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Facts
The assessee appealed against a penalty of ₹25,000 imposed under Section 271A for Assessment Year 2018-19, which was confirmed by the Ld. CIT(A). The penalty was levied by the AO during assessment under Section 143(3) for alleged failure to maintain and furnish books of accounts and stock registers, leading to rejection of books under Section 145(3) and income estimation.
Held
The Tribunal found that the assessee did maintain books of account, which were duly audited under Section 44AB, despite observations that they were not updated at the time of survey. Relying on precedents, the Tribunal held that a penalty under Section 271A is not justified if other provisions like Sections 144/145 can address issues with unreliable accounts, and noted that similar penalties on the assessee in previous years were cancelled. Accordingly, the Tribunal set aside the CIT(A)'s order and directed the Ld. AO to delete the penalty.
Key Issues
Whether a penalty under Section 271A of the Income-tax Act, 1961, can be sustained for alleged failure to maintain books of account, especially when the assessee maintained audited books and similar penalties in past years were deleted.
Sections Cited
271A, 143(3), 270A(1), 145(3), 133, 44AA, 44AB, 271, 144, 145, 44AD, 68, 69, 269SS, 269T, 140(3), 273B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
This is an appeal preferred by the assessee against the penalty order u/s 271A of the Income-tax Act, 1961 (the Act) vide order dated 25.03.2022 by Central Circle 1(1), Kolkata for A.Y. 2018-19.
The only issue raised by the assessee in various grounds of appeal is against the order of ld. CIT (A) confirming the order of ld. AO, wherein the ld. AO has imposed penalty u/s 271A of the Income-tax Act, 1961 (the Act).
2.1. The facts in brief are that the assessment was framed u/s 143(3) vide order dated 12.04.2021. In the assessment order the ld. AO initiated the proceedings u/s 270A sub section 1 of the Act on the ground that the assessee has not furnished the records and 2.2. In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee.
2.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has maintained the books of account which according to the survey team was not up-to- date on the date of survey. We further note that the books of accounts were also audited u/s 44AB of the Act by the tax auditors and audit report along with audited balance sheet and profit and loss account were available before the authorities below. Under these circumstances, the order passed by the ld. CIT (A) sustaining the penalty cannot be sustained as the assessee has maintained books which were duly audited u/s 44AB of the Act nonetheless, there may “15. I have reproduced the above extract from the assessment order to reject the finding recorded by the Assessing Officer in the penalty order, that no books of account were maintained by the assessee as baseless. It is not recorded in the assessment order that the Assessing Officer was ‘unable’ to compute the income of the assessee from ledger type of book maintained by the assessee. The Assessing Officer has admitted that income and expenditure were available in the book. The requirement of sub-section (2) of section 44AA is not that the books of account of the assessee should be true and correct. It is a matter of common experience that all vouchers and supporting evidence are not available even in cases of Multi National Companies and other cases where there is a special section to maintain regular books of account. Expenses are found to be unvouched and claim inadmissible. Entries made are also rejected. But from above, it cannot follow that no books are maintained and in such cases, Assessing Officer is ‘unable’ to compute, the total income. It is not possible to argue that in all such cases, provisions of section 44AA are violated. There are separate provisions in section 271 to deal with the above wrong and false accounts. Therefore, failures which are dealt in other provisions cannot be read in section 271A of the Income-tax Act. There is ample power under section 144/145 to deal with reliable accounts. Assessing Officer can disallow and add back unvouched and inadmissible expenses. The assessee has to suffer. Assessing Officer faces no inability such a situation. Therefore, no penalty, in my humble opinion, can be levied under section 271A if the books of account are found to be un-reliable by revenue authorities and are rejected. In the case in hand, the Assessing Officer had applied flat rate of 12 per cent as ‘reasonable’ rate against 8 per cent statutorily provided in cases of civil contractors. It cannot be argued that statute has provi-ded a rate which is not reasonable. Further, having regard to provi-sions of section 44AD, which is overriding, it is not possible for the revenue to argue that profit computed as per the section is not profit computed ‘in accordance with provisions of this Act’ or that the Legislature was unaware of provisions of sections 68, 69, 269SS, 269T, 140(3) etc. in the enactment of section 44AD. Thus reading entire scheme of the Act one has to hold that profit computed as per section 44AD of the Act by application of flat rate is one recognized method of computation of total income, or part of total income. The fact that the above provisions is applicable only to cases where gross contract receipts are below Rs. 40 lakhs, does not make any difference to the nature of business carried by the assessee or method of computation. Having applied such high rate of 12 per cent Assessing Officer cannot contend that he was unable to make assessment. Therefore, in the above peculiar circumstances of the case, the Commissioner of Income-tax (Appeals) was right in holding that there was no failure on the part of the assessee under section 44AA of the Income-tax Act and penalty imposed under section 271A was not justified.
There is another good but independent reason for not upholding levy of penalty in this case. It has been observed by the learned Commissioner of Income-tax (Appeals) that similar penalties imposed on the assessee for assessment years 1996-97, 1997-98 and 1998-99 were cancelled on appeal by the Commissioner of Income-tax (Appeals).
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 19.12.2025.