1993 (5) TMI 76 - AT - Income Tax

Summary

Issues Involved:
1. Failure to maintain books of accounts as required under Section 44AA of the Income-tax Act, 1961.
2. Imposition of penalties under Section 271A of the Income-tax Act, 1961 for the assessment years 1988-89 and 1989-90.
3. Applicability of penalties based on the acceptance of income returned under Section 143(1)(a).

Detailed Analysis:

1. Failure to maintain books of accounts as required under Section 44AA of the Income-tax Act, 1961:
The assessee, dealing in umbrella cloth, admitted to not maintaining "regular books of accounts" for the assessment years 1988-89 and 1989-90. The business income was estimated at Rs. 47,000 and Rs. 39,000 respectively. The assessee's explanation included maintaining purchase bills and a register for purchases and payments. However, the Assessing Officer found this insufficient to meet the requirements of Section 44AA, which mandates maintaining books that enable the computation of total income in accordance with the Act.

2. Imposition of penalties under Section 271A of the Income-tax Act, 1961 for the assessment years 1988-89 and 1989-90:
Penalties of Rs. 10,000 and Rs. 5,000 were imposed for the years 1988-89 and 1989-90, respectively, due to the failure to maintain the required books of accounts. The assessee's response to the penalty notice was deemed unsatisfactory for 1988-89, and no response was provided for 1989-90. The Assessing Officer concluded that there was no reasonable cause for the failure to maintain books of accounts.

3. Applicability of penalties based on the acceptance of income returned under Section 143(1)(a):
The Dy. CIT(A) canceled the penalties, reasoning that the acceptance of income under Section 143(1)(a) indicated that the income returned was correct. For 1988-89, it was held that penalty under Section 271A was not leviable because the quantification of penalty had to be based on the tax avoided, which was zero since the income returned was accepted. For 1989-90, the Dy. CIT(A) found that the acceptance of returned income and the levy of penalty were contradictory, thus canceling the penalty.

Tribunal's Findings:
- The Tribunal noted that neither the Income-tax Act nor the rules prescribed specific books of accounts for businesses, only that such books should enable the computation of total income.
- The assessee's method of maintaining only purchase bills and payment details was insufficient. The absence of sales records and the estimation of income without proper documentation did not meet the statutory requirements.
- The Tribunal agreed with the Dy. CIT(A) that for 1988-89, no penalty could be levied due to the absence of tax sought to be avoided.
- For 1989-90, the Tribunal found that the assessee failed to maintain the required books without reasonable cause, making them liable for penalty under Section 271A. However, considering the circumstances, the Tribunal directed the levy of minimum penalty.

Conclusion:
The appeal for the assessment year 1988-89 was dismissed, confirming no penalty due to the acceptance of returned income. For the assessment year 1989-90, the appeal was allowed, but the penalty was reduced to the minimum amount permissible under the amended law.