IN THE ITAT,
C.H. Aboobacker Haji
v.
Income-tax Officer, ward-2(1), Kannur
n. barathvaja sankar, accountant member
and riyaz s. padvekar, judicial member
it appeal No. 293 (Coch.) of 2006
[Assessment year 2004-05]
July 14, 2006
Section 271A, read with section 44AA, of the Income-tax Act, 1961 -
Penalty - For failure to keep, maintain or retain books of accounts, etc., -
Assessment year 2004-05 - Whether for applicability of section 44AA(2),
circumstances must exist that Assessing Officer was unable to compute income of
assessee due to non-maintenance of accounts - Held, yes - Whether since without
completing assessment, it cannot be said that Assessing Officer was unable to
compute income of assessee, penalty under section 271A for violation of section
44AA(2) may be levied upon assessee only after completion of assessment - Held,
yes
The assessee was a civil contractor. For the assessment year 2004-05, the assessee filed his return of income, estimating his income at the rate of 5 per cent of the total contract receipts. Subsequently, there was a survey action against the assessee, wherein the Assessing Officer found that for the earlier assessment years, the assessee had declared the income at the rate of 8 per cent on the gross contract receipts. During the course of survey, the assessee admitted that he was not maintaining any day book & ledger in respect of the contract work and kept only separate files with details of the purchases, receipts from contractee department etc. The Assessing Officer found that the assessee had omitted some of the contract receipts from the separate files kept by it. The Assessing Officer, thus, came to the conclusion that the assessee had violated the provisions of section 44AA and, hence, he initiated penalty proceedings against the assessee under section 271A. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer.
The second appeal, the assessee submitted that the Assessing Officer initiated the penalty proceedings before the completion of the assessment inasmuch as the assessment of the assessee for the relevant year had been completed by the Assessing Officer only on 23-6-2006 whereas he finalized the levy of penalty under section 271A vide order dated 26-7-2005. It was further submitted that the assessee was regularly following the same method for declaring his income and merely on basis of his statement recorded during the survey, the Assessing Officer came to the conclusion that there was failure on the part of the assessee to comply with the provisions of section 44AA when, in fact, section 44AA was not applicable.
The instant case was not covered by sub-section (1) of section 44AA. At the most, sub-section (2)
of section 44AA might be applicable
but for its applicability, the circumstances must exist that the Assessing
Officer was unable to compute the
income of the assessee due to the non-maintenance of the accounts. In the instant case, the Assessing Officer
issued the show cause notice for levy of penalty under section 274 read with
section 271A dated 10-1-2005 and after more than 17 months, the Assessing
Officer completed the assessment. without completing the assessment, the
Assessing Officer could not have come to the conclusion that he was unable to compute the income of the
assessee due to the non-maintenance of the day book and ledger. Moreover, no specific books
of accounts have been specified or notified by the board in respect of contract
business. If the Assessing Officer was of the opinion
that he was unable to compute the correct income of the assessee then he
should have waited at least for the completion of the assessment and only after completion of the assessment, he
might have reasonably come to the conclusion
that due to the non-maintenance of the books of accounts on the part of the
assessee, it was not possible for him to compute the correct income under the
Act. [
It is well settled principle of law that penalty proceedings are
quasi-criminal in nature and it must be brought on record by the Assessing
Officer that the assessee has deliberately acted in defiance of law or was
guilty of conduct contumacious or dishonest, but in the reasoning given by the
Assessing Officer in the assessment order, nothing had been mentioned.Moreover,
the Assessing Officer was in a hurry to levy the penalty than to complete the
assessment. as far as sub-section (2) of section 44AA is concerned, only after
the completion of the assessment, the Assessing Officer may initiate the
penalty proceedings for the levy of penalty under section 271A. Merely because
there was a survey action, and that too after the issue of notice to the
assessee to levy the penalty under section 271A, that could not be the ground
justifying the levy under section 271A. Section 44AA is to be interpreted
strictly for attracting the penal consequences. Therefore, the Assessing
Officer was not at all justified in levying the penalty on the facts of the
instant case. therefore, the penalty levied by the Assessing Officer under
section 271A was to be deleted and the order of the Commissioner (Appeals) was
to be set aside. [
In the result, the appeal was to be allowed.