2018 (5) TMI 1985 - AT - Income Tax

Penalties upheld for unreported income and improper record-keeping, one penalty overturned due to audit impossibility.

The ITAT confirmed penalties under Sections 271(1)(c) and 271A for failure to report business receipts and maintain books of account. However, the penalty ... Penalty U/s 271(1)(c) - undisclosed business carried out in the name and style of M/s Jharkhand Electric & Electronics, which has not been disclosed in the return of income - AO worked out the turnover and estimated the NP rate at 5% against 4.11% declared by the assessee and made addition - HELD THAT:- A clear case where the assessee has failed to report the business receipts in respect of her regular business activities while filing her return of income and subsequently, when the matter was selected for scrutiny, she has come forward and submitted the details of its trading and profit/loss account. The explanation of the assessee in not reporting the said business receipts in her original return of income by merely stating that the same was inadvertently not reported doesn't inspire any confidence in us. Hence, the levy of penalty on such unreported business receipts under section 271(1)(c) is hereby confirmed. Penalty u/s 271A - non-maintenance of books of accounts - HELD THAT:- As the assessee was having turnover exceeding ₹ 60 lacs during the year under consideration, the provisions of Section 44AA of the Act are clearly applicable and the assessee was liable to maintain her books of account. Nothing has been brought on record which demonstrates any reasonable cause on part of the assessee in non- maintenance of her books of accounts. Therefore, we confirm the action of the AO in levying penalty under section 271A and the ground of appeal is hereby dismissed. Penalty U/s 271B - not getting the books of account audited - HELD THAT:- Once the penalty has been levied for non-maintenance of books of accounts, there cannot be penalty again for non-audit of books of accounts which were not kept at first place. It is clearly a case of impossibility of performance where it is expected that the assessee should get her books of accounts audited when it is a known and admitted fact that there are no regular books of accounts which have been maintained at first place. Our view is fortified by the decision of SURAJMAL PARSURAM TODI [1996 (8) TMI 102 - GAUHATI HIGH COURT]wherein it was held that when a person commits an offence by not maintaining the books of accounts as contemplated under section 44AA, the offence is complete and after that, there can be no possibility of any offence as contemplated under section 44AB and therefore, the imposition of penalty under section 271A is erroneous. In the result, the levy of penalty under section 271B is hereby deleted. Issues Involved:1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Levy of penalty under Section 271A of the Income Tax Act, 1961.3. Levy of penalty under Section 271B of the Income Tax Act, 1961.Detailed Analysis:1. Levy of Penalty under Section 271(1)(c):The assessee was engaged in the business of electronics items through two entities, M/s Krishna Electronics and M/s Jharkhand Electric & Electronics. During the assessment proceedings, it was found that the assessee had not disclosed the business carried out under M/s Jharkhand Electric & Electronics in the return of income. The Assessing Officer (AO) made an addition of Rs. 4,80,500 to the assessee's income based on estimated turnover and net profit rate, and initiated penalty proceedings under Section 271(1)(c) for concealing particulars of income.The assessee did not appeal against the additions, and during penalty proceedings, the AO observed that the assessee's submissions were general and unconvincing. Consequently, a penalty of Rs. 73,022 was levied. The CIT(A) confirmed the penalty, and the assessee appealed to the ITAT.The ITAT noted that the assessee failed to report business receipts in the original return and only disclosed them during scrutiny. The explanation that the omission was inadvertent did not inspire confidence. Thus, the penalty under Section 271(1)(c) was confirmed.2. Levy of Penalty under Section 271A:The AO observed that the total turnover of the assessee's business exceeded Rs. 60 lakhs, making it mandatory to maintain books of account under Section 44AA. The assessee failed to do so, and a penalty of Rs. 25,000 was levied under Section 271A. The CIT(A) confirmed this penalty, stating that no reasonable cause was shown for not maintaining the books.The ITAT upheld the penalty, noting that the turnover exceeded the threshold and the assessee did not provide any reasonable cause for non-maintenance of books of accounts.3. Levy of Penalty under Section 271B:The AO also noted that the assessee failed to get the books of account audited as required under Section 44AB, given the turnover exceeded Rs. 60 lakhs. A penalty of Rs. 51,341 was levied under Section 271B. The CIT(A) confirmed this penalty, referencing the decision in S.J. Agarwal & Co. Vs ITO.Before the ITAT, the assessee argued that the penalty under Section 271B should not be levied as the books of account were not maintained, citing decisions from various courts. The ITAT agreed, noting that once the penalty for non-maintenance of books under Section 271A was upheld, it was impossible to audit non-existent books. Thus, the penalty under Section 271B was deleted.Conclusion:The ITAT confirmed the penalties under Sections 271(1)(c) and 271A due to the assessee's failure to report business receipts and maintain books of account. However, the penalty under Section 271B was deleted, recognizing the impossibility of auditing non-maintained books. The appeals for penalties under Sections 271(1)(c) and 271A were dismissed, while the appeal for the penalty under Section 271B was allowed.