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This is an appeal filed by the Assessee against the order dated 29.08.2019 passed by the Commissioner of Income Tax (Appeals)-3, Rajkot as against the confirmation of penalty levied u/s. 271B of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') relating to Assessment Year 2015-16.

Shri Jay Nalin Shah vs. ITO

2. The brief facts of the case is that the assessee is an individual who has filed the Return of Income for the Assessment Year 2015- 16 declaring total income of Rs. 6,11,880/-. The scrutiny assessment u/s. 143(3) was completed on 28.12.2017 assessing the total income at Rs.24,09,640/-. The Assessing Officer initiated penalty proceedings u/s. 271B of the Act on the alleged ground that the assesse had turnover of Rs. 4,79,20,728/- which exceed the limit as per the provisions of Section 44AB of the Act. The A.O. issued a show cause notice for levying penalty u/s. 271B. The assessee submitted that the A.O. himself has accepted the assessee has derived commission income of 2% from M/s. Flamingo Infra Pvt. Ltd. worth of Rs. 75,15,450/- and the assessee is providing huge accommodation entries and earned 2% commission on such transaction. Though the Assessing Officer has not accepted the explanation, however levied penalty of Rs. 1,50,000/- u/s. 271B of the Act.

Once the said eligibility is accepted, if we read the provisions of section 44AD and in particular sub-section (5), it clearly provides that an eligible assessee who claims his income from the eligible business is below the presumptive rate of 8% of total turnover or gross receipts, he shall be required to maintain books of accounts and also get them audited and furnish a report as required under section 44AB of the Act. Therefore, only in a scenario, where such a claim is made by the assessee whereby he claims that his income to be lower than 8% of total turnover or gross receipts, he will be required to maintain books of accounts and get them audited. Corresponding provisions are provided in section 44AA(2)(iv) of the Act as well. In the instant case, the assessee has not made any such claim in his return of income. Further, the Revenue has accepted the claim of the assessee as being eligible for such presumptive taxation where the assessee has reported a net profit of 8.09% on total reported turnover of Rs48,98,269. In such a situation, having not disturbed the said position under section 44AD, it cannot be said that the assessee has failed to get his books of accounted where undisclosed business receipts of Rs.43,34,064/- are brought to tax during the course of assessment proceedings and whereby the prescribed turnover threshold has been breached. Had the Revenue rejected the assessee's claim under section 44AD of the Act and thereafter, taking into consideration the declared turnover of Rs48,98,269 and undisclosed business receipts of Rs43,34,064, had come to a position that the assessee has failed to get offered his books of accounted, that in a such a scenario, the contention of the Revenue could have been accepted. Further, what has been referred in section 44AB is the books of accounts maintained in the regular course of business and where an admission is made by the assessee based on third party statement during the course of survey that the amount found deposited in the bank account belongs to the assessee, it cannot be said that regular books of accounts are maintained even in respect of unaccounted sales or business receipts and the penalty can be levied under section 271B of the Act. In this regard, we refer to the decision of the Coordinate Bench in case of Brij Lal Goyal vs. ACIT (supra) wherein it has been held as under:

"----11. It is evident from the aforesaid observation that books of account maintained in regular course only make the assessee eligible for grant of immunity from penalty and not with reference to any of such books, which have not been maintained in the regular course of business. Admittedly, the additional sales found as a result of search, was not recorded in the books of account regularly kept in the course of business by the appellant. Merely because the appellant accepted the additional sales for the purpose of assessment of the relevant year on the basis of entries in the seized documents, the same would not constitute accounts of the appellant maintained in the regular course of business and on that basis alone liability cannot be fastened on the assessee by holding him to have committed the default. Furthermore, the word "accounts" has not been defined under the IT Act. However, under s. 34 of the Indian Evidence Act, 1872, sanctity is attached to the books of accounts, if the books are indeed "account books", i.e., in original if they show on their face, that they are kept in the 'regular course of business'. So, the accounts under s. 34 of Indian Evidence Act means accounts which are maintained in the regular course of business. Accordingly we are satisfied that the record carrying entries from which the appellant admits of Shri Jay Nalin Shah vs. ITO additional sales are not the accounts as referred to under s. 44AB of the Act. On that basis it was not open to the AO to hold that the sales of the assessee as referred in s. 44AB of the Act have exceeded to Rs. 40 lakhs and by not getting such accounts audited from an accountant, the appellant has committed a default. Such a finding arrived at by the AO is reversed."

4.4. Thus the Ld. Counsel pleaded there is no justification of levying penalty u/s. 271B of the Act and requested to delete the same and allow the assessee appeal.

5. Per contra the Ld. D.R. appearing for the Revenue supported the order of the Lower Authorities and pleaded to confirm the levy of penalty u/s. 271B of the Act.

6. We have heard both sides arguments and perused the materials available on record including the Paper Book and case laws filed by the assessee. The consistent stand of the assessee is that his Shri Jay Nalin Shah vs. ITO business turnover is below sixty lakhs and no question of Audit Report u/s. 44AB of the Act and consequently penalty cannot be levied u/s. 271B of the Act. Further it is seen from the assessment order, unaccounted commission income at 2% by providing accommodation entries were found during the assessment proceedings and appropriate tax thereon was paid by the assessee. Section 44AB of the Act describes the books of accounts maintained in the regular course of business only. When an admission is made by the assessee based on third party statement during the assessment proceedings and that amount found deposited in the bank account belong to the assessee, it cannot be said that the regular books of accounts are maintained even in respect of unaccounted business receipts and penalty cannot be levied u/s. 271B of the Act. Jaipur Bench of this Tribunal has considered, the word "accounts" has not been defined under the Income Tax Act. However, u/s. 34 of the Indian Evidence Act, 1872 means accounts which are maintained in regular course of business. Thus the additional income accepted by the assessee during the course of assessment are indeed "accounts" as referred u/s. 44AB of the Act.