AJIT PRASAD DEY,HOOGHLY vs. ITO, WD-1, BANKURA, BANKURA

The only question is to be decided whether the CIT(A) is justified in confirming the penalty of Rs.25,000/- imposed by the AO u/s 271A of the Act in the facts and circumstances of the case.

Brief facts of the case noted from the assessment order are that the Assessee is an individual and is a whole seller as well as retailer of egg trading. The AO estimated the net profit at 8% u/sec Page | 1 Ajit Prasad Dey Assessment Year: 2011-12 44AD of the Act on gross sale of Rs.1,82,18,394/- as found from audited accounts as against the returned income of Rs.4,94,482/- for not reconciling the defects, for failure produce a single purchase bill, cash, credit sale memo inter alia for not offering proper explanation vide his order dt:26-03-2014 u/s 143(3) of the Act, thereafter, by an order dt:28-03-2014 u/s 154/143(3) of the Act.

As per the noting in the assessment proceedings, the AO initiated penalty proceedings u/s 271A of the Act and fixed a date of hearing on 20-05-2014. The proceedings were adjourned to 12-08- 2014 and on which date also no one appeared on behalf of Assessee, but, however, the assessee filed written submission dt:18-08-2014 stating that he was unable to produce required bills and invoices during the course of assessment proceedings as they were recovered and sought permission to produce the same and the AO accepted the submission the Assessee. Accordingly, the Assessee filed another written submission dt:12-09-2014 stating that all the items as demanded under show cause notice dt: 06-03-2014 could not be produced during assessment proceedings as the office of the assessee was under renovation and filed purchase bills, transportation bills, telephone charges, entertainment expenses, travelling expenses and sales bills.

The AO on perusal of the written submissions found no bills and vouchers attached by the assessee with the written submission and for such non-compliance imposed an amount of Rs.25,000/- as penalty u/s 271A of the Act. The relevant portion of which is reproduced herein below: “In response to the show cause letter dated 06/03/2014, we submitted a reply dated 24/03/2014. At that time, all items sample bills could not be produced as office of my client was renovated. Hence few bills could not be located. However, the same were found after completion of assessment proceedings. As Page | 2 Ajit Prasad Dey Assessment Year: 2011-12 penalty proceedings u/s 271A is nearing completion and much of the bills have been found, the same are being presented before your Honour. PURCHASE BILLS Few purchase bills are being presented for your kind perusal. These bills include Freight/Transportation Expenses. TRANSPORTATION BILLS Transportation bills are being presented for your kind perusal. TELEPHONE CHARGES Telephone bills are being presented for your kind perusal. ENTERTAINMENT EXPENSES Vouchers for entertainment expenses are being presented once again. No bills for entertainment expenses are available as shops/establishments refuse to issue bills. TRAVELLING EXPENSES Travelling bills are being presented for your kind perusal. SALES BILLS Sample sale bills are being presented for your kind perusal. In view of the bills/vouchers/evidences being presented, your Honour is requested not to penalize my client u/s 271A.” The contents of the written submission have been gone through and it is seen that no bills and vouchers are attached with the written submission. During the course of penalty proceedings also the A/R of the assessee failed to produce the complete set of books of accounts and documents from which the cross verification of the purchases, sales, expenses claimed in the Trading and P&L A/ C could be undertaken. After due consideration of the above facts and circumstances of the case, it becomes crystal clear that the assessee did not keep, maintain or retain books of account, documents etc. as required u/ s 44AA and rules there under for the F.Y.2010-11 relevant to A.Y.2011-12. Since the assessee has failed to substantiate the reasonable cause in this regard, I am of the opinion that it is a fit case for imposition of penalty u/s 271A of the I.T. Act, 1961. Penalty imposable u/ s 271A is fixed at Rs.25,000/-. In view of the above, Rs.25, 000/-is imposed as penalty u/s 271A of the I.T. Act, 1961. The assessee is directed to pay the penalty amounting to Rs.25000/-u/s 271A of the I.T. Act 1961. The penalty order u/s 271A is passed with the prior approval of the Ld. Jt. CIT, Range -Bankura, Bankura. Order imposing penalty u/s 271A is hereby passed. Copy of the penalty order, demand notice and challan are issued to the assessee.”

Aggrieved, assessee challenged the same before the CIT(A) wherein the assessee contended that the assessee submitted books Page | 3 Ajit Prasad Dey Assessment Year: 2011-12 of accounts of his Trading Profit & Loss A/c before the AO and the AO rejected the books of accounts and estimated the profits of the business at 8%. Considering the submissions of the assessee together with the arguments advanced on the provisions of Section 271A and 44AA of the Act, the CIT(A) agreed with the finding of the AO that the assessee could not produce correct and complete books of accounts along with the proper bills and details of payment. The relevant portion of which is reproduced herein below: “Thus, on analyzing these provisions, it is observed that the books of account maintained by an assessee for his business or profession should not only be correct but also be complete so as to compute total income to the satisfaction of the Assessing authority and the method employed should be such that income could be properly deduced therefrom. Whatever might be the method of accounting adopted by the assessee, the requirements of the provisions of the Act must be satisfied in order to compute the total income. In the instant case, the appellant had maintained books of accounts which were duly audited as per the admission of the AO. Admittedly such books were also produced in course of assessment proceedings. However, such books were not correct or complete since bills and details for payments could not be produced to the satisfaction of the AO. In fact, there were too many anomalies in the alleged books of account maintained by the appellant, as pointed out by the AO in the assessment order as well as in the penalty order. Such was the sorry state of affairs of business and the total income offered by the appellant. In these facts and circumstances of the case and despite the admission of the appellant in the computation statements filed along with the return that regular books of account had been maintained, and the contention of the AIR that the AO could compute the income with reference to such books and, therefore, requirements of sec. 44AA of the Act was satisfied, was not acceptable because to accept such contention would amount to abrogate the legal provisions of the Act. The plea of the appellant that complete and correct books of account had been maintained and the method of accounting had been systematically followed is by itself fraught with illegality, since such a method of maintenance of books of accounts by itself would not amount to maintenance of such books of account which would enable the AO to compute the total taxable income. The appellant had not maintained regular books of accounts or such books of account as understood in the commercial parlance and that too, correct and complete books of accounts so as to enable the AO to compute the business income and also total taxable income. Therefore, the statutory prescription contained in sec. 44AA of the Act, had not been satisfied. Consequently, the appellant had defaulted in terms of sec. 44AA of the Act, and as such, penalty u/s. 271A of the Act is squarely attracted in the circumstances. Therefore, I have no alternative but to concur with the A.O. in levying penalty u/s. 271A of the Act, which is accordingly sustained. The ground nos. 1 to 3 of the appeal are therefore dismissed.”

The Ld. AR reiterated the same submissions as made before the CIT(A). The Ld. DR relied on the orders of both the authorities below.

Heard both the parties and perused the materials available on record. The contention of the AO was that the assessee failed to produce books of accounts and documents supporting the claim of expenditure. It is observed from the assessment order at page no-2 that the assessee produced books of accounts, ledger accounts and Page | 4 Ajit Prasad Dey Assessment Year: 2011-12 cash book and but, did not submit purchase bills and cash and credit sale memos and purchase ledgers of Trisakti Poultry (P) Ltd. and Gayatri Egg Dealer and in the absence of supporting bills and vouchers claiming the expenditure and not being satisfied with the books of accounts estimated the net profit at the rate of 8% on gross sales. Before the CIT-A it was contended that there was no specific books are prescribed u/sec 44AA of the Act concerning the business of the Assessee and penalty imposed u/sec 271A of the Act is wrong.

On examination of the assessment order, we find that the assessee has filed audited accounts for F.Y. 2010-11 (Page no-1 at 1st Para of AO’s order). At Page no-2 Last Para of assessment order, the AO has recorded that the assessee has produced the cash book and ledger account and that these books of accounts were verified. The tax auditors in their report in Form 3CD at Para-9(b), listed out the books of accounts that are maintained by assessee which they have audited.

Under these circumstances, the issue is as to whether penalty u/s 271A can be levied, when the AO verified the books of accounts but found them unreliable due to various reasons mentioned in the assessment order. The Third Member Bench of Chandigarh Tribunal in the case of ACIT vs Aggarwal Construction Co. reported in (2007) 106 ITD 129 (CHD) (TM) held as under: “Section 44AA, read with section 271A, of the Income-tax Act, 1961 – Maintenance of accounts by certain persons carrying on profession or business etc. – Assessment year 2001-02 – Whether section 44AA(2) enjoins upon assessee to keep and maintain such books of account and other documents which may enable Assessing Officer to compute his total income in accordance with provisions of Act and there is no requirement that books of account of assessee should be true and correct – Held, yes – Whether merely because entries made in books are rejected, it cannot follow that no books are maintained or Assessing Officer is ‘unable’ to compute total income from such books of account and, thus, provisions of section 44AA are violated – Held, yes – Whether therefore, no penalty can be levied u/s 271A, if books of account of an assessee-civil contractor are found to be unreliable by revenue authorities and are rejected – Held, yes.” Page | 5