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2007 (1) TMI 203 - AT - Income TaxDeletion Of Penalty levied u/s 271A - Maintenance Of Accounts as per provisions of section44A - Difference of opinion between the Members of the Bench - Third Member Order - HELD THAT - The learned Judicial Member was of the view that levy of penalty imposed u/s 271A should be upheld by allowing the appeal of the Revenue. He considered provisions of section 44AA of the Income-tax Act and reached the conclusion that the assessee deliberately and consciously did not maintain books of account and avoided attendance of assessment/penalty proceedings. The assessee also did not furnish any reasonable cause for not furnishing required books. He was further of the view that in the absence of books, the Assessing Officer was not able to see whether there was contravention of provisions of sections 269SS, 269T and 40A(3) of the Income-tax Act etc. In upholding the levy of penalty, the ld Judicial Member strongly relied upon the decision of the Tribunal ('SMC' Bench) in the case of Amarjit Singla. The ld Judicial Member in the proposed order accordingly set aside the impugned order of CIT(A) and restored order of the Assessing Officer. The learned Accountant Member did not agree with this view of the ld Judicial Member. He considered the decisions of the Tribunal followed by the ld CIT(A) in the impugned order cancelling the penalty. He noted that the assessee was not required to maintain any specified books. Rule 6F of Income-tax Rules was not applicable in this case. After considering decisions of the Tribunal in the case of Unicon Builders Contractors, as also of Vinod Kumar Bhim Sain's case and several other decisions of Division Bench noted in his proposed order, he held that there were no good reasons for making a departure and upholding the penalty. In fact, it is noted that he and his brother, the ld Judicial Member here were party to a decision where on similar facts in the case of a contractor, penalty levied u/s 271A, was cancelled. Third Member Order - Expenses are found to be unvouched and claim inadmissible. Entries made are also rejected. But from the order of AO, it cannot follow that no books are maintained and in such cases, Assessing Officer is 'unable' to compute, the total income. It is not possible to argue that in all such cases, provisions of section 44AA are violated. There are separate provisions in section 271 to deal with the above wrong and false accounts. Therefore, failures which are dealt in other provisions cannot be read in section 271A of the Income- tax Act. There is ample power u/s 144/145 to deal with reliable accounts. Assessing Officer can disallow and add back unvouched and inadmissible expenses. The assessee has to suffer. Assessing Officer faces no inability such a situation. Therefore, no penalty, in my humble opinion, can be levied u/s 271A if the books of account are found to be un-reliable by revenue authorities and are rejected. In the case in hand, the Assessing Officer had applied flat rate of 12 per cent as 'reasonable' rate against 8 per cent statutorily provided in cases of civil contractors. It cannot be argued that statute has provided a rate which is not reasonable. Further, having regard to provisions of section 44AD, which is overriding, it is not possible for the revenue to argue that profit computed as per the section is not profit computed 'in accordance with provisions of this Act' or that the Legislature was unaware of provisions of sections 68, 69, 269SS, 269T, 140(3) etc. in the enactment of section 44AD. Thus reading entire scheme of the Act one has to hold that profit computed as per section 44AD of the Act by application of flat rate is one recognized method of computation of total income, or part of total income. The fact that the above provisions is applicable only to cases where gross contract receipts are below Rs. 40 lakhs, does not make any difference to the nature of business carried by the assessee or method of computation. Having applied such high rate of 12 per cent Assessing Officer cannot contend that he was unable to make assessment. Therefore, in the above peculiar circumstances of the case, the Commissioner of Income- tax (Appeals) was right in holding that there was no failure on the part of the assessee under section 44AA of the Income-tax Act and penalty imposed u/s 271A was not justified. There is another good but independent reason for not upholding levy of penalty in this case. It has been observed by the ld CIT(A) that similar penalties imposed on the assessee for assessment years 1996-97, 1997-98 and 1998-99 were cancelled on appeal by the Commissioner of Income- tax (Appeals). This fact is also noted by both the ld Members in their proposed orders. The learned counsel for the assessee informed me that the revenue did not challenge the above orders of CIT(A) in further appeal before the Appellate Tribunal and these orders have attained finality. There is nothing on record to contradict the assessee. If on identical facts, penalty levied on the assessee was cancelled u/s 271A, there is no justification to levy penalty this year under consideration. No distinguishing features have been brought on record. The state of statutory provision as discussed is far from clear and, therefore, even if it is assumed that the assessee had an obligation to maintain regular books of account, which he failed to do, the failure is definitely due to a reasonable cause and the case is covered under provisions of section 273B of the Income-tax Act. Having regard to the treatment meted out in earlier years, the assessee could reasonably believe that he is fully complying with the provisions of section 44AA of the Income-tax Act and his belief under the circumstances cannot be said to be otherwise than a bona fide belief. The cancellation of penalty is required to be upheld. Thus, I agree with the order proposed by the ld Accountant Member. The matter may now be placed before the regular Bench for disposal in accordance with law.
Issues Involved:
1. Deletion of penalty of Rs. 1 lakh levied under section 271A for not maintaining books of account as per section 44AA. 2. Whether the Assessing Officer had sufficient information to compute the income of the assessee. 3. Application of judicial consistency and precedent in similar cases. Analysis: 1. Deletion of Penalty under Section 271A: The Revenue challenged the order of the CIT(A) which deleted the penalty of Rs. 1 lakh levied under section 271A for the assessee's failure to maintain books of account as per section 44AA. The Assessing Officer (AO) had initiated penalty proceedings on the basis that the assessee, a civil contractor, did not furnish the audit report and other relevant records to enable the AO to complete the assessment. The AO relied on the Supreme Court decision in CIT v. Bhan Singh Buta Singh and levied the penalty. However, the CIT(A) concluded that the AO had sufficient information to make the assessment and deleted the penalty, relying on the Tribunal's decision in Vinod Kumar Bhim Sain v. Asstt. CIT. 2. Sufficiency of Information for Assessment: The CIT(A) observed that the AO had sufficient information for making the assessment as the receipts against work done were entered in the bank account. The CIT(A) also noted that the AO applied a flat rate of profit on total receipts, indicating that the AO could compute the income despite the absence of detailed books of account. The Tribunal's earlier decisions in similar cases supported this view, emphasizing that the maintenance of some form of records that enabled the AO to compute the income was sufficient. 3. Judicial Consistency and Precedent: The Accountant Member highlighted the importance of judicial consistency, citing the Supreme Court decisions in Sundarjas Kanyalal Bhatija v. Collector and Union of India v. Paras Laminates (P.) Ltd. The Accountant Member noted that in similar circumstances, the Tribunal had consistently deleted penalties under section 271A in cases involving civil contractors. The Accountant Member disagreed with the Judicial Member's reliance on the SMC Bench decision in Amarjit Singla, which upheld the penalty, stating that the majority of Tribunal decisions favored the assessee. Separate Judgments: The Judicial Member upheld the penalty, emphasizing that the assessee deliberately avoided maintaining books of account and failed to provide reasonable cause for non-compliance. The Judicial Member argued that the AO could not verify the genuineness of expenses or compliance with sections 269SS, 269T, and 40A(3) without proper books of account. The Accountant Member, however, disagreed, citing the Tribunal's consistent approach in similar cases and the lack of prescribed books for civil contractors under section 44AA. The Accountant Member argued that the ledger-type records maintained by the assessee enabled the AO to compute the income, fulfilling the requirement of section 44AA. The Accountant Member also emphasized the principle of judicial consistency and the need to follow established precedents. Third Member Decision: The President of the Tribunal, acting as the Third Member, agreed with the Accountant Member. The President noted that the consistent view of the Tribunal in similar cases was to delete penalties under section 271A for civil contractors. The President also highlighted that the AO had sufficient information to compute the income and that the assessee's belief in complying with section 44AA was bona fide, given the treatment in earlier years. The President concluded that the penalty was not justified and upheld the CIT(A)'s order deleting the penalty. Conclusion: The appeal of the Revenue was dismissed, and the deletion of the penalty under section 271A was upheld, emphasizing the importance of judicial consistency and the sufficiency of the records maintained by the assessee for computing income.
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