2019 (10) TMI 625 - AT - Income Tax

Penalty levied u/s 271A - applicability of section 44AD - HELD THAT - Incriminating materials have been used for the purpose of determining the income of assessee, is not coming out. When the turnover of assessee exceeds the limit prescribed for the applicability of provisions of section 44AD then obviously provisions of section 44AD cannot be applied. In fact, a perusal of the provisions of section 44AD also clearly shows that the assessee could disclose a lower income, if he maintains books of accounts and is able to substantiate the claim of lower income. In the present case, there are records available from which the income of assessee could be reasonably determined. In any case even the audit of account u/s.44AB of the Act being the Audit report submitted by the Auditor are on the basis of the tally accounts maintained, and cash vouchers have been found in the course of search. True, the substantial effort would be required for determining the correct income, but that would not be ground enough for rejecting the books of accounts of the assessee and estimating the income directly. Even if estimation was to be adopted, then comparative study would have to have been done. Obviously, the assessee s accounts for the earlier and subsequent years could be based as comparative study. This being so, as the assessment has been done for estimating the income and CIT(A) has reduced the said estimate. The estimation itself is impermissible under law, especially in view of the fact that incriminating materials have been found in the course of search. Consequently, the assessment order and the impugned order of CIT(A) in respect of present appeals are set- aside and the issues in the appeals are restored to the file of AO for re-adjudication and for determination of the correct income of assessee on the basis of the materials available and found the course of search. The Assessing Officer shall not resort to short cut method of applying provisions of section 44AD of the Act, when the turnover of assessee exceeds the prescribed limit u/s.44AD - All the appeals of assessee are partly allowed for statistical purposes.

Summary

Issues:
Appeal against common Order of the Commissioner of Income Tax (Appeals)-18, Chennai for assessment years 2009-10 to 2015-16; Penalty levied u/s.271A r.w.s 274 of the Act; Validity of assessment order; Infirmities in the order of CIT(A); Revised demand of the AO; Penalty proceedings imposed by AO; Maintaining books of accounts by the Assessee; Estimation of income; Search conducted on the premises; Non-maintenance of books of accounts; Penalty proceedings u/s.271A; Appeal before the ld.CIT(A); Reduction of income estimation by ld.CIT(A); Applicability of penalty u/s.271A; Turnover of the Assessee; Rejection of books of accounts; Determination of correct income; Comparative study for estimation; Restoration of issues to the file of Assessing Officer.

Analysis:

The appeals were filed against the common Order of the Commissioner of Income Tax (Appeals)-18, Chennai, for the assessment years 2009-10 to 2015-16. The issue primarily revolved around the penalty levied u/s.271A r.w.s 274 of the Act, which was common in all appeals. The Appellate Tribunal heard the appeals together and disposed of them by a common order.

The Assessee raised several grounds challenging the jurisdiction of the Assessment Orders, infirmities in the CIT(A) order, revised demand of the AO, and penalty proceedings imposed by the AO. The Assessee argued that the assessment under Sec. 144 was not correct, and the entire assessment was void-ab-initio. The CIT(A) was criticized for inconsistencies in the order, and the revised demand of the AO was deemed incorrect and inconsistent.

Regarding penalty proceedings under Section 271A rws 274 of the Act, the CIT(A) observed that the Assessee, a civil contractor, maintained books of accounts and vouchers for expenditures. The CIT(A) concluded that the penalty was not applicable as no specific books of accounts were prescribed for the business of a civil contractor. The Revenue Department was aware of the Assessee's declared income, and there was no undisclosed income or ulterior motive on the Assessee's part.

During the proceedings, it was revealed that the Assessee's turnover exceeded the limit for applying the provisions of section 44AD of the Act. The Assessee and the Auditor admitted that books were prepared on tally software based on vouchers submitted by the Assessee. The Revenue did not appeal the deletion of penalty levied u/s.271A. The Tribunal found that the estimation of income by the AO and CIT(A) was impermissible, especially in the presence of incriminating materials.

Consequently, the Tribunal set aside the assessment order and the order of the CIT(A), restoring the issues to the file of the Assessing Officer for re-adjudication based on the materials found during the search. The Assessing Officer was instructed not to use the shortcut method of applying provisions of section 44AD when the Assessee's turnover exceeded the prescribed limit.

In conclusion, the appeals of the Assessee were partly allowed for statistical purposes, and the decision was pronounced in an open court in Chennai after the hearing on September 24, 2019.