2020 (2) TMI 982 - AT - Income Tax

Penalty u/s.271A - non-maintenance of books of account u/s. 44AA - assessee could not file any reasonable cause for non-maintenance of books of accounts - HELD THAT - Assessee has maintained various registers and money receipt books containing details of fee received from patients against the medical services obtained by the patients. Therefore, it cannot be said that the assessee is not engaged in the medical profession. It is not necessary that the proprietor of the institution must have qualified degree. The predominant purpose of service needs to be tested for falling u/s.44AA which is existing in the present case. The AO has calculated the income of the assessee in detailed manner after verifying from the seized record. Assessee as taken in ground No.1 is not acceptable because the AO has not accepted the returned income of the assessee while calculating taxable income of the assessee. Therefore, no need to issue defect notice by the AO u/s.139(9)(f) before initiating penalty u/s.271A. With regard to ground No.2 the contention of the assessee is that as the turnover of the assessee during the year did not exceed the threshold limit, therefore, Section 44AD of the Act cannot be invoked. This contention of the assessee is also not acceptable because the assessee has different type of registers which were discovered during the course of search and seizure proceedings. According to the registers the assessee is giving services of medical treatment and charging fee for the services/treatment given to the patients. Therefore, it cannot be denied that the assessee was not engaged in the medical profession which covers u/s.44AA. During the course of assessment proceedings, the assessee could not produce any accounts which were required to be maintained by the assessee for earning the impugned income from the operation of nursing home. AO was justified in imposing the penalty u/s.271A for non-maintenance of the books of accounts. No reason to interfere in the order of the CIT(A) in upholding the penalty levied by the AO u/s.271A - Decided against assessee.

Summary

Issues Involved:
1. Legality of penalty imposed under Section 271(A) of the I.T. Act without issuing notice under Section 139(9)/139(9)(f).
2. Applicability of Section 44AD of the I.T. Act concerning the turnover threshold.

Detailed Analysis:

1. Legality of Penalty Imposed Under Section 271(A) Without Issuing Notice Under Section 139(9)/139(9)(f):
The assessee argued that the penalty imposed under Section 271(A) was invalid as no notice under Section 139(9)/139(9)(f) was issued before the imposition of the penalty. The assessee maintained that the absence of such notice rendered the penalty order void. The assessee cited precedents, including the case of Pyaralal Gaur and Babu Reddy, to support the argument that procedural lapses, such as failing to issue a defect notice, invalidate the penalty.

The Tribunal, however, found that the Assessing Officer (AO) was justified in imposing the penalty for non-maintenance of books of accounts as required under Section 44AA. The Tribunal noted that the AO had calculated the income from business and profession based on the documents found during the search and seizure, which indicated that the assessee was engaged in the medical profession. The Tribunal concluded that issuing a defect notice under Section 139(9) was unnecessary because the AO had not accepted the returned income of the assessee while calculating the taxable income.

2. Applicability of Section 44AD Concerning the Turnover Threshold:
The assessee contended that the AO erred in invoking Section 44AD since the turnover did not exceed the threshold limit. The assessee argued that the business activities fell under the head of "business income," and as the profit rate disclosed was more than the prescribed limit, no audit was required under Section 44AD.

The Tribunal rejected this contention, noting that the assessee was engaged in the medical profession, which requires maintaining books of accounts under Section 44AA. The Tribunal observed that various registers and money receipt books were found during the search, indicating the assessee's income from medical services. The Tribunal emphasized that the predominant purpose of the services rendered by the assessee was medical treatment, which falls under the medical profession as per Section 44AA.

The Tribunal concluded that the AO was justified in imposing the penalty under Section 271A for non-maintenance of books of accounts, as the assessee failed to produce any accounts required under Section 44AA. The Tribunal upheld the CIT(A)'s decision to confirm the penalty and dismissed the appeals.

Conclusion:
The Tribunal dismissed the appeals, confirming the penalty imposed under Section 271A for non-maintenance of books of accounts. The Tribunal found that the AO was justified in imposing the penalty without issuing a defect notice under Section 139(9) and that the assessee's activities fell under the medical profession, requiring maintenance of books of accounts under Section 44AA.