Income Tax Appellate Tribunal - Pune
Dr. Vinay T. Karnawat vs Income Tax Officer [Alongwith Ita Nos. ... on 31 May, 2005
Equivalent citations: [2007]104ITD108(PUNE), (2007)106TTJ(PUNE)169
ORDER
1. These twelve appeals pertain to two different assessees stated to be husband and wife, both aggrieved by levy, of penalty Under Section 271A which was partially confirmed by the learned CIT(A) -I, Aurangabad vide orders dt. 23 & 24/12/2004 pertaining to the years referred in the above nomenclature.
2. The AO has levied penalty Under Section 271A of Rs. 1.00 lakh in respect of both the assessees for A.Ys. 1997-98 to 2001-02 and Rs. 25,000/- for the AY 2002-03. Levy of penalty was challenged before the CIT(A) who has reduced to Rs, 45,000/- for the assessment years 1997-98 to 2001-02 and Rs. 11,250/- for AY 2002-03 identically in both the cases. Being aggrieved of the part relief, now the appellants are before us challenging levy of penalty imposed Under Section 271A of IT Act.
3. The facts of the case leading to these appeals briefly were that survey was conducted Under Section 133A on 20.03.2003. During the course of survey, the appellants were asked to produce the books of account. As per the AO, it was admitted by the appellant at the time of survey that no books of account had been kept or maintained. An apprehension has been expressed by the AO that in the absence of books of account, how they have computed the correct income in the past. Though there was mention of investment in the construction of a hospital building in the impugned penalty order but the same is not relevant to mention in the present context of levy of penalty. The AO has elaborately discussed the provisions of Section 44AA and also discussed Rule 6F(3) of IT Rules. The AO has also reproduced Form-C prescribed in the Rules to be provided by practioners of any systems of medicine etc. It is pertinent to mention that both the husband and wife are doctors engaged in the medical profession. During the course of survey action, certain books as available at that time and other documents were impounded by the AO vide an order dt. 20thMarch, 2003 Under Section 131(3) of IT Act. Though on the date of survey, the assessee has accepted non-maintenance of accounts, however, later on retracted the said statement recorded on 25.03.03 Under Section 131 as stated in the penalty order. In the later statement, the assessee has responded to a question that all the vouchers of the hospital and clinic were lying with Mr. Ramesh Mohul, a resident of Deolgaon Raja. There is a reference in the penalty order of another statement recorded on 04.04.03 and response of the assessee in that statement was that the books could not be produced, as the appellant was unable to contact his Accountant. In the impugned penalty order, the AO has simultaneously discussed and narrated some of the portion of the statement of Mrs. Madhubala Vinay Karnawat, the other appellant. For the sake of brevity, the statement of Dr. Mrs. Kamawat are not reproduced being almost replica of the statement of her husband, namely Dr. Vinay T. Kamawat. It was deposed before the revenue authorities on 20thMarch, 2003, as reproduced in the penalty order, that the appellants were engaged in the medical profession and also have taken a hospital premises on rent since 1997. It was stated that for profession no regular books of account have been kept but OPD Register, operation files, etc. have been kept. It was also stated that the daily gross receipts from medical profession were about Rs. 2,000/-per day. Subsequently on 25.03.2003, in a statement recorded by the revenue authorities, a portion reproduced in the penalty order, it was stated that the vouchers for expenses of hospital and clinic of himself and his wife were duly kept and the books of account have also been maintained by one Mr. Ramesh Mohul. Due to the changing stand of the appellant, the AO has observed that there was contradiction in the statements and the explanation was evasive in nature. The AO has also mentioned that the appellant has adopted delay tactics for killing the time. He has mentioned that in between those two recording of statements atleast five days time had passed but the assessee has actually failed to produce the books as alleged to have been maintained. One more statement was recorded on 04.04.03, wherein it was stated by the appellant that the books and vouchers could not be produced as he was unable to contact his Accountant. Finally, the AO has mentioned that till 08.04.2004, the assessee was not able to produce the books and other documents. According to the AO, several statements made by the assessee were simply misleading and false. The AO has also reproduced the list and description of books which were prepared and impounded by the revenue authorities. Rest of the order of the AO, speaks about several provisions of IT Act and the terminology used such as "Accounts", dictionary meaning and the power given to revenue authorities Under Section 133A for the purpose of survey. Few more facts have also been referred to by the AO such as that the books of account Vzi., cash book and ledgers have been later on produced and according to the AO the preparation of such books was an after thought which according to him were freshly prepared on computer. The AO also mentioned that those books of account have been prepared after the survey action. In this regard, the AO has specifically mentioned that a logical conclusion can be drawn that the assessee had failed to produce the books of account kept and maintained by him at the time of survey and it was an obligatory duty to provide the books of account to the surveying income tax authority. The AO was of the view that the assessee had never maintained or kept books of account. One more fact has also mentioned on page 16 para (k) by the AO that it was seen from the cash memo book(found during the course of survey action) that it was maintained for himself as well as for his wife the name of both the Doctors were stated to be printed on those cash memo book, however, nowhere differentiated the recipients name separately. The AO has mentioned that consulting charges have been recorded from the patients amounting to Rs. 50/- per patient as consultation charges. So, the AO was of the view that there was no regular "patient register" as prescribed. Vide para (m) the AO has made the following observations:
The survey conducted on 20.03.2003 whereas the socalled prepared and computerized books of accounts produced on 08.04.2004. He produced the alleged books of accounts almost after lapse of 386 days. During these 386 days, why the assessee had kept books of accounts with him. Why he did not produce before the IT authority during the 386 days ? It proves that he took almost 386 days to prepare the computerized books of accounts which had not been with the assessee on or before 20.03.2003.
The conclusion of the AO reads as follows:
This proves and makes crystal clear that the assessee have had not maintained any type of books of accounts and other documents etc. and simply misleading the department and the law of the land.
The above version manifest and it is conclusively beyond doubt that the both the assessees had not maintained the books of accounts and other documents and patient register in Form 2C and as per Rule 6F of the Income Tax Rules, 1962. At the time of survey action Under Section 133A of the IT Act, 1961 the assessee confessed and admitted in clear terms and words that he had not maintained the aforecited books of accounts and other documents.
So, the AO has arrived at the conclusion that since the Income Tax rules makes it mandatory to maintain and keep the books of account as prescribed Under Section 44AA, which the assessee has failed to produce, hence, liable for penalty Under Section 271A of the IT Act. With the result, penalties were imposed in respect of the years now in question of the amounts already described in the beginning of this order. Penalties were challenged before the learned CIT(A).
4. The first appellate authority has provided an opportunity of hearing to both the sides. He has also called for a remand report. Before the learned CIT(A), printouts of the computerized books of account have been produced. It was stated before the learned CIT(A) that the printouts have been taken out at the relevant period of the assessment years and the accounts were prepared at that time. It was also stated that at that time Accountant had given the floppy and printouts on the basis of which the copies were obtained and produced. The appellant has also vehemently objected certain observations of the AO and stated that it could be proved with Hard Disk of the Computer that the books were written at the relevant time. Since there were contradicting statements one by the revenue and the other by the appellant, the learned CIT(A) thought has thought it proper to get a report of the AO as well as directed both the sides to affix the signatures on the printouts produced. He has also directed the AO to take possession of those printouts produced before him. There was some mention in the impugned appellate order about the dates of hearing before the AO on which the assessee wanted to produce the printouts but the same were not entertained by the AO. So the learned CIT(A) has asked the explanation of the AO that why the AO had rushed to send the report especially when the appellant wanted to handover the printouts. A find has been recorded by the learned CIT(A) that as per the assessment records, it was found that the appellants have filed profit & loss A/c, balance sheet and other details of expenses for each of the years concerned along with returns of income filed before the date of survey. The learned CIT(A) has also mentioned that the action of levy of penalty Under Section 271A was taken by the AO after lapse of nearly one year from the date of survey. He has also mentioned that the AO had not verified the veracity of the printouts and the balance sheet, etc. which were enclosed with the return and very much available with the Department before the date of survey. So, he has concluded that the appellant has maintained books of account but has not kept them with him to be produced to the AO at the time of survey. So, he has dismissed the AO's argument that the P&L A/c and balance sheet might have been prepared without maintaining books of account and this plea of the revenue was not accepted. So, finally he has summarized that factually the default committed by the appellant was that he had failed to produce the books of account at the time of survey and also admitted at the time of survey of non-maintenance of books of account as per the statement recorded. In his opinion, the books of account have not been maintained in the manner prescribed Under Section 44AA and Rule 6F and the proper compliance was not made at the time of survey and the books were kept at a place beyond the reach of the AO on the date of survey, therefore infringed the provisions of the Act. The learned CIT(A) was also not convinced the manner in which the maximum penalty was imposed, hence he has held that it would be suffice to levy penalty to the extent of Rs. 45,000/- pertaining to the assessment years 1997-98 to 2001-02 and Rs. 11,250/- for the assessment year 2002-03. This part relief of penalties was not acceptable to the appellants, hence they are further in appeal before us.
5. Before us, the learned AR has argued at length and vehemently opposed the manner in which the survey was conducted and later on the penalties were imposed. As far as the first statement of the appellant made on 20thMarch, 2003 at the time of survey, the learned AR has categorically stated that the said statement was made under extreme pressure as he same was written by the survey party at mid-night at 11.30 p.m. He has mentioned that the revenue department came for survey at the business premises at 10.00 a.m. and during that period insisted upon a payment of tax of Rs. 10.00 lakhs and most of the time enquired about the investment in construction of the hospital. Since they could not succeed in that direction, a confessional statement was forcefully obtained wherein the appellant has admitted out of frustration the non-maintenance of books of account. Due to this reason, immediately thereafter a retraction was made on 25.03.2003 and as per the said statement recorded Under Section 131, the appellant has categorically declared the regular maintenance of books of account. The learned AR has also argued at length in respect of the assessment reports produced at the time of first appeal, the books of account produced by the survey party and several statements recorded by the revenue authorities. Part of it has already been discussed hereinabove while discussing the background of the case and the action of the AO. However, the main plank of his argument was based upon the Sub-rule (4) of Rule 6F of IT Rules. He has emphasized that an assessee is required to keep and maintain books of account at a place where he has carrying on the profession of the current year and an assessee is not required under law to keep and maintain those books of account relating to a previous year which has come to an end. So, he has further clarified that the current books of account were only required to be produced before the survey party and in case of any failure, an assessee is subject to penalty for that particular year and an assessee is not required as well as expected to keep and produce the books of account of earlier assessment years. In his strongly worded arguments, the learned AR has mentioned that the penalties were levied for earlier years and no action or penalty was levied for the assessment year 2003-04 since the survey was conducted on 20thMarch, 2003. He has challenged the very basis of levy of penalty on the ground that as per Rule the assessee has not committed any default and the AO was beyond his jurisdiction to ask for production of books of account for the past assessment years other than the current year. According to him, the entire exercise of levy of penalty was bad in law and malicious. As far as the maintenance of books of account for rest of the assessment years, he has emphasized that the returns were filed in the regular manner in the past along with the profit & loss a/c and the balance sheet based upon the books of account maintained regularly, hence the AO has illegally and wrongly levied the penalty for non-maintenance of accounts in respect of those years. In support of this contention, he has drawn our attention on the observations of the learned CIT(A), remand report and certain statements of the appellant. After elaborate arguments, not entirely reproduced, the learned AR has concluded that there was no infringement of Rule 6F of IT Rules and the assessment years for which penalties were imposed were not the subject matter, hence the entire penalty deserves to be quashed.
6. On behalf of the revenue, the learned has supported the action of the AO and argued that there was a clear default of Section 44AA on the part of the appellant as no proper books of account have been maintained as prescribed. The assessee has not demonstrated that he has maintained the books of account such as cash book, ledger, patient register, etc. hence committed the default for which penalty Under Section 271A was rightly imposed. He has emphasized that the entire books of account of the years under consideration was prepared only after the survey action and the same was mentioned by the AO on a number of occasions, hence the assessee has tried to mislead the revenue authorities, therefore deserved for a penal action. As far as the documents and books seized at the time of survey were concerned, the same were not reflecting the true and correct picture of income earned by the assessee in the regular course of profession and from those books of accounts, current income could not be deduced, so the penalty was rightly imposed on the assessee. In support of the action of the AO and his arguments, he has relied upon the decision in the case of ITO v. Mahesh M. Chandan 46 ITD 264.
7. After hearing the submissions of both the sides at length and on careful reading of the impugned orders in respect of both the appellants, we are of the view that the issue is within a narrow compass of the applicability of Rule 6F of IT Rules though the arguments traveled on other directions as well. To arrive at the right conclusion, we deem it proper to extract some of the portions of the order of the AO and the CIT(A), so that the factual findings can be appreciated and also deem it necessary to reproduce the relevant portions of the section involved in these appeals. The Taxation laws (amendment) Act, 1975 has inserted Section 44AA statutorily superseded the effect of few earlier decisions of Hon'ble Courts as it was held that no adverse inference could be drawn against an assessee for not having maintained any accounts of his income as the old IT Act did not cast any obligation on an assessee to maintain any accounts. Later on, some changes have been made in Section 44AA, therefore amendments for the purpose of these appeals, the section as stood at that time states that "every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the AO to compute his total income in accordance with the provisions of this Act". This section has also empowered the power to prescribe any rules in this regard. We will discuss the implications of concerned rule prescribed in this regard by the Board a little later but first it is worth mentioning at this juncture that penal provisions have simultaneously been introduced with effect from 1stApril, 1976 by insertion of Section 271A. A penalty is leviable Under Section 271A if any person fails to keep and maintain any such books of account and other documents as required by Section 44AA or the rules made there under in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules. The AO has empowered to impose a penalty in case of default. It may be mentioned that with effect from 10.09.86, the provision of Section 273B have come into operation as inserted by Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 and very appropriately it is provided in the Act that no penalty shall be imposable on the person or the assessee for any failure referred to in the said provision which includes Section 271A, if he proves that there was reasonable cause before imposition of any of penalty listed in Section 273B. We have to examine this aspect while deciding these appeals. Next comes to the application of Rule 6F. This rule prescribes that every person carrying on legal, medical, engineering, etc, profession shall keep and maintain the books of account or other documents specified in Sub-rule (2) of Rule 6F. The rule says that the books of account and other documents to be kept and maintained as mentioned Under Section 44AA(3) and Sub-rule (2) has listed the books of account to be maintained by a taxpayer. As pointed out by the learned AR, we have to examine the applicability of Sub-rule (4) of Rule 6F. For reference Sub-rule(4) is reproduced below:
The books of account and other documents specified in Sub-rule (2) and Sub-rule (3) [other than those relating to a previous year which has come to an end]shall be kept and maintained by the person at the place where he is carrying on the profession or, where the profession is carried on in more places than one, at the principal place of his profession.
emphasis supplied by us.
8. The application of the sections referred to hereinabove has to be in a specific sequence. Section 44AA provides in general that the persons qualified as professionals carrying on the business such as legal, medical, engineering, etc. are expected to keep and maintain such books of account as may enable the AO to compute his total income in accordance with the provisions of IT Act. Sub-section (3) of Section 44AA empowers the Board to prescribe rules for the purpose of maintenance of books of account. Thus, Rule 6F prescribes to form and the manner in which and the place at which such books of account shall be kept and maintained. This rule prescribes that the medical professionals has to maintain Form 3C as a daily case register but the most important part of this Sub-rule(4) is that a taxpayer is required and shall keep and maintain the books at the place where he is carrying on the profession. A taxpayer is not required to keep the books of account relating to a previous year which has come to an end. While reproducing the relevant portion of this sub-rule, we have already emphasized the relevant portion by underlining the same hereinabove. In the statute, reference of Rule 6F is not only in Section 44AA but there was a mention of existence of rule in the penal provision as well i.e. Section 271A. This Section 271A prescribes that the documents as required by Section 44AA or the rules made thereunder in respect of any previous year has to be maintained. So, the applicability of rule has to be kept in mind even at the time of imposition of penalty. In other words, penalty Under Section 271A cannot be imposed in isolation, only with reference to Section 44AA, by ignoring Rule 6F. However, the admitted position is that the penalties have been imposed for the assessment years 1997-98 to 2002-03 i.e. assessment years which has come to an end on the date of survey i.e. 20thMarch, 2003. Another admitted position is that no penalty was imposed for the assessment year 2003-04. The Sub-rule (4) is unambiguous and clearly indicates the intention of the Legislature that a taxpayer is required to keep and maintain the books of account other than those relating to a previous year which has come to an end at the place of profession. In view of this specific and unambiguous wordings, we have to examine whether the AO was legally correct to impose the penalty in respect of past assessment years for non-production or non-maintenance of accounts. From the above discussion and on careful analyzation of the sections involved, the law emerges in clear terms that a taxpayer is required to keep books of account at the place of business or profession of the current year other than those books of account relating to a previous year which has come to an end.
9. After ascertaining the legal position, now we have to examine the factual aspect so as to ascertain whether the assessee has committed any default for the assessment years for which penalties were imposed. Certain factual findings are worth mentioning such as referred by the learned CIT(A) that Quote - As per the assessment records produced by the AO. it is seen that the appellant has filed P&L A/c, balance sheet and details of expenses for each of the years concerned with return of income filed before the date of the survey The AO has produced papers impounded at the time of the survey. The register indicates details of OPD and indoor patients, but amounts received from such patients were not entered. - Unquote The learned CIT(A) has further specified in the subsequent para that the profit & loss a/c and balance sheets were enclosed with the returns and the same were available with the Department before the date of survey. He has given very important factual findings that this is indicated that the appellant had maintained books of account but has not kept them with him to be produced to the AO at the time of the survey. The learned CIT(A) has concluded that "AO's argument that the P&L A/c and balance sheet might have been prepared without maintaining books of is not accepted". So, the only default which was found by the revenue author ties was that the appellant had not produced the books of account at the time of survey. Not only the first appellate authority but the AO has also admitted that the books of account of the relevant assessment years was produced though after lapse of 386 days, relevant portion of the assessment order already reproduced (supra). On the basis of the above factual matrix, it is manifest that the books of account of earlier years were admittedly maintained by the assessee and the profit & loss account, etc. were annexed along with the returns filed in the regular course of profession, however, those books of account were not available at the time of survey and were beyond the reach of the AO on the date of survey. So, the question is that as per Rule 6F(4), the appellant has actually committed any default of non-production of books of account at the time of survey. Obviously the answer is negative. The legal position is amply clear, as emerges out of the above discussion, that the assessee was expected to keep the books of account of the current year and not pertaining to the years which has come to an end. No penalty has been imposed for the current year i.e. 2003-04 as the survey was conducted on 20thMarch, 2003. Penalties have been imposed for the assessment years which have come to an end and for all those years, the returns have already been filed much before the date of survey as the date of filing of returns have duly been acknowledged in the impugned penalty orders itself. In our considered opinion, penalties have been wrongly imposed on both the counts firstly, the same were asked to be produced beyond the jurisdiction of Sub-rule (4) of Rule 6GF and secondly, the revenue authorities have accepted the maintenance of books of account of the assessment years for which penalty was imposed for non-maintenance of accounts. We hereby hold that no default was committed by the assessee of non-production of books of account pertaining to the past assessment years which has already come to an end at the time of survey. With these observations and in view of the detailed discussion made hereinabove, we hereby quash the penalties levied by the revenue authorities.
10. In the result, all the appeals filed by the two assessees are allowed.