In the ITAT, Pune
Bench (SMC)
S. J. Agarwal
& Co.
v.
Income-tax Officer,
Ward 5(4), Pune
C. L. SETHI,
JUDICIAL MEMBER
IT APPEAL NOS.
1429 & 1430 (PN) OF 2004
[Assessment years
- 2001-02 and 2002-03]
February 15, 2007
Section 271B, read with section 44AB, of Income-tax Act, 1961 - Penalty - For failure to get accounts audited - Assessment years 2001-02 and 2002-03 - Whether for purpose of section 44AB, it is not necessary that any books of accounts or any accounts maintained by assessee should at first be such books of accounts as required under section 44AA and mere fact that an assessee has not kept or maintained such books of accounts and other documents as required under section 44AA would not by itself be sufficient to say that any other accounts whatsoever maintained by assessee shall not be required to get audited under section 44AB - Held, yes - For relevant years, total turnover of assessee exceeded Rs. 40 lakhs and, hence, Assessing Officer required assessee to get its accounts audited and furnish audit report as required under section 44AB - On failure of assessee to do so, Assessing Officer initiated penalty, proceedings under section 271B. As against that, stand of assessee was that it did not maintain regular books of accounts and as such question of getting same audited did or could not arise and, hence, it could not be penalized under section 271B - In penalty order, Assessing Officer had categorically stated that assessee filed a return of income along with enclosures, viz., statement of total income, trading account, profit and loss account and balance sheet as on 31-3-2001, on going through which it was clear that assessee had minutely included all items which were normally required to be included in Trading account, profit and loss account and balance sheet - Assessing Officer, therefore, concluded that assessee did maintain some books of accounts which were required to be audited under section44AB - Said specific findings and observations of Assessing Officer had not been disapproved by assessee to be false and misleading nor did it gave any clarification in this regard - Whether on facts, stand of assessee was not at all bonafide and honest one and it was taken only with a motive to avoid penal consequences of section 271B - Held, yes - Whether, therefore, Assessing Officer was justified in levying impugned penalty - Held, yes
FACTS
For the assessment years 2001-2002 and 2002-2003, the assessee-company filed its return of income showing total turnover. As the turnover of the assessee exceeded Rs. 40.00 lakhs, the Assessing Officer required the assessee 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. As the assessee failed to furnish the audit report by the specified date, the Assessing Officer issued a show cause notice as to why penalty proceedings under section 271B be not initiated against the assessee in response, the assessee submitted that it did not maintain regular books of accounts and as such the question of getting the same audited did not arise, whereas, the Assessing Officer had issued the impugned notice by assuming that the assessee had been maintaining regular books of accounts and had failed to furnish the tax audit report as required under section 44AB within the specified date. It was, therefore submitted that it had committed an offence under section 44AA and thus liable to penalty under section 271A and not under section 271B. The Assessing Officer held that in the light of statement of total income, Trading, profit and loss account and balance sheet as on 31-3-2001 enclosed by the assessee with its return of income, it was clearly proved that the assessee had maintained the books of accounts which could be audited but, without any reasonable cause it did not get those accounts audited as required under section 44AB. Therefore, the Assessing Officer levied penalty under section 271B. On appeal, the Commissioner (Appeals) upheld the order 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. 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
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. 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 requited 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 the assessee’s turnover exceeded the
prescribed limit as envisaged under section 44AB. [
The words used in
section 142(2A) are pari material with the words used in section 44AB,
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. [
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 pay 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 get audited under section 44AB. [
In 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 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. In form No. 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 No.
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. [
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.
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 was devoid of any merit. The interpretation given to the
word ‘accounts’ used in section 44 AB, by the assessee that it would include
only the regular books of accounts required to be maintained under section 44AA
was 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 so as to get himself rid of the
obligation to get the accounts audited as contemplated under section 44AB. 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, 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. [
In the instant case,
the assessee’s contention to the effect that it did not maintain any accounts
was 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 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 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 also
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 accounts, was not correct. The Assessing Officer concluded that
the assessee did maintain some books of accounts which were required to be
audited under section 44AB. The Commissioner (Appeals) in his order had also
stated that the trading account, profit and loss account and the balance sheet
submitted by the assessee contained all the details of receipts and expenses
squared up to a single rupee, implying thereby that the assessee had 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 Commissioner (Appeals) had also observed that such
precise drawing of trading, profit and loss account could not be possible
unless the assessee maintained 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 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 Assessing Officer as well as of the Commissioner
(Appeals) had not been disproved by the assessee to be false and
misleading. The assessee had not given
any clarification in this regard. The
fact that the assessee had submitted, the trading account, profit and loss
account with the minute details of all the expenses as observed by the
Assessing Officer as well as by the Commissioner (Appeals) in their respective
orders, had not been disproved by the assessee except by making a general
submission that the assessee did not maintain any regular books of
accounts. It was altogether a different
matter that the manner, form and system of maintaining the accounts by the
assessee might not be accurate and complete or might not be as per requirement
of section 44AA but that by itself would not lead to a logical conclusion that
the assessee was not maintaining any account for the receipts as well as for
the expenses on the basis of which the assessee had himself drawn the trading
account, profit and loss account and balance sheet with minute details.
Therefore, it could not be said that the assessee did not maintain any accounts
or records in respect of its business. The assessee’s further contention, that
the Assessing Officer had drawn a conclusion that the assessee did maintain the
books of accounts was purely
based .on presumption, was not acceptable inasmuch as the Assessing Officer had drawn a conclusion not on mere
presumption that the assessee might have maintained books of accounts but he
had drawn the conclusion on the basis of documents or annexures filed along
with the return of income submitted by the assessee. Therefore, the assessee’s contention that he
did not maintain any books of accounts or any accounts was without any merit
being not supported by any adequate or reliable evidence. The assessee had
taken this plea only with a view to avoid the consequences of the provisions of
section 271B. The assessee’s such stand taken after receiving a show cause notice
of penalty from the Assessing Officer, was not at all found to be bona fide
and genuine but was found to be an after thought. The assessee had not come
with the clean hands. The assessee had 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, was without any doubt.
[
As regards the levy of penalty, section 273B provides that
notwithstanding anything contained in the provisions of section 271B; amongst
other sections, no penalty shall be imposable on the person or the assessee as
the case might be, for any failure referred to in the concerned provisions if
he proves that there was a reasonable cause for the said failure. It was, thus, to be seen that as to whether
the assessee had been able to prove that there was a reasonable cause for the
assessee for not getting its accounts audited under section 44AB and then to
furnish the report by the specified date.
The assessee’s only reason given for not getting the accounts audited
was 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 had been given by the assessee for
not complying with the provisions of section 44AB. The assessee’s stand was not found to be at
all bona fide and honest one. The
assessee had taken this stand with a motive to avoid, the penal consequences of
section 271B. It was, thus, clear that
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 order
of the Commissioner (Appeals) in confirming the penalty imposed by the
Assessing Officer under section 271B for both the assessment years under
consideration was to be upheld. [
In the result, the
appeal was to be dismissed. [
CASE REVIEW:
Central Warehousing Corpn. v. Secretary, Department of Revenue [2005] 277
ITR 452 (
Surajmal Parsuram Todi v. CIT (1996) 222 ITR 691 (Gau); Ram Prakash C.
Puri v. Asstt. CIT (2001) 77 ITD 210 (Pune); Chadha Sudhir Kumar v. ITO (1996)
56 ITD (