Penalty for failure to maintain books cannot stand where filed financial statements show underlying records were kept.

Penalty under section 271A cannot be sustained unless the Revenue establishes that the assessee failed to maintain books as required under section 44AA. Where the assessee disclosed the business activity and filed a belated return along with the balance sheet, profit and loss account, and income computation, those statements necessarily indicated underlying books of account. As the Assessing Officer had also acknowledged receipt of these documents, the statutory precondition for penalty was not met and the penalty was cancelled.

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Issues: Whether penalty under section 271A of the Income-tax Act, 1961 was justified for alleged failure to maintain books of account as required under section 44AA of the Income-tax Act, 1961.

Analysis: The assessee had disclosed the business activity, furnished a belated return, and filed the balance sheet, profit and loss account, and computation of income before the Assessing Officer. Those statements necessarily presupposed the existence of underlying books of account. The record also showed that the Assessing Officer had acknowledged receipt of these financial statements and return. On these facts, the basis for concluding that no books were maintained was not made out, and the statutory precondition for penalty under section 271A was absent.

Conclusion: The penalty under section 271A was not sustainable and was directed to be cancelled.

Ratio Decidendi: Penalty for failure to maintain books of account cannot be sustained where the assessee has filed financial statements and return evidencing maintenance of books and the alleged contravention of section 44AA is not established.

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