2019 (4) TMI 610 - AT - Income Tax

Levy of penalty u/s. 271A - non-maintenance of accounts - GP estimation @ 16%, i.e., as against the disclosed rate of 12.78% - HELD THAT - Section 271A prescribes a penalty for a failure to keep and maintain such books of accounts and documents as required u/s. 44AA, or rules made thereunder for any previous year. In the present case there is no finding either by the AO or even by the 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 . 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 (1) TMI 203 - ITAT CHANDIGARH-B attract section 271A - Decided in favour of assessee.

Summary

Issues:
- Appeal against levy of penalty u/s. 271A of the Income Tax Act, 1961 for Assessment Year 2001-02.
- Interpretation of provisions related to maintenance of accounts under sections 44AA, 145(3), and penalty under section 271A.

Analysis:
The judgment pertains to an appeal against the levy of a penalty under section 271A of the Income Tax Act, 1961 for the Assessment Year 2001-02. The assessee's accounts were rejected during assessment, and income was estimated at a higher rate than disclosed. The Commissioner of Income Tax (Appeals) confirmed the penalty imposed by the Assessing Officer for non-maintenance of proper accounts. However, the Appellate Tribunal noted that the penalty under section 271A is applicable for a failure to maintain books of accounts as required under section 44AA. The relevant rule, Rule 6F, specifies the necessary documents to be maintained. Despite the authorities' claim of improper maintenance of accounts, there was no specific finding that the required books or documents were not maintained by the assessee.

The Tribunal highlighted a distinction between "books of account" under section 44AA and section 271A, and "accounts" under section 145(3). It emphasized that the rejection of accounts would trigger section 145(3) for income estimation, not section 271A for penalty. Citing a precedent, it clarified that the mere rejection of accounts does not warrant a penalty under section 271A. Consequently, the Tribunal concluded that there was no basis for imposing the penalty under section 271A in the present case and directed the deletion of the penalty.

In conclusion, the Appellate Tribunal allowed the assessee's appeal, ruling in favor of the assessee by ordering the deletion of the penalty imposed under section 271A. The judgment clarifies the distinct provisions related to the maintenance of accounts and the imposition of penalties under different sections of the Income Tax Act, ensuring a precise application of the law in such matters.