assessee. It includes the books of account, balance sheets and all other records, which are available to the A.O.during the course of assessment proceedings. General audit, as contemplated Under Section 44AB, is an obligation of the assessee, while special audit contemplated Under Section 142(2A) is a power vested in the A.O. to direct special audit, over and above the general audit.

14. Section 44AA provides for keeping and maintaining such books of accounts and other documents as may enable the A.O to compute the total income in accordance with the provisions of the Act. The accounts and other documents required to be kept and maintained Under Section 44AA may be prescribed by the Board by making the rules. It is thus clear that Section 44AA is concerned with the keeping and maintenance of books of accounts and other documents as would enable the A.O to compute the total income in accordance with the provisions of the Act and as may be prescribed by the Board and not with regard to any accounts maintained by the assessee. Mere because the assessee has not kept or maintained such books of accounts and other documents as required Under Section 44AA that would not by itself be sufficient to say that any other accounts whatsoever maintained by the assessee, shall not be required to get audited Under Section 44AB of the Act.

15. It is pertinent to note that the audit report in form No. 3CB, the auditor is competent enough to give his qualification report that whether, in his opinion, the proper books of accounts were kept by the assessee so far as it appears from his examination of the books. In case where no proper books or regular of accounts are maintained by the assessee but some accounts or books of accounts are maintained, the auditors would be in a position to give a qualifying report to be given Under Section 44AB of the Act. In form 3CD, a column No. 9 is prescribed under which the auditor is required to state whether the books of accounts are prescribed Under Section 44AA, and if yes, list of books prescribed is to be given. In other words if the books of accounts maintained by the assessee were not prescribed Under Section 44AB, the auditor would say so in his report. In Clause (a), (b) and (c) of Clause (9) of form 3CD, there is a requirement of giving list of books of accounts maintained, implying thereby that whatever books were maintained by the assessee that are to be stated in column (a), (b) and (c) of column 9. Thus, for the purpose of Section 44AB, it is not necessary that any books of accounts or any accounts maintained by the assessee should at first be such books of accounts as required under Section 44AA of the Act.

16. In the light of the decisions of the Hon'ble Delhi High Court in above two cases and the expression "accounts" used in Section 44AB of the Act, it is, thus, clear that the expression "accounts" used in Section 142(2A) or Under Section 44AB is not merely books of account of the assessee, but it could include books of account, balance sheets and all other records maintained by the assessee, irrespective of the fact whether the accounts maintained by the assessee may or may not be in such form or manner or system as prescribed Under Section 44A of the Act. Therefore, the assessee's contention that as the assessee was not maintaining any regular books of account, he was not supposed to get his accounts audited Under Section 44AB of the Act is devoid of any merit. The interpretation given to the word "accounts" used in Section 44AB, by the assessee that it would include only the regular books of accounts required to be maintained Under Section 44AB is prima facie an unsuccessful and non-bona fide attempt to create an unwarranted or unnecessary controversy as to the meaning of "accounts" as used in the Section 44AB of the Act so as to get himself rid of the obligation to get the accounts audited as contemplated Under Section 44AB of the Act.

We further held that giving such a meaning to the expression "accounts" as given by the assessee would completely defeat the very purpose and object of the Section 44AB of the Act, which has been inserted in the statute to ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably saving the time of assessing officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the assessing officers thus saved could be utilized for attending to more important investigational aspects of a case.

17. In this case, the assessee's contention to the effect that it did not maintain any accounts, need to be examined in the light of the facts and material available on record. The A.O in the penalty order has categorically stated that the assessee filed a return of income along with the enclosures viz. statement of total income, trading account, profit and loss account and the balance sheet as on 31-3-2001.

The A.O has also stated that on going through these annexures it was seen that the assessee has minutely included all the items which are normally required to be included in the trading account, profit and loss account and the balance sheet. It is also observed by the A.O that the figures are given to the last decimals. The A.O, therefore, concluded that the assessee's stand taken in the course of penalty proceedings that the assessee did not maintain any books of accounts, is not correct. The A.O concluded that the assessee did maintain some books of accounts which were required to be audited Under Section 44AB of the Act. The CIT(A) in his order has also stated that the trading account, profit and loss account and the balance sheet submitted by the assessee contain all the details of receipts and expenses squared up to a single rupee, implying thereby the assessee has maintained some books of accounts to curl out the figures of expenses like materials, labour, transport, diesel, repairs,; office, traveling, conveyance, etc.

besides the expenses like bank interest, sales tax, depreciation. The CIT(A) has also observed that such precise drawing of trading, profit and loss account could not be possible unless the assessee maintains some records for quantifying the various expenses as well as the receipts like commission, interest and hire purchase. In the light of these specific materials available on record, the CIT(A) held that the assessee was indeed maintaining the records and books of accounts on the basis of which the trading account, profit and loss account and the balance sheets were drawn up by the assessee. These specific findings and observations of the A.O as well as of the CIT(A) have not been disproved by the assessee to be false and misleading. The assessee has not given any clarification in this regard. The fact that the assessee has submitted the trading account, profit and loss account with the minute details of all the expenses as observed by the A.O as well as by the CIT(A) in their respective orders, have not been disproved by the assessee except by making a general submission that the assessee did not maintain any regular books of accounts. It is altogether a different matter that the manner, form and system of maintaining the accounts by the assessee may not be accurate and complete or may not be as per requirement of Section 44AA of the Act, but that by itself would not lead to a logical conclusion that the assessee was not maintaining any accounts for the receipts as well as for the expenses on the basis of which the assessee has himself drawn the trading account, profit and loss account and balance sheet with minute details. I, therefore, do not agree with the assessee's contention that the assessee did not maintain any accounts or records in respect of its business. The assessee's further contention that the A.O has drawn a conclusion that the assessee did maintain the books of accounts is purely based on presumption is not acceptable, inasmuch as, as discussed above, the A.O has drawn a conclusion not on mere presumption that the assessee might have maintained books of accounts but he has drawn the conclusion on the basis of documents or annexures filed along with the return of income submitted by the assessee. In the light of the facts pointed out by the A.O as well as by the CIT(A) and in the light of the discussions made above, I am of the considered view that the A.O as well as the CIT(A) not merely on presumption but rather on the basis of adequate and sufficient evidences enclosed with the return of income filed by the assessee itself have concluded that the assessee did maintain the accounts which were required to be audited Under Section 44AB of the Act. Therefore, the decisions relied on by the assessee are not at all applicable to the present case where a categorical finding has been arrived at that the assessee did maintain some accounts on the basis of which the trading account, profit and loss account and the balance sheet with all the minute details of the receipts and expenses were prepared and were also filed along with the return of income. Having regard to the totality of the facts and circumstances of the case, the assessee's contention that he did not maintain any books of accounts or any accounts is without any merit being not supported by any adequate or reliable evidence. The assessee has taken this plea only with a view to avoid the consequences of the provisions of Section 271B of the Act.

The assessee's such stand taken after receiving a show cause notice of penalty from the A.O, is not at all found to be bonafide and genuine but is found to be an after thought. The assessee has not come with the clean hands. The assessee has made an attempt to hide the accounts whatsoever maintained by it from the department. Therefore, there was a default on the part of the assessee Under Section 44AB without any sufficient and reasonable cause, is without any doubt.

18. On the facts of the present case, the decision of Gauhati High Court in the case of Surajmal Parsuram Todi v. CIT (1996) 222 ITR 691 (Gau) is distinguishable inasmuch as in the case before Hon'ble Gauhati High Court, it was an admitted fact that the assessee did not maintain any books of accounts and in that case it was held that the question of books of accounts being audited as per the provisions of Section 44AB did not arise. Similarly, the decision of I.T.A.T. Pune 'SMC Bench in the case of Ram Prakash C. Puri v. ACIT (2001) 77 ITD 210 (Pune) is also of no help to the assessee inasmuch as the facts of the case are on quite different footing. In that case, it was an admitted position that the assessee was a civil contractor and did not maintain any books and had returned the income by estimating the profits on contract receipts. However, in the case before us, the assessee has not returned the income by estimating the profit but by drawing a trading account, profit and loss account and the balance sheet with all the details to the decimals as rightly pointed out by the A.O as well as by the CIT(A) in their respective orders. In the case of Chadha Sudhir Kumar v. ITO (1996) 56 ITD (Del) 470, the A.O himself has admitted the fact that the assessee did not maintain any accounts in respect of contracts executed by him and the profit was declared on estimated basis. It is thus clear that the assessee's case is quite distinguishable on facts as compared to the aforesaid cases relied on by the assessee.

19. Now the question arises as to whether for the default committed by the assessee Under Section 44AB, the penalty Under Section 271B is still leviable. Section 273B provides that notwithstanding anything contained in the provisions of Section 271B, amongst other sections, no penalty shall be impossible on the person or the assessee, as the case may be, for any failure referred to in the concerned provisions if he proves that there was a reasonable cause for the said failure. It is thus to be seen that as to whether the assessee has been able to prove that there was a reasonable cause for the assessee for not getting its accounts audited Under Section 44AB of the Act and then to furnish the report by the specified date. The assessee's only reason given for not getting the accounts audited is that since he did not maintain any regular books or accounts or books of accounts the question of getting them audited Under Section 44AB simply did or could not arise. No other reason or reasons have been given by the assessee for not complying with the provisions of Section 44AB of the Act. On the facts and the present case, the assessee's stand that he was not maintaining any books of accounts and as such the question of getting them audited Under Section 44AB did not arise, is not found to be at all bonafide and honest one as held by us above. The assessee has taken this stand with a motive to avoid the penal consequences of Section 271B of the Act. It is thus clear the assessee has not been able to give any sufficient and reasonable cause for not getting the accounts whatsoever maintained by him audited Under Section 44AB of the Act.

20. In the light of the discussions made above, I am therefore, inclined to uphold the order of the CIT(A) in confirming the penalty imposed by the A.O Under Section 271B of the Act for both the assessment years under consideration.


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