IN THE ITAT PUNE BENCH (SMC)

S.J. Agarwal & Co.

v.

Income-tax Officer

C.L. SETHI, JUDICIAL MEMBER

IT APPEAL NOS. 1429 AND 1430 (PUNE) OF 2004

[Assessment years 2001-02 and 2002-03]

February 15, 2007

Section 44AB, read with sections 271B and 44AA of the Income-tax Act, 1961 - Audit compulsory - Assessment years 2001-02 and 2002-03 - Whether section 44AB makes reference to word ‘accounts’ and not to words ‘books of account’ or ‘regular books of account - Held, yes - Whether any record or books or documents whatsoever and in whatever manner or system 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 accounts for purpose of section 44AB - Held, yes - Whether merely because an assessee has not kept or maintained books of account and other documents as required under section 44AA it cannot be said that he has not maintained accounts for purpose of section 44AB - Held, yes - Assessee filed returns of income disclosing taxable income and annexed alongwith them statement of total income, trading account, profit and loss account and balance sheet - Turnover disclosed by assessee in each year exceeded Rs. 40 lakhs - Since assessee had not furnished tax audit report as required under section 44AB within specified date, Assessing Officer initiated penalty under section 271B - Assessee submitted that since it did not maintain regular books of accounts, question of getting same audited did not arise - Assessing Officer however, held that assessee did maintain books of account which were required to be audited under section 44AB and, accordingly, levied penalty under section 271B upon assessee - Whether since assessee had filed along with return, statement of total income, trading account, profit and loss account and balance sheet minutely including all item required to be included therein, giving figures to last decimals, in such circumstances, Assessing Officer was justified in his conclusion that assessee did maintain accounts required to be audited under section 44AB, and having failed to do so without reasonable cause was liable to penalty under section 271B, even though assessee might not have maintained regular books of account on as prescribed under section 44AA - Held, yes

Words and phrases :-

‘Accounts’ as appearing in section 44AB of the Income-tax Act, 1961.

FACTS

For the relevant assessment years, the assessee filed the returns of income disclosing taxable income and annexed along with them statement of total income, trading account, profit and loss account and balance sheet. The turnover disclosed by the assessee in each year exceeded Rs. 40 lakhs. Since the assessee had not furnished the tax audit report as required under section 44AB within the specified date, the Assessing Officer initiated penalty proceedings under section 271B against the assessee. The assessee in the penalty proceedings submitted that since it did not maintain regular books of accounts, the question of getting the same audited did or could not arise. The assessee also submitted that it had committed an offence under section 44AA and, thus, liable to be penalized under section 271A and not under section 271B. The Assessing Officer having noticed that the assessee had minutely included all the items which were normally required to be included in the trading account, profit and loss account and the balance sheet and the figures were given to the last decimals held that the assessee did maintain books of accounts which were required to be audited under section 44AB and which were not audited without any reasonable cause. He, therefore, levied the penalty upon the assessee under section 271B.

On appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer.

On second appeal :

HELD

Section 44AB 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. Therefore under section 44AB, 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 ‘accounts’ denote a statement of the debits and credits or reckoning of business dealings. Further 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. 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 Assessing Officer if the assessee’s turnover exceeded the prescribed limit as envisaged under section 44AB.

Further the words used in the provisions of section 142(2A), where it has been provided that the Assessing Officer 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 are in pari material with the words used in section 44AB and 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. Further the expression ‘accounts’ used in section 142(2A) had come for interpretation before the Delhi High Court in the cases of (i) Central Warehousing Corpn. v. Secretary, Department of Revenue [2005] 277 ITR 452 and (ii) Rajesh Kumar, Prop., Surya Trading v. Dy. CIT [2005] 275 ITR 641/144 Taxman 865 and it had been held by the High Court that the expression ‘accounts’ used in section 142(2A) is not merely the books of accounts of the assessee. It includes the books of accounts, balance sheets and all other records, which are available to the Assessing Officer during the course of assessment proceedings. Further 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 Assessing Officer to direct special audit, over and above the general audit.

Section 44AA provides for keeping and maintaining such books of accounts and other documents as may enable the Assessing Officer 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 Assessing Officer 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. Merely 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 be audited under section 44AB.

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 account were kept by the assessee so far as it appears from his examination of the books. In case where no proper books or regular books of account are maintained by the assessee but some accounts or books of account are maintained, the auditor would be in a position to give a qualifying report to be given under section 44AB. In Form No. 3CD, a column 9 is prescribed under which the auditor is required to state whether the books of account are prescribed under section 44AA, and, if yes, list of books prescribed is to be given. In other words, if the books of account maintained by the assessee were not prescribed under section 44AA, the auditor would say so in his report. In sub-column (a), (b) and (c) and col. (9) of Form No. 3CD, there is a requirement of giving list of books of account maintained, implying thereby that whatever books were maintained by the assessee that are to be stated in sub-column (a), (b) and (c) of column 9. Thus, for the purpose of section 44AB, it is not necessary that any books of account or any accounts maintained by the assessee should at first be such books of accounts as required under section 44AA.

Therefore, 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 44AA.

In the instant 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 Assessing Officer in the penalty order had categorically stated that the assessee had filed a return of income along with the enclosures viz. statement of total income, trading account, profit and loss account and the balance sheet. The Assessing Officer had also stated that on going through these annexures it was seen that the assessee had minutely included all the items which were normally required to be included in the trading account, profit and loss account and the balance sheet. It was observed by the Assessing Officer that the figures were given to the last decimals. The Assessing Officer, therefore, concluded that the assessee’s stand taken in the course of penalty proceedings that the assessee did not maintain any books of account, was not correct. The Assessing Officer concluded that the assessee did maintain some books of account which were required to be audited under section 44AB. The Commissioner (Appeals) had 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 Commissioner (Appeals) held that the assessee was indeed maintaining the records and books of account on the basis of which the trading account, profit and loss account and the balance sheets were drawn up by the assessee.

Thus, a categorical finding had 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. Thus, having regard to the totality of the facts and circumstances of the case, the assessee’s contention that it did not maintain any books of accounts or any accounts was without any merit. The assessee had made at 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.

The assessee’s only reason given for not getting the accounts audited was that since it did not maintain any regular books of accounts or books of accounts, the question of getting them audited under section 44AB simply did not arise. The assessee had taken this stand with a motive to avoid the penal consequences of section 271B. Therefore, the assessee had not been able to give any sufficient and reasonable cause for not getting the accounts whatsoever maintained by him audited under section 44AB.

Therefore, the penalty levied upon the assessee under section 271B was justified and deserved to be upheld.

CASE REVIEW :

Surajmal Parsuram Todi v. CIT [1996] 222 ITR 691 (Gauhati); Chadha Sudhir Kumar v. ITO [1996] 56 ITD 470 (Delhi) - Distinguished.