2003 (10) TMI 274 - AT - Income Tax

Imposition of penalty u/s 271B - Compulsory Tax Audit - failure of the assessee to get its accounts audited as required u/s 44AB - HELD THAT - The legislative intent is to admit only those books of account maintained by the assessee on his own behalf, which by their very nature and circumstances are maintained for the purpose of drawing the source of income. Therefore, when books of account are tendered for claiming the benefit of Explanation 5 to section 271(1)(c) of the Act, they must be shown to be books, those books must be books of account, and they must be maintained for the purpose of drawing the source of income under the Income-tax Act. Admittedly, the additional sales found as a result of search, was not recorded in the books of account regularly kept in the course of business by the appellant. Merely because the appellant accepted the additional sales for the purpose of assessment of the relevant year on the basis of entries in the seized documents, the same would not constitute accounts of the appellant maintained in the regular course of business and on that basis alone liability cannot be fastened on the assessee by holding him to have committed the default. Accordingly we are satisfied that the record carrying entries from which the appellant admits of additional sales are not the accounts as referred to u/s 44AB of the Act. On that basis, it was not open to the Assessing Officer to hold that the sales of the assessee as referred in section 44AB of the Act have exceeded to Rs. 40 lakhs and by not getting such accounts audited from an accountant, the appellant has committed a default. Such a finding arrived at by the Assessing Officer is reversed. From perusal of assessment order for the assessment year 1995-96, we also find a mention made by the Assessing Officer that the appellant did not include income on the basis of seized Annexure A-8 in the income returned by him on16-9-1996. This goes to prove the bona fides of the appellant for explaining reasonable cause on the alternate plea raised before the Assessing Officer and contended before us by relying on the judgment of Hon'ble Punjab Haryana High Court in the case of ITO v. Babu Lal Jain 2001 (7) TMI 107 - PUNJAB AND HARYANA HIGH COURT as a good reason for his failure to get his accounts audited when the documents were still lying with the department and with which we also agree. Accordingly, no penalty was exigible in all these years on both the appellants before us. As a result, all the three appeals stand allowed.

Summary

Issues Involved: Imposition of penalty u/s 271B for failure to audit accounts as required u/s 44AB of the Income Tax Act.

Summary:
In the case before the Appellate Tribunal ITAT DELHI-D, the common issue revolved around the imposition of penalties under section 271B for the failure of the assessee to have their accounts audited as mandated by section 44AB of the Income Tax Act. The Tribunal consolidated three appeals for convenience, all related to penalties confirmed by the ld. CIT(A).

For the assessment year 1995-96, penalties were confirmed for two assessees, Shri Brij Lal Goyal and Shri I.S. Goyal, based on additional sales not reflected in their regular books of account. The Assessing Officer found that the turnover exceeded the threshold requiring audit under section 44AB, leading to the imposition of penalties.

The ld. CIT(A) upheld the penalties, emphasizing that the law does not permit keeping duplicate or non-regular accounts, and all records related to business transactions must be included in the audit. The failure to disclose additional sales did not absolve the assessees from the audit requirement under section 44AB.

Regarding the question of reasonable cause, the ld. CIT(A) rejected the argument that the voluntary disclosure of sales constituted a valid reason for non-compliance. Illegal intentions could not justify non-compliance with legal provisions, leading to the affirmation of the penalties.

In analyzing the legislative intent behind Explanation 5 to section 271(1)(c) of the Act, the Tribunal considered the definition of "books of account" crucial for granting immunity from penalties. Only credible accounting records maintained for income sources qualify for immunity, emphasizing the importance of regular and authentic bookkeeping practices.

The Tribunal concluded that the additional sales not recorded in the regular books of account did not constitute grounds for penalty imposition, especially when the seized documents were not provided to the assessee promptly. Citing relevant case law, the Tribunal found no basis for penalties in the assessed years, leading to the allowance of all three appeals.

In summary, the Tribunal ruled in favor of the assessees, highlighting the importance of maintaining regular and credible books of account for tax compliance and penalty immunity under the Income Tax Act.