2009 (11) TMI 667 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under section 271A of the Income-tax Act, 1961.
2. Compliance with the statutory requirements of section 44AA of the Income-tax Act, 1961.
3. Applicability of "Accounting Standard-7" for maintaining books of account.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271A of the Income-tax Act, 1961:
The core issue is whether the penalty of Rs. 25,000 imposed under section 271A for failure to maintain proper books of account as required under section 44AA is justified. The Assessing Officer (AO) imposed the penalty on the grounds that the assessee did not comply with the requisition to apply "Accounting Standard-7" and presumed non-maintenance of proper books. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld this penalty relying on the ITAT Pune Bench decision in ITO v. Mahesh M. Chandan.

The assessee argued that it maintained books of account such as cash book, bank book, general ledger, purchase and sale registers, which were audited under section 44AB. The assessee contended that "Accounting Standard-7" is not mandated by statute for civil construction businesses, and non-compliance with this standard does not constitute a violation of section 44AA. The books maintained were sufficient for the AO to compute the total income, and there was no adverse finding regarding the method of accounting.

2. Compliance with the Statutory Requirements of Section 44AA of the Income-tax Act, 1961:
Section 44AA mandates that every person carrying on specified professions or businesses must maintain books of account that enable the AO to compute total income. The assessee maintained books accepted in commercial parlance, which were produced and verified by the AO. The AO did not record any adverse findings or difficulties in computing the income from these books. The ITAT Delhi Bench decisions in Mehta Parvesh v. ITO and Sant Construction Co. v. ITO support the view that maintaining such books is sufficient compliance with section 44AA, and non-prescription of specific books by the Board for businesses further supports the assessee's position.

3. Applicability of "Accounting Standard-7" for Maintaining Books of Account:
The AO's requirement for the assessee to follow "Accounting Standard-7" was disputed by the assessee, arguing that there is no statutory requirement for civil construction businesses to adopt this standard. The AO's presumption of non-maintenance of proper books based on non-compliance with "Accounting Standard-7" was found to be unjustified. The ITAT held that the statutory requirement is to maintain books that enable the AO to compute total income, and the books maintained by the assessee met this requirement.

Conclusion:
The ITAT concluded that the penalty under section 271A was not justified as the assessee maintained proper books of account in compliance with section 44AA. The AO's presumption and requirement to follow "Accounting Standard-7" were not supported by statutory provisions. The penalty of Rs. 25,000 was thus quashed, and the appeal of the assessee was allowed.