2007 (5) TMI 181 - HC - Income Tax

If assessee has not maintained account books then question of audit does not arise section 271B is for imposing penalty when accounts are not audited section 271A is for imposing penalty when accounts are not maintained hence imposition of penalty u/s 271A may arise but imposition of penalty u/s 271B does not arise penalty provisions should be strictly construed Revenue s appeal allowed

Summary

Issues Involved:
1. Justification of the Income-tax Appellate Tribunal's decision regarding the non-requirement of auditing accounts under section 44AB when no books of account are maintained.
2. Applicability of penalties under sections 271A and 271B of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Justification of the Income-tax Appellate Tribunal's Decision:
The core issue was whether the Income-tax Appellate Tribunal was justified in holding that the question of getting the accounts audited does not arise if the assessee was not maintaining any books of account. The Tribunal concluded that since the assessee was not maintaining books of account, as verified with reference to sales tax records, the question of their audit did not arise. The Tribunal stated, "When there are no books of account, the question of their audit does not arise." The Tribunal affirmed the Commissioner of Income-tax (Appeals) decision, which canceled the penalties imposed by the Assessing Officer for failing to get the accounts audited, emphasizing that "the requirement of audit is in relation to the books maintained. When there are no books, there is nothing to audit."

2. Applicability of Penalties under Sections 271A and 271B:
The legal provisions under scrutiny were sections 44AB, 271A, and 271B of the Income-tax Act, 1961. Section 44AB mandates that every person carrying on business with a turnover exceeding forty lakh rupees must get their accounts audited. The penalties for non-compliance are detailed in sections 271A and 271B. Section 271A imposes a penalty for failing to keep and maintain books of account as required by section 44AA, while section 271B penalizes the failure to get accounts audited as required under section 44AB.

The court noted that the Assessing Officer imposed a penalty under section 271B, not section 271A. The court clarified that if no books of account are maintained, the question of auditing does not arise, and thus, "the provisions of section 44AB of the Act does not get violated in case where the accounts have not been maintained at all and, therefore, penal provisions of section 271B of the Act would not apply." The court emphasized that penalty provisions must be strictly construed and cited the apex court's decision in CIT v. Vegetable Products Ltd., which held that ambiguous language should be interpreted in favor of the assessee, especially in penalty provisions.

The court also referenced several precedents, including Narain Das Suraj Bhan v. Commissioner, Sales Tax, and Commissioner of Sales Tax v. Shahid Husain Rakesh Kumar, which supported the view that penalties for non-maintenance of accounts and non-audit of accounts are distinct and should be applied accordingly. The court concluded that section 271B is not applicable in cases where no accounts have been maintained, and instead, recourse under section 271A should be considered.

Conclusion:
The court answered the question in the affirmative, ruling in favor of the assessee and against the Revenue. The court upheld that section 271B is not attracted where no accounts have been maintained, and penalties under section 271A should be considered instead. The judgment emphasized the importance of strict interpretation of penalty provisions and the necessity of maintaining separate penalties for different defaults under the Income-tax Act, 1961.