Reasonable cause defeated penalty for failure to maintain accounts where sufficient records enabled income computation.

Penalty under section 271A for alleged non-compliance with section 44AA was held unsustainable where the assessee showed reasonable cause under section 273B. The record indicated that, despite not maintaining a cash book and ledger due to limited education and inability to engage an accountant, the assessee kept sufficient particulars of bank accounts, investments, drawings, tax payments, contract receipts and outstanding credits, which had enabled income computation in earlier years and in the relevant year. The penalty order was also defective because it did not properly record a finding on reasonable cause, and the applicability of rule 6F to contract receipts was found doubtful, so the penalty was cancelled.

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Issues: Whether penalty under section 271A was leviable for alleged non-compliance with section 44AA, and whether the assessee had shown reasonable cause within section 273B.

Analysis: The assessee stated that, because of limited education and inability to engage an accountant, cash book and ledger were not maintained, though particulars such as bank accounts, investments, drawings, tax payments, contract receipts and outstanding credits were kept and had enabled computation of income in earlier years as well as in the year under consideration. The assessment was completed under section 143(1) without difficulty. The order levying penalty did not record a proper finding on reasonable cause under section 273B, and the applicability of rule 6F to contract receipts was found doubtful.

Conclusion: The penalty was not sustainable and was cancelled in favour of the assessee.

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