Income Tax Appellate Tribunal - Lucknow
The Dy. C.I.T. vs Gopal Krishan Builders on 30 April, 2004
Equivalent citations: [2004]91ITD124(LUCK), [2005]272ITR1(LUCK), (2005)92TTJ(LUCK)215
ORDER
Phool Singh, Judicial Member
1. This appeal of the Department is directed against order dated 23.3.1999 recorded by CIT(A)-III, Lucknow by which penalty of Rs. 1 lakh imposed by the A.O. Under Section 271B of the Income Tax Act, 1961 (hereinafter referred to as the Act) was deleted.
2. Assessee, a partnership firm, was found involved in the business of construction. During the relevant assessment year 1997-98 assessee started construction of commercial-cum-residential building "Sookh" at Indira Nagar, Lucknow. From the perusal of return and other documents, A.O. noted that balance sheet as on 31.3.1997 was filed tallying at Rs. 3,07,93,592/-. The balance sheet was found accompanied by other annexures viz, expenses incurred during construction, list of sundry creditors, list of contractors, bank reconciliation and list of advances. He further noted that balance sheet revealed construction work in progress of Rs. 2,21,88,115/- and sundry creditors of Rs. 2,23,84,609/- which also included advances received for booking the building of Rs. 2,20,10,778/-. The A.O. further noted that balance sheet further contains that audit report is also annexed, but there is no audit report. As audit report was not furnished, the A.O. initiated proceedings to levy penalty Under Section 271B of the Act. The assessee submitted that he was following mercantile system of accounting and provisions of Section 44AB of the Act were not applicable in this case, as there was no turnover, sale or gross receipt as required Under Section 44AB. The A.O. considered the submission of the assessee and noted that essence of Section 44AB of the Act is that certain classes of assessees, specially bigger assessees should have their accounts audited and parameters of business was determined by gross receipt, sale or turnover. As per A.O., assessee was following mercantile system of accounting, but it was incorrect on its part to state that there have been no receipts, sales or turnover. He also noted that there was advance in respect of booking of the flats to the extent of Rs. 2.20 crores and the same was in the nature of receipt/incomings which shall be adjusted in the future years and corresponding expenses will also be claimed accordingly. He rejected the contention of the assessee that there was no receipt, turnover or sales. He also referred to the decision of Hon'ble Gujarat High court in the case of Rajkot Engineering Association and Ors. v. Union of India, 162 ITR 28, in which it was laid down that Section 44AB prescribes limits of turnover and gross receipt. Their Lordships have also observed that reasons are obvious and a particular privilege conferred or an obligation entailed with reference to the gross receipts or turnover or with the value of the property is not foreign to the present Income Tax Act. The A.O. was of the view that on the basis of above observation that Section 44AB of the Act prescribe mandatory limit, but the aim is not, just sales or turnover but even the value of the property is also within the scope of that provision. In the case of the assessee, there were advances of Rs. 2.20 crores and the very object of the provisions of Section 44AB was to cover the big assessees as in the present case and he levied penalty of Rs. 1 lakh for not getting the books of account audited.
3. Before the ld. CIT(A), the assessee reiterated the same submissions and pointed out that words "total sales", "turnover" or "gross receipt" have been used loosely and not without any amount of deliberateness as to their scope, meaning and effect and they appear to be interchangeable. He tried to explain his argument. It was further pleaded that these expressions allude to transactions which have a bearing on the computation of taxable income of an assessee under the Act from the business or profession carried on or deemed to be carried on by him. The amounts received should have profit making quality. In the case of assessee, it was pleaded that these amounts of advances do not have any bearing of the computation of taxable income. Reference to para 17.2 of Circular No. 387 dated 6.7.1984 was also made which had been reproduced by the ld. CIT(A) in para 5 of her order. Lastly, it was submitted that as per guidelines issued by Institute of Chartered Accounts, the assessee's case did not fall for audit, as in that guidelines it had been mentioned that in case a company is engaged in the business of construction and receives advances and is computing income on completion of project method, the amounts received against agreements for sale of flats would be treated as advances against sales and will not form part of the sales in these years. If in the year the. project gets completed and total sale exceeds Rs. 40 lakhs, then it will be necessary for such assessee to get the books of account audited Under Section 44AB of the Act. Assessee also submitted that case law referred to by the A.O. was entirely on different issue and the last plea was that assessee was under bonafide belief that it had not been able to get its accounts audited as in its case provisions of Section 44AB were not attracted.
4. The ld. CIT(A), after considering all the facts, gave relief by noting as under:-
"7. I have considered the submissions and facts of the case. I have also considered the case law referred by the A.O. The relevant Section 44AB talks of (total, sales, gross receipts and turnover). The appellant has given sufficient material to prove his belief that this case was not covered under the provisions of Section 44AB as no sales or business had taken place. Even the guidelines supplied to the CA did not suggest audit of, a concern which has received advance but no sale has taken place. Without going into the meaning of the term (total sales, gross receipts and turnover), it is quite clear that due to the interpretation available the appellant was prevented by a reasonable cause in getting his accounts audited. Therefore, the penalty is deleted."
5. The ld. D.R., placing reliance on the order of the A.O., submitted that undisputedly the assessee is in receipt of Rs. 2.20 crores from different customers and treated the same as advances. The said sum is to be included in the words "gross receipt" and the ld. CIT(A), instead of going into this issue, has simply gave benefit that assessee was having bonafide belief that its books of account were not to be audited Under Section 44AB of the Act inspite of the fact that assessee had filed balance sheet and mentioned therein that copy of audit report is enclosed which otherwise was not found available along with the return. It means the very basis of the ld. CIT(A) in deleting the penalty was not supported by the factual position and order of the ld. CIT(A) deserves to be reversed.
6. As against it, the ld. counsel for the assessee had reiterated the same submissions which were raised before the A.O. and the ld. CIT(A) and he has submitted written submissions and the same are reproduced below so that all the pleas of the assessee may be brought on record:-
"2. The appellant had received advances against booking of office and flats at Rs. 2.20 crores during the year but as the building was incomplete neither sales had been effected nor possession were handed over and hence it was claimed before the assessing authority that provisions of Section 44AB of Income Tax Act, 1961 were inapplicable in the present case.
3. Section 44AB of audit of accounts of certain persons carrying on business or profession states that "Every Persons
a) Carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year or.........
Get his accounts audited of such previous year.................
4. The applicability of sales and/or turnover is not contested as the same has not been raised by the ld A.O. who has applied 'gross receipts' taken as advance against booking of flats as applicable term in the appellant's case.
5. The expression 'total sales: turnover: 'gross receipts' appear to have been used loosely and not without any amount of deliberateness as to their scope, meaning and effect. Predominantly, they appear to be interchangeable. These expressions do not only overlap, but might confuse an assessee. For example 'total sales' means total of all sales: 'turnover' also means aggregate of sales: 'gross receipts' means similarly, entire cash received as sale price. These expressions have the sting of overlapping & convey analogous meaning. Though the expression 'total sales' carries a definite concept about it the other two expressions lack such concept whose construction and meaning depends upon the context and the subject matter. These expressions, therefore, in the context of Section 44AB be read as conveying idea proximate to what 'total sales' conveys. The decision of the Supreme Court in M.K. Ranganathan v. Govt. of Madras, AIR 1955 SC 604 indicates that a word is known by the company it keeps. The Supreme Court observed thus:-
"It is well recognized rule of construction that when two or more words are susceptible of analogous meaning are coupled together noscunter a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, that is more general is restricted to a sense analogous the legs general (Maxwell Interpretation of Statute, 10th edition, P.332. (P.609) 'Total Sales; 'turnover' and 'gross receipts' may broadly mean gross in flow of cash receivable and other consideration arising in the course of ordinary activities of an enterprise from the sale of goods or from the rendering of services. It is measured by the charges made to customers or clients for goods supplied or Services rendered to them and by the charges and rewards arising from the use of sources by them. It should, however, exclude amounts collected on behalf of the third parties trusts or obligations.
6. The expressions 'total sales; 'turnover, 'gross receipts' in Section 44AB allude to transaction which have a bearing on the computation of taxable income of an assessee, under the Income Tax Act, from the business or profession carried on or deemed to be carried on by him. The amounts received should have profit making quality about them. Section 5 of the Act defines scope of total income which is lent another name for taxable income as including all income which is either received by the assessee or which accurse to the assessee, or is deemed to be received or deemed to accrued under the Act, and Section 2(45) of the Act defines total income as meaning total amount of income referred to in Section 5, computed in the manner laid down in the Act. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss. The amounts, though received during the course of carrying on the business, would fall outside the scope of the expressions "total sale; 'turnover; 'gross receipts' if these do not have profit making quality about them.
7. On the aspect of introduction of Section 44AB, the Hon'ble Finance Minister in introducing the 1984 Bill & his budget proposals stated in the Parliament thus:-
"In order to discourage tax avoidance & tax evasion, I am also introducing some further measures in all cases where the annual turnover exceeds Rs. 20 lakhs or where the gross receipts from a profession exceed Rs. 10 lakhs, I am providing for a compulsory audit of accounts. This is intended to ensure that the books of account and other records are properly maintained and faithfully reflect the true income of the taxpayer.
8. The philosophy behind the compulsory audit is stated in para 17.2 of circular No. 387 dated 6.7.1984 as follows:-
"17.2. A proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably saving the time of A.O. in carrying out routine verification, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the A.O. thus saved could be utilized for attending to more important investigational aspects of a case."
9. In the above paragraphs, it is clear that the intention of legislature in enacting the provisions of Section 44AB of Income Tax Act, 1961 has been to the transactions effecting income and accordingly the A.O. was replied vide reply dated 1.9.1998 as under:-
"Section 44AB of Income Tax Act, 1961 is inapplicable in the applicant's case as there has not been any turnover or sales affected during the year. 'Gross receipts' as stated in Section 44AB also does not apply as the applicant has received advances from parties against booking for flats & shops and applicant's method of accounting is mercantile and applicant is not drawing a 'receipts & payments a/c' or/and 'receipts & expenditure a/c'. Receipts as contemplated Under Section 44AB is the one which is credited in the Trading or Profit & Loss A/c & not otherwise. In the case of an assessee following the mercantile system of accounting a credit entry in respect of receipt does not amount to a constructive receipt unless it is matched by sales in the case of stock. The term 'receipt' shall not apply in the assessee's case as it is dealing in goods in the form of constructed property which is under construction process."
Penalty thus imposed was contrary to the provisions of law, and was rightly cancelled by the Hon'ble Commissioner of Income Tax (Appeals), Lucknow."
7. I have considered the rival submissions, perused the record carefully and gone through the factual position which is not in dispute. The only question requires scrutiny is as to whether amount of Rs. 2.20 crores is to be included in the scope of word "gross receipt" used in Section 44AB of the Act. The first point raised by the ld. counsel for the assessee is that words used in Section 44AB are "total sales", "turnover" or "gross receipts" have been used by the legislature in loose manners without any amount of deliberateness. This argument of the ld. counsel is without any substance. Each and every word used in any provisions of any statute is having its importance and used by the legislatures after much deliberations. The words used in Section 44AB of the Act "total sales", "turnover" or "gross receipt" have been used specifically and the scope of words "gross receipt" is quite wide, otherwise the legislature would have stopped after using the words "sales" or "turnover". The ld. counsel for the assessee has not been able to show as to how the amount of Rs. 2.20. crores received as advance from customers will not be included in the words "gross receipt". Further, these amounts were having element of profit in Income Tax Act, 1961. The amount of advance was to be adjusted towards the cost of the flat booked by each customer and the amount of advance must be having cost of construction as well as element of profit, which may subsequently be bigger in proportionate when whole of the amount fixed for sale of flat is realized, but it cannot be said that the amount of advance received by the assessee will not be included in the scope of words "gross receipt".
8. The other plea of the ld. counsel for the assessee was in respect of the very object, for which Section 44AB of this Act was brought on statute. The philosophy behind the compulsory audit is stated in para 17.2 of circular 387 dated 6.7.1984 and reproduced by ld. CIT(A). There is no dispute about the very object of bringing provisions of Section 44AB and the same had further been laid down in the case of Rajkot Engineering Association and Ors. v. Union of India (supra) to the effect that object of Section 44AB of the Act read with Rule 6G of Income Tax Rules is to safeguard against tax evasion and tax avoidance which will ensure that the economic system does not result in concentration of wealth to the common detriment. The ld. CIT(A), while disposing off the appeal of the assessee, had referred to the guidelines issued by the Institute of Chartered Accountants. The same is quoted in para 6 of her order. The ld. counsel has not brought before me the said audit guidelines. Even if, for the sake of argument, the same may be treated as in existence, then the same will be against the very object behind Section 44AB of the Act. In case it is taken that assessee is following the system in which income is returned on completion of the project and in case project goes on for more than 5 years and assessee gets its books of account audited for last year in which project is completed, then from where A.O. will be able to verify the figures of expenses and receipts etc. of earlier years. So, it is against the very principle of Section 44AB that in project completion assessee would get the books of account audited in the last year and not in earlier years when he is debiting the expenses and showing sundry debits and different types of receipts are also there. On the basis of above, I am of the view that assessee at the outset had not been able to bring before me the audit guideline and even if such guideline is there, the same is against the very provisions of Section 44AB.
9. On the basis of above discussion, I am of the view that assessee was under obligation to get its accounts audited but the same has not been done and it is a case of levy of penalty.
10. Lastly, the ld. CIT(A) had given benefit to the assessee only on the ground that assessee was having bonafide belief that it was under obligation to get its books of account audited Under Section 44AB of the Act. This plea has wrongly been given importance because assessee had itself filed return mentioning therein audit report is enclosed which was not found along with that. It means assessee had mentioned filing of audit report along with return and thus assessee was aware that its books of account are to be audited, otherwise it would have taken this plea of bonafide belief even before the A.O. which is not there. This plea has wrongly been relied on by the ld. CIT(A) while deleting the penalty.
11. On the basis of above, I am of the definite view that it was a case in which penalty Under Section 271B was imposable and A.O. rightly imposed the same. Thus the ld. CIT(A) was not justified to delete the same.
12. The result is that appeal is allowed and order of the A.O. stands restored and that of the ld. CIT(A) is reversed.