M/S SHIV KUMAR BAIGARA AND COMPANY ,UDHAMPUR vs. INCOME TAX OFFICER UDHAMPUR, UDHAMPUR

The assessment for the relevant year was completed u/s. 143(3) on 26.03.2004 by rejecting the assessee-firm’s accounts and estimating its’ income by applying a gross profit (GP) rate of 16%, i.e., as against the disclosed rate of 12.78%. The same stood confirmed in appeal, whereupon penalty proceedings u/s. 271A, i.e., for non-maintenance of accounts, initiated along with, were proceeded with. The same being confirmed in appeal, the assessee is in second appeal.

I have heard the parties, and perused the material on record. The impugned penalty stands both levied as well as confirmed on the basis that the assessee has not maintained proper accounts. Section 271A prescribes a penalty, in the sum of Rs.25,000, for a failure to keep and maintain such books of accounts and documents as required u/s. 44AA, or rules made there- under for any previous year. Rule 6F, i.e., the relevant rule, to which reference was also made during hearing, specifies cash book; journal; ledger, besides bills for expenses and sales, i.e., as received and issued by the assessee, and on the basis of which the accounts have been maintained. There is no finding either by the Assessing Officer (AO) or even by the ld. CIT(A) qua any of these books or documents being not maintained by the assessee. How, then, one wonders section 271A gets attracted? As afore-noted, both the authorities have stated of the assessee not maintaining ‘proper accounts’. While that may well be true, even as the assessee claims otherwise, where the accounts are not correct and complete, i.e., to the satisfaction of the AO, it is section 145(3) that would get attracted, entitling the assessing authority to, rejecting the books results, make an estimate of the assessee’s income relying on the relevant material. As it appears, there has occurred a confusion between the ‘books of account’, referred to in section 44AA and section 271A, and the ‘accounts’ referred to in section 145(3). The rejection of accounts per se would not, even as explained in Asst. CIT vs. Aggarwal Construction Co. [2007] 106 ITD 129 (Chd)(TM), attract section 271A. In my considered opinion, therefore, no case for penalty u/s. 271A is made out. I, accordingly, have no hesitation in directing deletion of the impugned penalty. I decide accordingly.