Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income-Tax vs Aggarwal Construction Co. on 29 January, 2007
Equivalent citations: [2007]291ITR226(CHD)
ORDER
Joginder Singh, Judicial Member
1. This appeal is by the Revenue challenging the order of the learned Commissioner of Income-tax (Appeals) dated June 22, 2004, on the following grounds:
1. That on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ludhiana has erred both in law and on fact in the deleting the penalty of Rs. 1 lakh levied under Section 271A as the assessee failed to maintain books of account as per the provisions of Section 44AA of the Income-tax Act, 1961.
2. That on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ludhiana has erred in holding that the Assessing Officer was having sufficient information for the making the assessment. On the contrary, the assessee was not maintaining such books of account which could enable the Assessing Officer to compute its income.
3. It is prayed that the order of the learned Commissioner of Income-tax (Appeals) be cancelled and that of the Assessing Officer may be restored.
4. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or disposed of.
2. During the arguments, we have heard Shri D.P. Dhankar, learned senior Departmental Representative and Shri P.N. Singla and Shri Arun Singla, learned Counsel for the assessee.
3. The only ground raised by the Revenue pertains to deleting the penalty of Rs. 1 lakh levied under Section 271A of the Act for not maintaining books of account as per the provisions of Section 44AA of the Act and also in holding that the Assessing Officer was having sufficient information for making the assessment. At the outset, it was brought to our notice that this issue is covered by the decision of the Tribunal in the case of Amarjit Singla v. ITO (I.T.A. No. 1250 (Chd.) of 2004 dated November 2, 2005). The assessee declared an income of Rs. 8,62,910 in its return filed on March 27, 2002. The assessee has disclosed total contract receipt at Rs. 1,55,72,788 as the assessee is a civil contractor. As per the Revenue, the assessee did not furnish the audit report and other relevant record to enable the Assessing Officer to complete the assessment. It was strongly contended that the assessee is having history of not maintaining the books of account. Accordingly, penalty proceedings were initiated. The Assessing Officer relied upon the decision from the hon'ble apex court in the case of Brij Mohan v. CIT and, levied penalty of Rs. 1 lakh under Section 271A of the Act. On the other hand, the conclusion of the learned Commissioner of Income-tax (Appeals) is that the Assessing Officer was having sufficient information for making the assessment and the receipts against work done were entered in the bank account and placed reliance upon the decision of the Tribunal in the case of Vinod Kumar Bhim Sain v. Asst. CIT and Unicon Builders I.T.A. No. 377 (Chandi.) of 1997 dated October 10, 2002 and deleted the penalty.
4. Before coming to any conclusion, we are supposed to see the requirement of the law and also whether the assessee has committed any default in not maintaining such books of account in the absence of which the Assessing Officer could not complete the assessment in a required manner.
5. Section 44AA of the Act is as under:
(1) 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 Assessing Officer to compute his total income in accordance with the provisions of this Act.
(2) Every person carrying on business or profession (not being a profession referred to in Sub-section (1)) shall,--
(i) if his income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lakh rupees in any one of the three years immediately preceding the previous year ; or
(ii) where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed ten lakh rupees, during such previous year ; or
(iii) where the profits and gains from the business are deemed to be the profits and gains of the assessee under Section 44AD or Section 44AE or Section 44AF or Section 44BB or Section 44BBB, as the case may be, and the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during such previous year, keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
(3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under Sub-section (1) or Sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained.
(4) Without prejudice to the provisions of Sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under Sub-section (1) or Sub-section (2) shall be retained.
6. If the aforesaid section is analysed, it clearly says that the assessee is supposed to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. In the present appeal, the finding of the learned Assessing Officer is as under:
The assessee is declaring income at 10 per Cent. of total receipts. Although the assessee's case is covered under the provisions of Section 44AB, yet the assessee has not furnished the audit report along with the return of income. The assessee is having history of not maintaining books of account. Keeping in view these facts, penalty proceedings under Section 271A were initiated by this office on August 16, 2002. The case was fixed for August 20, 2002. In response to this, the assessee did not attend the office on the said date. However, the assessee attended the office on September 11, 2002, and sought adjournment and accordingly the case was fixed for September 13, 2002.
The assessee was asked by the Assessing Officer to furnish certain informations as contained at pages 1 and 2 of the penalty order which were never furnished by the assessee-company.
7. If the finding of the learned Assessing Officer is analysed, admittedly the assessee is having the history of not maintaining books of account. This conclusion is further fortified by the fact and the assertion of the assessee itself that penalty was deleted during the assessment years 1996-97, 1997-98 and 1998-99 by the learned Commissioner of Income-tax (Appeals) as is evident from page 1 of the order of the learned first appellate authority, meaning thereby the assessee is not bothered about the provisions of law and has not learnt any lesson that he is supposed to maintain books of account as per the provision. Undisputedly, the assessee is covered under the provisions of Section 44AB of the Act, still the assessee preferred not to furnish the audit report along with the return and declared income at 10 per cent. of the total receipt. The total contract receipt is Rs. 1,55,72,788 and has declared net income at Rs. 8,62,910 in its return filed on March 27, 2002, meaning thereby the assessee has claimed certain deductions otherwise the net income would have been about Rs. 15 lakhs. In view of these facts, for coming to a particular conclusion, in completing the assessment it is the assessee who is supposed to show the documentary evidence like bills, vouchers, salary to the partners and other relevant record to show the expenses/claim of deduction which was not done rather in spite of so many opportunities extended to the assessee, either the assessee sought adjournment or did not appear on the fixed date. It can be said that the assessee deliberately and consciously evaded the attendance. The Assessing Officer was rightly having no alternative but to impose penalty under Section 271A of the Act. We are aware that penalty is not imposable if there is no conscious breach of law as was held by the hon'ble apex court in the case of Hindustan Steel Ltd. v. State of Orissa . At the same time, for imposing penalty, the conduct of the assessee must be conscious as was held by the hon'ble apex court in the case of K.C. Builders v. Asst. CIT . If these judicial pronouncements are kept in juxta-position with the facts of the present appeal, the assessee deliberately defied the law in not maintaining the books of account.
8. The learned Commissioner of Income-tax (Appeals) while concluding the issue mentioned that the Assessing Officer was having necessary information for completing assessment. We do not agree with it because "books of account" refers to those books maintained for income-tax purpose and not other private record. The term "books of account" referred to in Sub-clause (1) of Explanation 5 to Section 271(1)(c) means books of account which have been maintained for determining any source of income. The term source of income as understood in the Income-tax Act is to identify or classify income so as to determine under which head, out of the various heads of income referred to in Section 14 of the Act it would fall for the purpose of computation of the total income for charging income-tax thereon. Thus, the term "books of account" referred to in this relevant sub-clause of Explanation 5 would mean those books of account whose main object is to provide credible data and information to file the tax return. A credible accounting record provides the best foundation for filing return of both direct and indirect taxes. At the same time, it is not the case that the assessee is new and is not aware about the income-tax laws. Rather the assessee is trying to deliberately disobey the provisions. The assessee is obliged to disclose the true and full particulars of income. In the present case, the assessee rather avoided to maintain/furnish such document before the Assessing Officer. The assessee has also not extended any reasonable cause in not furnishing/maintaining the required record, meaning thereby the assessee does not deserve leniency from any quarter. Even as per Rule 6F, the assessee should maintain and retain the books of account at the given address. Inquiries were conducted which revealed that the assessee has not maintained any record at the given address, i.e., house No. 491, Sita Nagar, Ludhiana. Even before the Assessing Officer, the assessee has not bothered to explain as how a flat rate of 10 per cent. was worked out to determine the profit. Since the assessee has not maintained/ retained/produced the books of account, the assessee is rightly liable to penalty. There are certain conditions which needs to be fulfilled before attracting the penalty under Section 271A which are as follows:
(a) The assessee fails to keep and maintain such books of account and other documents which may enable the Assessing Officer to compute the total income in accordance with provisions of the Income-tax Act.
(b) The assessee fails to keep and maintain such books of account at the principal place of the business.
(c) The assessee fails to keep and maintain books of account and documents as discussed above for a period of 6 years from the end of the relevant assessment year.
(d) In case an assessment is reopened under Section 147, the books of account and other documents are not continued to be so kept and maintained till the assessment so reopened is completed.
9. If all the facts and the conditions are analysed, then certain undisputed facts are oozing out like:
--Computation of income on flat rate is not prescribed in the Act as the provisions of Section 44AD are not applicable in the present case since the receipts are more than Rs. 40 lakhs.
--Violation of Section 40A(2)(a) and Section 40A(3), Sections 269SS and 269T cannot be quantified in the absence of books of account.
--The genuineness of expenses claimed by the assessee could not be verified.
--The assessee is not following correct method of accounting as prescribed under Section 145 of the Act.
--The factum of payment of interest/salary to the partners is not verifiable without the books of account and also the daily cash position.
10. In view of these facts, the decision from the hon'ble apex court in the case of Brij Mohan v. CIT clearly comes to the rescue of the Revenue. No useful purpose will be served to restore this case back to the file of the learned Assessing Officer for fresh examination because already so many opportunities have been afforded to the assessee which were deliberately avoided. At the same time, it is not the case of the assessee that no opportunity was extended to the assessee-company.
11. On identical facts, the Tribunal in the case of Amarjit Singh I.T.A. No. 1250/Chd. of 2004 has deliberated upon the issue and also the fact that the assessee did not produce the books of account, dismissed the appeal of the assessee. Undisputedly, from the record, it is established that the assessee has not prepared the balance-sheet and other documents as per the requirement of the provisions of law, clearly indicating the contravention of various provisions of the Act like Sections 269SS, 269T, Section 40(A)(3) and other provisions of the Act. Therefore, net accretion to the asset of the business could not be determined by the Assessing Officer on the basis of material available with him. In view of these facts, we are agree with the conclusion of the learned Assessing Officer that the assessee is liable to penalty under Section 271A. The assessment order is upheld. The appeal of the Revenue is therefore allowed.
N.K. Saini, Accountant Member
12. After going through the proposed order and having discussion with my learned Brother, I have not persuaded myself to agree with the conclusion arrived at page 7 (see above paragraph) of the proposed order for the reasons given hereunder:
13. The question for reconsideration in the aforesaid appeal before us is whether the learned Commissioner of Income-tax (Appeals) erred in deleting the penalty of Rs. 1 lakh levied under Section 271A as the assessee failed to maintain the books of account as per the provisions of Section 44AA of the Income-tax Act.
14. Although my learned Brother had discussed the facts in the proposed order but I want to discuss the facts in brief for clarity. The assessee was engaged in the business of civil contractor and declared an income of Rs. 8,62,910 on the total contract receipts at Rs. 1,55,72,788 vide return of income filed on March 27, 2002. The Assessing Officer initiated penalty proceedings under Section 271A of the Income-tax Act by stating that the assessee had not furnished the audit report along with the return of income. The Assessing Officer stated that the assessee is having history of not maintaining books of account and was declaring income at 10 per cent. of total receipts. According to the Assessing Officer the assessee was required to compute its taxable income as per the Income-tax Act on the basis of books of account maintained by it. According to him, the assessee had failed to compute the income as per the Income-tax Act, and was not maintaining/retaining books of account, so it was liable to be penalized under Section 271A of the Income-tax Act. The Assessing Officer came to the conclusion that the assessee was liable to penalty under Section 271A of the Income-tax Act for the reason stated at paragraph 4 of the penalty order dated November 15, 2002. After having reached the conclusion that the assessee was liable to be penalized under Section 271A, the Assessing Officer mentioned that the provisions of the said section were amended with effect from June 1, 2001, and as per the amended provisions the penalty of Rs. 25,000 was to be imposed under Section 271A of the Income-tax Act. He, however, levied the penalty of Rs. 1 lakh by stating that the provisions which existed as on March 31, 2001, were applicable.
15. The assessee carried the matter to the learned Commissioner of Income-tax (Appeals) and submitted that the proceedings were not covered under Section 44AA(1) of the Income-tax Act and the penalty levied in similar circumstances for the assessment years 1996-97 and 1998-99 was deleted by the learned Commissioner of Income-tax (Appeals), Ludhiana. Reliance was placed on the following judgments of the Tribunal:
Unicon Builders and Contractors v. Asst. CIT I.T.A. No. 377 (Chandi.) of 1997, assessment year 1994-95 order dated October 10, 2002.
Vinod Kumar Bhim Sain's case I.T.A. No. 1981/Chandi./1991, order dated April 20, 1998.
16. It was further stated that if the following conditions of Section 44AA(2) were not fulfilled then no books of account were required to be maintained.
(i) If his income from business or profession exceeds Rs. 1,20,000 or his total sales, turnover or gross receipts as the case may be in business or profession exceeds or Rs. 10,00,000 in any one of the three years immediately preceding the previous year ; or
(ii) Where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed Rs. 1,20,000 or his total sales, turnover or gross receipts as the case may be, in business or profession are or is likely to exceed Rs. 10,00,000 during such previous year ; or
(iii) Where the profits and gains from the business are deemed to be the profits and gains of the assessee under Section 44AD or Section 44AE or Section 44AF, as the case may be, and the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during the previous year.
17. It was contended that the business or profession which did not fall under the abovesaid category (iii) were required to maintain the books of account as they may enable the Assessing Officer to compute the income. It was emphasized that the assessee falls under this category but no specified books of account had been prescribed for this category and only such books were required to be maintained as may enable the Assessing Officer to compute the income. It was further contended that as per the audit report filed, the assessee produced ledger type register reflecting therein various accounts like partners' capital account, detail of capital, detail of receipts, bank account, security deposited etc., interest and salary paid and other relevant record as maintained by the assessee enabling the Assessing Officer to deduce the assessee's income keeping in view the cases of similar line of business or judicial analysis. Hence the assessee was not in default of Section 44AA read with Rule 6F and penalty proceedings were uncalled for.
18. It was further stated that the partners to the deed mutually agreed and were of the view that if record of bank account and receipt against work done and note books containing capital account, expenses account and other account i.e., salary, conveyance, stationery, material, electrical expenses etc., legal expenses and other expenses were maintained then it would be the account of the firm for their satisfaction and profit or loss could be drawn by applying a general rate of profit as agreed to between the parties from time-to-time and divided accordingly. It was stated that there was no violation of any provisions of law by not maintaining day-today cash book and ledger as per Rule 6F. It was contended that the record maintained by the assessee enabled the Assessing Officer to determine the assessee's income while applying flat rate as per history of the case, therefore, initiation of penalty proceedings was uncalled for, unwarranted and illegal which deserved to be dropped.
19. The learned Commissioner of Income-tax (Appeals) after considering the submissions of the assessee, observed that, the Assessing Officer was having sufficient information for making the assessment. He observed that the assessee was maintaining bank account and capital account of the partners and that the receipts against work done were entered in the bank account. He further observed that while framing the assessment the Assessing Officer had applied the flat rate of profit on total receipts. According to him, the cases decided by the Income-tax Appellate Tribunal which were relied on by the assessee were similar to the assessee's case in the said cases it had been held that in the absence of any books having been prescribed by the Board, the Assessing Officer had sufficient information to make the assessment, the penalty was not leviable. The learned Commissioner of Income-tax (Appeals), therefore, deleted the penalty levied by the Assessing Officer.
20. Learned Counsel for the assessee, during the course of hearing, reiterated the submissions made before the authorities below and it was stated that this issue was covered by the decisions cited before the learned Commissioner of Income-tax (Appeals). The other cases, relied on by learned Counsel for the assessee were following:
ITO v. Hind Super Constructions I.T. A. No. 850 (Chandi.) of 2005, for the assessment year 2001-02 order dated November 24, 2005 Asst. CIT v. Aar Kay Construction (I. T. A. Nos. 842 and 879 (Chandi.) of 2004 for the assessment years 2001-02 and 2002-03 order dated September 19, 2005.
21. After considering the relevant facts, I am of the opinion that the present case is covered by the earlier order of the Income-tax Appellate Tribunal in I.T.A No. 377 (Chandi.) of 1997 in the case of Unicon Builders and Contractors v. Asst. CIT for the assessment year 1994-95, the relevant findings given therein read as under:
3. We have heard the rival submissions, perused the orders of tax authorities and gone through the material on record as well as the relevant provisions of law. We find that penalty under Section 271A may be levied, if the assessee fails to keep and maintain any such books of account and other documents as required by Section 44AA or under Rule 6F. We find that the provisions of Section 44AA(1) are not applicable to the case, as the assessee is a civil contractor and not a person carrying on a specified profession. Section 44AA(2) requires the assessee to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Act. There is no dispute that the assessee has kept the books and other documents which enabled the Assessing Officer to determine total contract receipt of the assessee during the year under consideration on the basis of which the income of the assessee has been computed by the Assessing Officer by applying a rate of 10 per cent. There is no material or evidence on record to establish that the assessee has not maintained books due to which the Assessing Officer could not be able to compute the income. The assessee has maintained such books of account and documents which enabled the Assessing Officer to compute the total income. Therefore, in our opinion, the assessee has not made any default under Section 44AA. In the absence of any default being made under Section 44AA, no penalty under Section 271A can be imposed. We, therefore, set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the impugned penalty.
22. It is also relevant to point out that the instant case was heard along with another Departmental appeal in I.T.A No. 827/Chandi./2004 for the assessment year 2001-02 in the case of Asst. CIT v. Supreme Builders. In the said case, the penalty levied in similar circumstances by the Assessing Officer had been deleted by the learned Commissioner of Income-tax (Appeals), thereafter the appeal of the Department was dismissed by this Bench of the Income-tax Appellate Tribunal by following the order of the Tribunal adjudicated by Chandigarh Bench (SMC) in I.T.A No. 850/ Chandi. of 2005 for the assessment year 2000-01 order dated November 24, 2005, in the case of HO v. Hind Super Construction. In the said case earlier orders of the Tribunal were followed which are following:
Aar Kay Construction (I. T. A. Nos. 842 and 879/Chandi. of 2004 for the assessment years 2001-02 and 2002-03 order dated September 19, 2005).
Unicon Builders and Contractors v. Asst. CIT I.T. A. No. 377/ Chandi. of 1997 for the assessment year 1994-95 order dated October 10, 2002.
Vinod Kumar Bhim Sain v. Asst. CIT I.T. A. No. 1981/Chandi. of 1991 for the assessment year 1987-88 order dated April 20, 1998.
23. It is relevant to point out that in similar circumstances, the penalty levied under Section 271A was deleted by the learned Commissioner of Income-tax (Appeals) and thereafter this Bench of the Income-tax Appellate Tribunal in the case of Asst. CIT v. Aar Kay Construction I.T.A. Nos. 842 and 879/Chandi. of 2004 for the assessment years 2001-02 and 2002-03 order dated September 19, 2005, confirmed the order of the learned Commissioner of Income-tax (Appeals). The said order has been authored by my learned Brother and in that case also, reliance has been placed on the case of Unicon Builders and Contractor v. Asst. CIT.
24. From the above discussion it would be clear that the majority of the cases decided by the Division Bench of the Income-tax Appellate Tribunal Chandigarh and also by the SMC Bench of Income-tax Appellate Tribunal Chandigarh were in favour of the assessee and only one case namely Amarjit Singh, Prop. Jayanti Electricals, v. ITO I.T. A. No. 1250/Chandi./ 2004 for the assessment year 2001-02 decided vide order dated November 2, 2005, by the Income-tax Appellate Tribunal, Chandigarh Bench (SMC) is against the assessee wherein penalty levied by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals), had been sustained by the Income-tax Appellate Tribunal, Chandigarh Bench (SMC). In the said case, the penalty had been sustained for the reason that the books of account claimed to have been maintained, were not produced and the assessee could not give the name of the person from whom the goods had been purchased and also had not furnished the details of the parties to whom the payments had been made on account of labour. However, in the present case the profit had been estimated by the Assessing Officer on the basis of contract receipts shown by the assessee. In other words, the contract receipts received by the assessee had not been doubted and the assessee declared the income by applying the flat rate on the total contract receipts. Therefore, it is not a case where the income could not be deduced by the Assessing Officer on the basis of information maintained in the ledger type of book of account maintained by the assessee.
25. Now the relevant question to be decided is that:
Whether the penalty should be deleted by following the earlier decisions given in similar circumstances by the co-ordinate Division Bench and by the SMC Bench of Income-tax Appellate Tribunal or not ?
26. In this regard there is settled precedent that different view should not be taken by knocking down the well-established principle of consistency. The hon'ble Supreme Court in the case of Sundarjas Kanyalal Bhatija v. Collector has held that (headnote):
In a multi-judge court, the judges are bound by precedents and procedure. They could use their discretion only when there is no declared principle to be found, no rule and no authority. Judicial decorum and legal propriety demand that where a single judge or a Division Bench does not agree with the decision of a Bench of coordinate jurisdiction, the matter may be referred to a larger Bench. It would be subversion of judicial process not to follow this procedure.
27. Similarly in the case of Union of India v. Paras Laminates P. Ltd. their Lordships while discussing the functioning of the Tribunal at page 726 had observed as under:
It is true that a Bench of two Members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. This is particularly true when the earlier decision is rendered by a larger Bench. The rationale of this rule is the need for continuity, certainty and predictability in the administration of justice. Persons affected by decisions of Tribunals or courts have a right to expect that those exercising judicial functions will follow the reason or ground of the judicial decision in the earlier cases on identical matters. Classification of particular goods adopted in earlier decisions must not be lightly disregarded in subsequent decisions, lest such judicial inconsistency should shake public confidence in the administration of justice.
28. In view of the ratio laid down by the hon'ble Supreme Court in the aforesaid referred to cases and considering the fact that in similar circumstances, the penalty had been deleted by the Tribunal in a majority of the similar cases, in a few of the cases, the undersigned is the author or the co-author, therefore, to maintain the well-established principle of consistency, judicial decorum and legal propriety, I am constrained to disagree with my learned Brother. In my opinion, the penalty deserves to be deleted in view of the various decisions already taken by the various Benches of the Income-tax Appellate Tribunal, Chandigarh Benches which had been referred to in the former part of this order. Accordingly, it is held that the penalty levied by the Assessing Officer, was rightly deleted by the learned Commissioner of Income-tax (Appeals).
29. In the result, the appeal of the Department is dismissed.
30. As there is a difference of opinion between the undersigned Members of the Bench in the abovementioned case, on the following point, the matter is referred to the hon'ble President, Income-tax Appellate Tribunal for further necessary action as envisaged under Section 255(4) of Income-tax Act.
Whether on the facts and in the circumstances of the case, the Assessing Officer was justified in levying the penalty of Rs. 1 lakh under Section 271A of Income-tax Act when the income had been estimated by applying gross profit rate on the accepted contract receipt maintained in the ledger type book ?
Joginder Singh, Judicial Member
31. As there is a difference of opinion between the undersigned Members of the Bench in the abovementioned case, on the following point, the matter is referred to the hon'ble President, Income-tax Appellate Tribunal for further necessary action as envisaged under Section 255(4) of Income-tax Act.
Whether on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) is justified in deleting the penalty of Rs. 1 lakh levied under Section 271A as the assessee failed to maintain the books of account as per provisions of Section 44A of the Income-tax Act.
Vimal Gandhi, President
32. On account of difference between the hon'ble Members of Income-tax Appellate Tribunal, 'B' Bench, Chandigarh, the matter has been referred to me under Section 255(4) for resolving the difference.
33. After hearing both the parties and with the consent of their learned representatives of the parties, the following question was reframed for arguments of the parties:
Whether on the facts and in the circumstances of the case, the deletion of penalty of Rs. 1 lakh imposed under Section 271A of the Income-tax Act is justified ?
34. The assessee in the relevant period carried on the business of civil contractor and filed return declaring an income of Rs. 8,62,910. The Assessing Officer rejected the books of account and applied flat rate of 12 per cent. to the contract receipts and computed the assessee's income at Rs. 18,68,735. On appeal, some relief was allowed to the assessee. Further appeals before the Income-tax Appellate Tribunal were dismissed.
35. The Assessing Officer also initiated penalty proceedings under Section 271A of the Income-tax Act and after hearing the assessee, he held "I, therefore, hold that the assessee had failed to comply with the provisions of Section 44AA read with Rule 6F and thus is liable to be penalized under Section 271A of the Income-tax Act, 1961". He imposed penalty of Rs. 1 lakh on the assessee vide his order dated November 15, 2002.
36. The assessee impugned above the levy in appeal before the Commissioner of Income-tax (Appeals); who after considering the relevant circumstances including the fact that similar penalty levied was deleted on appeal by the Commissioner of Income-tax (Appeals) in earlier years in this case and also by following decisions of the Income-tax Appellate Tribunal in the case of (i) Unicon Builders and Contractors v. Asst. CIT I.T. A. No. 377/ Chandi. of 1997 for the assessment year 1994-95 and in the case of (ii) Vinod Kumar Bhim Sain v. Asst. CIT I.T. A. No. 1981/Chandi. of 1991 deleted the penalty with the following observations:
I have carefully considered the contentions of the learned Counsel as well as gone through the records. The Assessing Officer was having sufficient information for making the assessment. But the appellant is maintaining bank account and capital account of the partners. The receipts against work done were entered in the bank account. While framing the assessment at a flat rate of profit has been applied by the Assessing Officer on total receipts in the case of civil contractors. The cases decided by the Income-tax Appellate Tribunal (supra) are almost similar to the appellant's case wherein it has been held that in the absence of any books having been prescribed by the Board, the Assessing Officer had sufficient information to make the assessment. The facts of the present case being similar to that case, it would be in the interest of justice if penalty levied is deleted and the appeal is allowed.
37. The Revenue then carried the matter in appeal before the Appellate Tribunal. The learned Members who heard the appeal did not agree in the order to be passed in appeal. The learned Judicial Member was of the view that levy of penalty imposed under Section 271A should be upheld by allowing the appeal of the Revenue. He considered the provisions of Section 44AA of the Income-tax Act and reached the conclusion that the assessee deliberately and consciously did not maintain books of account and avoided attendance of assessment/penalty proceedings. The assessee also did not furnish any reasonable cause for not furnishing required books. He was further of the view that in the absence of books, the Assessing Officer was not able to see whether there was contravention of the provisions of Sections 269SS, 269T and 40A(3) of the Income-tax Act etc. In upholding the levy of penalty, the learned Judicial Member strongly relied upon the decision of the Tribunal ("SMC" Bench) in the case of Amarjit Singla, Jayanti Electricals v. ITO I.T. A. No. 1250/Chandi. of 2004. The learned Judicial Member in the proposed order accordingly set aside the impugned order of the Commissioner of Income-tax (Appeals) and restored order of the Assessing Officer.
38. The learned Accountant Member did not agree with this view of the learned Judicial Member. He considered the decisions of the Tribunal followed by the learned Commissioner of Income-tax (Appeals) in the impugned order cancelling the penalty. He noted that the assessee was not required to maintain any specified books. Rule 6F of the Income-tax Rules was not applicable in this case. After considering decisions of the Tribunal in the case of Unicon Builders and Contractors v. Asst. CIT, as also of Vinod Kumar Bhim Sain v. Asst. CIT and several other decisions of the Division Bench noted in his proposed order, he held that there were no good reasons for making a departure and upholding the penalty. In fact, it is noted that he and his brother, the learned Judicial Member here were party to a decision where on similar facts in the case of a contractor, penalty levied under Section 271A, was cancelled. In support of his consistent approach the learned Accountant Member noted the following two decisions of the hon'ble Supreme Court:
(i) Sundarjas Kanyalal Bhatija v. Collector ; and
(ii) Union of India v. Paras Laminates P. Ltd. .
39. In the proposed order, the learned Accountant Member has concluded as under (page 239 supra):
In view of the ratio laid down by the hon'ble Supreme Court in the aforesaid referred to cases and considering the fact that in similar circumstances, the penalty had been deleted by the Tribunal in a majority of similar cases, in a few of the cases, the undersigned is the author or the co-author, therefore, to maintain the well-established principle of consistency, judicial decorum and legal propriety, I am constrained to disagree with my learned brother. In my opinion, the penalty deserves to be deleted in view of the various decisions already taken by the various Benches of the Income-tax Appellate Tribunal, Chandigarh Benches which had been referred to in the former part of this order. Accordingly, it is held that the penalty levied by the Assessing Officer, was rightly deleted by the learned Commissioner of Income-tax (Appeals).
40. He, therefore, upheld the cancellation of the penalty.
41. In the above background, the matter has come before me. I have heard both the parties. Shri Dhankar, the learned Departmental Representative vehemently contended that the assessee did not maintain such books of account as would enable the Assessing Officer to compute its income. No books of account were found when Inspector had visited the premises of the assessee at Ludhiana. Even the assessment order makes it absolutely clear that the assessee did not maintain any books of account and violated the provisions of Section 44AA of the Income-tax Act and was thus liable to be penalized. He placed strong reliance on the decision in the case of Amarjit Singla, Prop. Jayanti Electricals v. ITO, in support of the view taken by the learned Judicial Member.
42. Learned Counsel for the assessee, on the other hand, supported the proposed order of the learned Accountant Member. He argued that initiation of the proceedings and finding of the Assessing Officer that the assessee committed a default under Section 44AA read with Rule 6F were wrong and untenable. The said provisions were applicable to the cases of professions specified in Sub-section (1) of Section 44AA whereas no books of account were prescribed for business of civil contractor carried on by the assessee in the relevant period. Rule 6F was not applicable to the case of the assessee. Therefore, initiation of proceedings and levy of penalty was bad in law. He also relied upon the proposed order of the learned Accountant Member.
43. On a careful consideration of the rival submissions and relevant material on record, I find that it has been the consistent view of Benches that no penalty under Section 271A is exigible in the cases of contractors. However, a contrary view was taken by the SMC Bench of the Tribunal in the case of Amarjit Singla (supra) and levy of penalty was upheld. The proposed order of the learned Judicial Member is based upon the above decision. In the case of Unicon Builders and Contractors (supra) to which I was a party, the Bench after considering the relevant provisions of Section 44AA deleted the penalty with the following observations (page 237 supra):
3. We have heard the rival submissions, perused the orders of tax authorities and gone through the material on record as well as the relevant provisions of law. We find that penalty under Section 271A may be levied, if the assessee fails to keep and maintain any such books of account and other documents as required by Section 44AA or under Rule 6F. We find that the provisions of Section 44AA(1) are not applicable to the case, as the assessee is a civil contractor and not a person carrying on a specified profession. Section 44AA(2) requires the assessee to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Act. There is no dispute that the assessee has kept the books and other documents which enabled the Assessing Officer to determine total contract receipt of the assessee during the year under consideration on the basis of which the income of the assessee has been computed by the Assessing Officer by applying a rate of 10 per cent. There is no material or evidence on record to establish that the assessee has not maintained books due to which the Assessing Officer could not be able to compute the income. The assessee has maintained such books of account and documents which enabled the Assessing Officer to compute the total income. Therefore, in our opinion, the assessee has not made any default under Section 44A. In the absence of any default being made under Section 44AA, no penalty under Section 271A can be imposed. We, therefore, set aside the order of learned Commissioner of Income-tax (Appeals) and delete the impugned penalty.
44. The aforesaid order has been followed by different Benches of the Income-tax Appellate Tribunal at Chandigarh in several cases, for example, in the case of Asst. CIT v. Aar Kay Construction I.T. A. Nos. 842 and 879/Chandi of 2004 decided on September 19, 2005, of this very Bench comprising the learned Members upheld cancellation of penalty in similar circumstances. The case of Vinod Kumar Bhim Sain v. Asst. CIT (supra) in which a similar view was taken and penalty imposed was cancelled, was decided as early as April 20,1988, and has held the field and consistently followed by the Chandigarh Benches. Another case of Asst. CIT v. Supreme Builders (supra) in which penalty imposed under Section 271B was cancelled has also been brought to my notice. It is clear from the perusal of the order of the Income-tax Appellate Tribunal in the case of Amarjit Singh (supra) that above referred to decisions were not brought to the notice of the hon'ble Member deciding the case. Therefore, the aforesaid case has to be treated as case decided per incuriam. Therefore, on the facts and in the circumstances of the case, I am inclined to follow a large number of cases where various Benches of the Tribunal cancelled similar levy imposed under Section 271A of the Act. The learned Accountant Member has rightly seen no scope to impose penalty under the above section in this case of the contractor. It is pertinent to mention that the Commissioner of Income-tax (Appeals) while cancelling the penalty had followed and applied the view adopted by the Tribunal. However, when the matter was brought before the Income-tax Appellate Tribunal itself, the learned Member has refused to follow his own order and taken a contrary view. I am constrained to observe that this is not a healthy trend. Consistency of approach is fundamental to judicial discipline and decorum. The hon'ble Members of the Income-tax Appellate Tribunal would do well to abide by this basic principle to maintain good image of institution.
45. Even independent of the above circumstances, I see no justification for upholding levy of penalty in this case. The provisions which the Revenue can rely upon is Sub-section (2) of Section 44AA of the Act which enjoins upon the assessee to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. No specific books have been prescribed for business of a civil contractor admittedly carried on by the assessee.
46. A reference to the assessment order dated March 23, 2004, in this case would show that the Assessing Officer noted that the assessee was maintaining "cash system" as "method of accounts" in column 5 of title of the assessment order. The Assessing Officer further noted as under:
5. Vide its replies filed during the course of assessment proceedings, the assessee admitted that it did not maintain regular books of account but only a ledger type book. From the perusal of the said ledger type book produced by the assessee it was seen that it contains the details of
(i) Contract receipts
(ii) Partners' capital accounts
(iii) Bank account
(iv) Partners' salary
(v) Computation chart
(vi) Income and expenditure account
(vii) Partner's personal account.
6. The assessee however, did not furnish any details of expenses incurred by it. However, it produced a few expenses vouchers and a muster roll which however, did not contain the addresses of the persons receiving the payments. Moreover, the thumb impressions of all the persons have been obtained without affixing any revenue stamp therein. The assessee further contended that the withdrawal shown as per bank account is sufficient piece of evidence in order to prove the genuineness of the expenses as the same were utilized to meet the expenses of direct cost on material like crusher, diesel, stone, rori, sand, building material, salary, wages, repair and maintenance as well as indirect cost on the day-to-day allied business expenses.
47. In paragraph 7 the Assessing Officer gave reasons for rejecting the books of account. He has also observed, "So authenticity of this account and entries in this account are doubtful and the same is rejected". He further observed:
(g) The analysis of the income and expenditure account shows that the assessee has not vouchers to support his expenses. The expenses in this account are written under different heads, without supporting vouchers/source of cash to meet this expenses. The cash-book has not been maintained. The assessee has clearly mentioned in his written replies that no day-to-day regular books have been maintained and also no cash book is maintained.
7.2 In view of the above, I am not satisfied about the correctness of the...and the assessment is accordingly made in the manner provided in section....I.T.A. No. 1258/Chandi./96, dated February 3, 2003, in the case of Deputy CIT v. Vijay Kumar Garg Contractors Pvt. Ltd.
7.3 Having rejected the books of account, we come to the question of computing the taxable income in the hands of the assessee. In this connection, a similar case has been recently decided by the learned Income-tax Appellate Tribunal, Chandigarh vide order dated September 16, 2003, in the case of ESS ESS Builders (P.) Ltd. reported at I.T.A No. 707/Chandi./1997. In this case also the books of account of the assessee were rejected and the hon'ble Income-tax Appellate Tribunal has found it reasonable to work out the assessee's income by applying flat rate of 12 per cent. to the contract receipts. Following the ratio of the learned Income-tax Appellate Tribunal in the abovemendtioned case, I hereby apply net profit rate of 12 per cent. on contract receipts shown in the return of income for working out the taxable income of the assessee which works out to Rs. 18,68,735 (being 12 per cent. of 1,55,72,788).
48. On further appeal, the Commissioner of Income-tax (Appeals) upheld the application of flat rate of 12 per cent. but allowed interest and salary paid to the partners as a deduction. The Tribunal appears to have upheld the order of the Commissioner of Income-tax (Appeals).
49. I have reproduced the above extract from the assessment order to reject the finding recorded by the Assessing Officer in the penalty order, that no books of account were maintained by the assessee as baseless. It is not recorded in the assessment order that the Assessing Officer was "unable" to compute the income of the assessee from ledger type of book maintained by the assessee. The Assessing Officer has admitted that income and expenditure were available in the book. The requirement of Sub-section (2) of Section 44AA is not that the books of account of the assessee should be true and correct. It is a matter of common experience that all vouchers and supporting evidence are not available even in cases of multinational companies and other cases where there is a special section to maintain regular books of account. Expenses are found to be unvouched and claim inadmissible. Entries made are also rejected. But from the above, it cannot follow that no books are maintained and in such cases, the Assessing Officer is "unable" to compute the total income. It is not possible to argue that in all such cases, the provisions of Section 44AA are violated. There are separate provisions in Section 271 to deal with the above wrong and false accounts. Therefore, failures which are dealt with in other provisions cannot be read in Section 271A of the Income-tax Act. There is ample power under Section 144/145 to deal with reliable accounts. The Assessing Officer can disallow and add back unvouched and inadmissible expenses. The assessee has to suffer. The Assessing Officer faces no inability in such a situation. Therefore, no penalty, in my humble opinion, can be levied under Section 271A if the books of account are found to be unreliable by Revenue authorities and are rejected. In the case in hand, the Assessing Officer had applied flat rate of 12 per cent. as "reasonable" rate against 8 per cent. statutorily provided in cases of civil contractors. It cannot be argued that statute has provided a rate which is not reasonable. Further, having regard to provisions of Section 44AD, which is overriding, it is not possible for the Revenue to argue that profit computed as per the section is not profit computed "in accordance with provisions of this Act" or that the Legislature was unaware of the provisions of Sections 68, 69, 269SS, 269T, 140(3) etc. in the enactment of Section 44AD. Thus reading entire scheme of the Act one has to hold that profit computed as per Section 44AD of the Act by application of flat rate is one recognized method of computation of total income, or part of total income. The fact that the above provision is applicable only to cases where gross contract receipts are below Rs. 40 lakhs, does not make any difference to the nature of business carried by the assessee or method of computation. Having applied such high rate of 12 per cent. The Assessing Officer cannot contend that he was unable to make assessment. Therefore, in the above peculiar circumstances of the case, the Commissioner of Income-tax (Appeals) was right in holding that there was no failure on the part of the assessee under Section 44AA of the Income-tax Act and penalty imposed under Section 271A was not justified.
50. There is another good but independent reason for not upholding levy of penalty in this case. It has been observed by the learned Commissioner of Income-tax (Appeals) that similar penalties imposed on the assessee for the assessment years 1996-97, 1997-98 and 1998-99 were cancelled on appeal by the Commissioner of Income-tax (Appeals). This fact is also noted by both the learned Members in their proposed orders. The learned Counsel for the assessee informed me that the Revenue did not challenge the above orders of the Commissioner of Income-tax (Appeals) in further appeal before the Appellate Tribunal and these orders have attained finality. There is nothing on record to contradict the assessee. If on identical facts, penalty levied on the assessee was cancelled under Section 271A, there is no justification to levy penalty this year under consideration. No distinguishing features have been brought on record. The state of statutory provision as discussed above is far from clear and, therefore, even if it is assumed that the assessee had an obligation to maintain regular books of account, which he failed to do, the failure is definitely due to a reasonable cause and the case is covered under the provisions of Section 273B of the Income-tax Act. Having regard to the treatment meted out in earlier years, the assessee could reasonably believe that he is fully complying with the provisions of Section 44AA of the Income-tax Act and his belief under the circumstances cannot be said to be otherwise than a bona fide belief. The cancellation of penalty is required to be upheld.
51. For the aforesaid reasons, I agree with the order proposed by the learned Accountant Member.
52. The matter may now be placed before the regular Bench for disposal in accordance with law pronounced during the course of hearing of the matter.