2007 (8) TMI 399 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty u/s 271(1)(c) by CIT(A).
2. Applicability of sections 44AE and 44AF.
3. Obligation to declare higher income than presumptive profits.
4. Justification of penalty under section 271(1)(c).

Summary:

Issue 1: Confirmation of penalty u/s 271(1)(c) by CIT(A)

The learned CIT(A) erred in confirming penalty under section 271(1)(c) of Rs. 89,530 on the ground that the appellant had offered additional income in the return only after the survey operation wherein it was found that the appellant had maintained the books of account for its business and the profit as per the books was higher than the presumptive profits as per the provisions of sections 44AE and 44AF of the Act while the appellant had shown in the return the presumptive profit as per these provisions only.

Issue 2: Applicability of sections 44AE and 44AF

The appellant was under a bona fide impression that under the provisions of sections 44AE and 44AF, there was no obligation for the appellant to declare the profits as per the books in the return which were higher than the presumptive profits as per these sections.

It is an admitted fact that the assessee was dealing in building material on retail basis and that his total turnover did not exceed an amount of Rs. 40 lakhs in the relevant year. Therefore, the case was surely covered by the provisions of section 44AF of the Act.

Issue 3: Obligation to declare higher income than presumptive profits

During the survey conducted u/s 133A at its business premises it was noticed that the assessee was maintaining books of account and that the profits and gains from business was more than 5 per cent of the total turnover. The assessee, accordingly, filed a revised return and offered for tax a higher income.

However, if such an assessee claimed that the profits and gains from such business was less than 5 per cent of total turnover then, with effect from 1-4-1998, the provisions of section 44AA(2)(iii) and section 44AB(c) make it obligatory for him to maintain books of account and to get such accounts audited.

Issue 4: Justification of penalty under section 271(1)(c)

Therefore, it could not be said that there was any concealment or furnishing of inaccurate particulars of income on the part of the assessee within the meaning of section 271(1)(c) of the Act. In the circumstances, therefore, we are satisfied that this was not a fit case for levy of penalty under section 271(1)(c). The penalty is accordingly cancelled.

Conclusion:

In the result, the appeal filed by the assessee is allowed.