Non-maintenance of books can attract penalty, but audit penalty may not apply where no books existed to be audited.

Penalty under section 271A is sustainable where an assessee fails to maintain books of account despite crossing the statutory threshold under section 44AA, and no reasonable cause is shown. Penalty under section 271B for failure to get accounts audited is not justified where the books were not maintained at all, because the audit obligation cannot operate in the same manner on non-existent records and impossibility of performance was recognised. The result is that the non-maintenance default attracts penalty, while the separate non-audit penalty is deleted, giving partial relief to the assessee.

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Issues: (i) Whether penalty for non-maintenance of books of account under section 271A was sustainable; (ii) Whether penalty for failure to get accounts audited under section 271B was sustainable where books of account were not maintained.

Issue (i): Whether penalty for non-maintenance of books of account under section 271A was sustainable.

Analysis: The assessee did not maintain books of account despite the business receipts crossing the statutory threshold requiring maintenance of accounts under section 44AA of the Income-tax Act, 1961. No material was produced to rebut the findings of the lower authorities or to show reasonable cause for the default.

Conclusion: The penalty under section 271A was upheld and is against the assessee.

Issue (ii): Whether penalty for failure to get accounts audited under section 271B was sustainable where books of account were not maintained.

Analysis: The dispute on turnover was considered in the context of the obligation to get accounts audited under section 44AB of the Income-tax Act, 1961. Since the assessee had not maintained regular books of account, the requirement to obtain audit could not be enforced in the same manner, and the earlier coordinate bench view treating such a situation as one of impossibility of performance was followed.

Conclusion: The penalty under section 271B was deleted and is in favour of the assessee.

Final Conclusion: The penalty for non-maintenance of books of account was sustained, but the penalty for non-audit of accounts was deleted, resulting in partial relief to the assessee.

Ratio Decidendi: Where non-maintenance of books of account is established, penalty for that default may be sustained, but a separate penalty for failure to get those non-existent books audited is not justified when the factual matrix shows impossibility of performance.

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