2013 (4) TMI 392 - AT - Income Tax

Penalty u/s 271B - non maintenance of books off account by the taxpayer as a civil contractor mainly engaged in government contract - Also penalty u/s 271A levied - Held that - When the Parliament in its wisdom expects every person carrying on business including civil contract, this Tribunal is of the considered opinion that the excecutive authorities (CBDT) ought to have prescribed minimum required books of account. As decided in Babu Reddy case (2010 (3) TMI 918 - KARNATAKA HIGH COURT) and Aggarwal Construction Co. (2007 (1) TMI 203 - ITAT CHANDIGARH-B ) found that although books of account had to be prescribed, such books had not been prescribed under the Income-tax Rules in respect of business of civil contract. Accordingly deleted the penalty levied u/s 271A for not maintaining the books of account. Therefore, once the penalty for not maintaining the books of account was deleted, it is not known how the very same CIT(A) confirmed the penalty levied u/s 271B of the Act for not getting the books of account audited - thus the penalty levied u/s 271B is deleted.

Summary

Issues:
Levy of penalty u/s 271B of the Act for not maintaining books of account and not getting them audited.

Analysis:
The taxpayer, a civil contractor, appealed against the penalty imposed under section 271B of the Act for the assessment year 2008-09. The taxpayer argued that since they were not maintaining any books of account, they should not be penalized for not auditing them. The taxpayer's representative cited judgments to support their case, emphasizing that penalty for not auditing books of account is unjustified when no books are maintained. The representative relied on decisions of the Karnataka High Court and various benches of the Tribunal to bolster their argument.

The Departmental Representative (DR) contended that as the taxpayer's receipts exceeded the prescribed limits under section 44AB of the Act, they were required to obtain an audit report. The DR disagreed with the taxpayer's argument that not maintaining books of account negated the need for an audit report, supporting the lower authorities' orders.

Upon reviewing the submissions and relevant provisions, the Tribunal noted that section 44AA mandates every person engaged in business to maintain books of account if certain income thresholds are met. Despite the executive authorities prescribing books of account for professionals, an oversight existed regarding civil contractors in the Income-tax Rules. The Tribunal opined that this omission was unintended, and the executive authorities should have specified the required books of account for civil contractors. Citing precedents, including decisions of the Karnataka High Court and the Tribunal, the Tribunal concluded that penalty for not maintaining books of account was unjustified.

The Tribunal highlighted that the same CIT(A) had previously deleted the penalty under section 271A for not maintaining books of account, raising doubts about the subsequent confirmation of the penalty under section 271B for not auditing the non-existent books. Referring to another Tribunal case, the Tribunal reiterated that when no books of account exist, there is no basis for imposing an audit-related penalty. Consequently, the Tribunal set aside the lower authorities' orders and deleted the penalty under section 271B.

In conclusion, the Tribunal found the omission of civil contractors in Rule 6F of the Income-tax Rules to be unintentional and suggested that the department could address this oversight with the executive authority. The Tribunal allowed the taxpayer's appeal, ultimately deleting the penalty imposed under section 271B of the Act.