2012 (11) TMI 137 - AT - Income Tax

Retail trade u/s 44AF - Income below the rate of 5% as prescribed u/s 44AF - Penalty u/s 271(1)(b) for non-compliance and u/s.271(1)(c) holding a view the addition was the result of submission of inaccurate particulars of income in violation to the provisions of Section 44AF - Held that - CIT(A) can do what the ITO can do and also direct him to do what he has failed to do, as held in Jute Corpn. of India Ltd. v. CIT 1990 (9) TMI 6 - SUPREME COURT Since the assessee maintained books of account duly audited u/s.44AB, there is no scope for application of the provisions of Section 44AF, as rightly contended by the learned Counsel for the assessee. The benchmark of 5% therefore was not the basis for the assessee who filed returns according to the audit report u/s.44AB. Therefore, the initiation of proceedings u/s.147 having been initiated by the Assessing Officer for the reason the assessee having violated the provisions of Section 44AF was not at all correct in view of the audit report furnished by the assessee, in our considered view the assessment orders and also the consequential penalty orders for both the AYs under consideration cannot be sustained.

Summary

Issues:
Assessments made under Section 144/147, Penalty under Section 271(1)(b), Penalty under Section 271(1)(c) for Assessment Years 2005-06 and 2006-07.

Analysis:
The six appeals by the assessee were against the orders of the CIT(A) confirming the assessments made under Section 144/147, penalty levied under Section 271(1)(b), and penalty under Section 271(1)(c) for the Assessment Years 2005-06 and 2006-07. The Assessing Officer estimated net profit at 5% of gross sales under Section 44AF due to the assessee's failure to maintain books of account, resulting in additional tax amounts. The penalties under Section 271(1)(b) and Section 271(1)(c) were imposed for non-compliance and inaccurate particulars of income. The CIT(A) upheld the assessments and penalties, leading to the appeals before the Tribunal.

The assessee argued that they maintained books of accounts audited under Section 44AB, with the balance sheet and P & L account certified to be in agreement. The audit reports were not produced before the Assessing Officer due to the counsel's indisposition, but were submitted before the CIT(A). The assessee contended that as they maintained books of account, Section 44AF did not apply. The initiation of proceedings under Section 147 was based on the turnover indicating profit below 5%, but the audit reports supported the assessee's compliance with Section 44AB. The assessee requested to set aside the assessments and penalties.

The Departmental Representative supported the lower authorities' orders, stating the assessee failed to produce books of accounts to establish compliance with Section 44AB. The CIT(A) considered the audit report submitted before him, justifying the Assessing Officer's actions. The DR urged the dismissal of the assessee's appeals.

The Tribunal found that the initiation of proceedings under Section 147 was based on the assessee's income being below 5% without maintaining books of account, contrary to Section 44AF. However, the audit reports showed compliance with Section 44AB, rendering Section 44AF inapplicable. The CIT(A) failed to consider the audit reports, leading to incorrect confirmation of assessments and penalties. Citing judicial precedents, the Tribunal held that the CIT(A) should have considered the audit report, and as the assessee maintained books of account audited under Section 44AB, the assessments and penalties were not justified. Consequently, the Tribunal allowed all the assessee's appeals, quashing the assessment and penalty orders for the relevant years.