By Bench: These twelve appeals pertain to two different assessees stated to be husband and wife, both aggrieved by levy of penalty under s. 271A which was partially confirmed by learned CIT(A)-I, Aurangabad vide orders dt. 23rd and 24th Dec., 2004 pertaining to years referred in above nomenclature. AO has levied penalty under s. 271A of Rs. 1 lakh in respect of both assessees for asst. yrs. 1997-98 to 2001-02 and Rs. 25,000 for asst. yr. 2002-03. Levy of penalty was challenged before CIT(A) who has reduced it to Rs. 45,000 for asst. yrs. 1997-98 to 2001-02 and Rs. 11,250 for asst. yr. 2002-03 identically in both cases. Being aggrieved of part relief, now appellants are before us challenging levy of penalty imposed under s. 271A of IT Act. facts of case leading to these appeals briefly were that survey was conducted under s. 133A on 20th March, 2003. During course of survey, appellants were asked to produce books of account. As per AO, it was admitted by appellant at time of survey that no books of account had been kept or maintained. apprehension has been expressed by AO that in absence of books of account, how they have computed correct income i n past. Though there was mention of investment in construction of hospital building in impugned penalty order but same is not relevant to mention in present context of levy of penalty. AO has elaborately discussed provisions of s. 44AA and also discussed r. 6F(3) of IT Rules. AO has also reproduced Form No. 2C prescribed in Rules to be provided by practitioners of any systems of medicine etc. It is pertinent to mention that both husband and wife are doctors engaged in medical profession. During course of survey action, certain books as available at that time and other documents were impounded by AO vide order dt. 20th March, 2003 under s . 131(3) of IT Act. Though on date of survey, assessee has accepted non-maintenance of accounts, however, later on retracted said statement recorded on 25th March, 2003 under s. 131 as stated in penalty order. In later statement, assessee has responded to question that all vouchers of hospital and clinic were lying with Mr. Ramesh Mohul, resident of Deolgaon Raja. There is reference in penalty order of another statement recorded on 4th April, 2003 and response of assessee in that statement was that books could not be produced, as appellant was unable to contact his accountant. In impugned penalty order, AO has simultaneously discussed and narrated some of portions of statement of Mrs. Madhubala Vinay Karnawat, other appellant. For sake of brevity, statement of Dr. Mrs. Karnawat is not reproduced being almost replica of statement of her husband, namely, Dr. Vinay T. Karnawat. It was deposed before Revenue authorities on 20th March, 2003, as reproduced in penalty order, that appellants were engaged in medical profession and also have taken hospital premises on rent since 1997. It was stated that for profession no regular books of account have been kept but OPD register, operation files, etc. have b e e n kept. It was also stated that daily gross receipts from medical profession were about Rs. 2,000 per day. Subsequently on 25th March, 2003, in statement recorded by Revenue authorities, portion reproduced in penalty order, it was stated that vouchers for expenses of hospital and clinic of himself and his wife were duly kept and books of account have also been maintained by one Mr. Ramesh Mohul. Due to changing stand of appellant, AO has observed that there was contradiction in statements and explanation was evasive in nature. AO has also mentioned that appellant has adopted delay tactics for killing time. He has mentioned that in between those two recording of statements at least five days time had passed but assessee has actually failed to produce books as alleged to have been maintained. One more statement was recorded on 4th April, 2003, wherein it was stated by appellant that books and vouchers could not be produced as he was unable to contact his accountant. Finally, AO has mentioned that till 8th April, 2004, assessee was not able to produce books and other documents. According to AO, several statements made by assessee were simply misleading and false. AO has also reproduced list and description of books which were prepared and impounded by Revenue authorities. Rest of order of AO, speaks about several provisions of IT Act and terminology used such as "accounts", dictionary meaning and power given to Revenue authorities under s. 133A for purpose of survey. Few more facts have also been referred to by AO such as that books of account, viz., cash book and ledgers have been later on produced and according to AO preparation of such books was afterthought which according to him were freshly prepared on computer. AO also mentioned that those books of account have been prepared after survey action. In this regard, AO has specifically mentioned that logical conclusion can be drawn that assessee had failed to produce books of account kept and maintained by him at time of survey and it was obligatory duty to provide books of account to surveying IT authority. AO was of view that assessee had never maintained or kept books of account. One more fact has also been mentioned on p. 16 para (k) by AO that it was seen from cash memo book (found during course of survey action) that it was maintained for himself as well as for his wife, names of both doctors were stated to be printed on those cash memo books, however, nowhere differentiated recipient s name separately. AO has mentioned that consulting charges have been recorded from patients amounting to Rs. 50 per patient as consultation charges. So, AO was of view that there was no regular "patient register" as prescribed. Vide para (m) AO has made following observations: "The survey conducted on 20th March, 2003 whereas so-called prepared and computerized books of account produced on 8th April, 2004. He produced alleged books of account almost after lapse of 386 days. During these 386 days, why assessee had kept books of account with him. Why he did not produce before IT authority during 386 days? It proves that he took almost 386 days to prepare computerized books of account which had not been with assessee on or before 20th March, 2003." conclusion of AO reads as follows: "This proves and makes crystal clear that assessee has had not maintained any type of books of account and other documents, etc. and simply misleading Department and law of land. above version manifests and it is conclusively beyond doubt that both assessees had not maintained books of account and other documents and patient register in Form No. 2C and as per r. 6F of IT Rules, 1962. At time of survey action under s. 133A of IT Act, 1961 assessee confessed and admitted in clear terms and words that he had not maintained aforecited books of account and other documents." So, AO has arrived at conclusion that since IT Rules makes it mandatory to maintain and keep books of account as prescribed under s. 44AA, which assessee has failed to produce, hence, liable for penalty under s. 271A of IT Act. With result, penalties were imposed in respect of years now in question of amounts already described in beginning of this order. Penalties were challenged before learned CIT(A). first appellate authority has provided opportunity of hearing to both sides. He has also called for remand report. Before learned CIT(A), printouts of computerized books of account have been produced. It was stated before learned CIT(A) that printouts have been taken out at relevant period of assessment years and accounts were prepared at that time. It was also stated that at that time accountant had given floppy and printouts on basis of which copies were obtained and produced. appellant has also vehemently objected certain observations of AO and stated that it could be proved with hard disk of computer that books were written at relevant time. Since there were contradicting statements, one by Revenue and other by appellant, learned CIT(A) has thought it proper to get report of AO as well as directed both sides to affix signatures on printouts produced. He has also directed AO to take possession of those printouts produced before him. There was some mention in impugned appellate order about dates of hearing before AO on which assessee wanted to produce printouts but same were not entertained by AO. So learned CIT(A) has asked explanation of AO that why AO had rushed to send report especially when appellant wanted to handover printouts. finding has been recorded by learned CIT(A) that as per assessment records, it was found that appellants have filed P&L a/c, balance sheet and other details of expenses for each of years concerned along with returns of income filed before date of survey. learned CIT(A) has also mentioned that action of levy of penalty under s. 271A was taken by has also mentioned that action of levy of penalty under s. 271A was taken by AO after lapse of nearly one year from date of survey. He has also mentioned that AO had not verified veracity of printouts and balance sheet, etc. which were enclosed with return and very much available with Department before date of survey. So, he has concluded that appellant has maintained books of account but has not kept them with him to be produced to AO at time of survey. So, he has dismissed AO s argument that P&L a/c and balance sheet might have been prepared without maintaining books of account and this plea of Revenue was not accepted. So, finally he has summarized that factually default committed by appellant was that he had failed to produce books of account at time of survey and also admitted at time of survey of non-maintenance of books of account as per statement recorded. In his opinion, books of account have not been maintained in manner prescribed under s. 44AA and r. 6F and proper compliance was not made at time of survey and books were kept at place beyond reach of AO on date of survey, therefore, infringed provisions of Act. learned CIT(A) was also not convinced with manner in which maximum penalty was imposed, hence he has held that it would be suffice to levy penalty to extent of Rs. 45,000 pertaining to asst. yrs. 1997-98 to 2001-02 and Rs. 11,250 for asst. yr. 2002-03. This part relief of penalties was not acceptable to appellants, hence they are further in appeal before us. Before us, learned Authorised Representative has argued at length and vehemently opposed manner in which survey was conducted and later on penalties were imposed. As far as first statement of appellant made on 20th March, 2003 at time of survey, learned Authorised Representative has categorically stated that said statement was made under extreme pressure as same was written by survey party at mid-night at 11.30 p.m. He has mentioned that Revenue Department came for survey at business premises at 10 a.m. and during that period insisted upon payment of tax of Rs. 10 lakhs and most of time enquired about investment in construction of hospital. Since they could not succeed in that direction, confessional statement was forcefully obtained wherein appellant has admitted out of frustration non-maintenance of books of account. Due to this reason, immediately thereafter retraction was made on 25th March, 2003 and as per said statement recorded under s. 131, appellant has categorically declared regular maintenance of books of account. learned Authorised Representative has also argued at length in respect of assessment reports produced at time of first appeal, books of account produced by survey party and several statements recorded by Revenue authorities. Part of it has already been discussed hereinabove while discussing background of case and action of AO. However, main plank of his argument was based upon sub-r. (4) of r. 6F of IT Rules. He has emphasized that assessee is required to keep and maintain books of account at place where he has carrying on profession of current year and assessee is not required under law to keep and maintain those books of account relating to previous year which has come to end. So, he has further clarified that current books of account were only required to be produced before survey party and in case of any failure, assessee is subject to penalty for that particular year and assessee is not required as well as expected to keep and produce books of account of earlier assessment years. In his kly worded arguments, learned Authorised Representative has mentioned that penalties were levied for earlier years and no action or penalty was levied for asst. yr. 2003-04 since survey was conducted on 20th March, 2003. He has challenged very basis of levy of penalty on ground that as per rule assessee has not committed any default and AO was beyond his jurisdiction to ask for production of books of account for past assessment years other than current year. According to him, entire exercise of levy of penalty was bad in law and malicious. As far as maintenance of books of account for rest o f assessment years, he has emphasized that returns were filed in regular manner in past along with P&L a/c and balance sheet based upon books of account maintained regularly, hence AO has illegally and wrongly levied penalty for non-maintenance of accounts in respect of those years. In support of this contention, he has drawn our attention to observations of learned CIT(A), remand report and certain statements of appellant. After elaborate arguments, not entirely reproduced, learned Authorised Representative has concluded that there was no infringement of r. 6F of IT Rules and assessment years for which penalties were imposed were not subject matter, hence entire penalty deserves to be quashed. On behalf of Revenue, learned Departmental Representative has supported action of AO and argued that there was clear default of s. 44AA on part of appellant as no proper books of account have been maintained as prescribed. assessee has not demonstrated that he has maintained books of account such as cash book, ledger, patient register, etc. hence committed default for which penalty under s. 271A was rightly imposed. He has emphasized that entire books of account of years under consideration were prepared only after survey action and same was mentioned by AO on number of occasions, hence assessee has tried to mislead Revenue authorities, therefore, deserved for penal action. As far as documents and books seized at time of survey were concerned, same were not reflecting true and correct picture of income earned by assessee in regular course of profession and from those books of account, current income could not be deduced, so penalty was rightly imposed on assessee. In support of action of AO and his arguments, he has relied upon decision in case of ITO vs. Mahesh M. Chandan (1993) 46 ITD 264 (Pune). After hearing submissions of both sides at length and on careful reading of impugned orders in respect of both appellants, we are of view that issue is within narrow compass of applicability of r. 6F of IT Rules though arguments travelled on other directions as well. To arrive at right conclusion, we deem it proper to extract some of portions of orders of AO and CIT(A), so that factual findings can be appreciated and also deem it necessary to reproduce relevant portions of sections involved in these appeals. Taxation Laws (Amendment) Act, 1975 has inserted s. 44AA statutorily superseded effect of few earlier decisions of Hon ble Courts as it was held that no adverse inference could be drawn against assessee for not having maintained any accounts of his income as old IT Act did not cast any obligation on assessee to maintain any accounts. Later on, some changes have been made in s. 44AA, therefore, amendments for purpose of these appeals, section as stood at that time states that "every person carrying on legal, medical, engineering or architectural profession or person carrying on legal, medical, engineering or architectural profession or profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by Board in Official Gazette shall keep and maintain such books of account and other documents as may enable AO to compute his total income in accordance with provisions of this Act". This section has also empowered power to prescribe any rules in this regard. We will discuss implications of concerned rule prescribed in this regard by Board little later but first it is worth mentioning at this juncture that penal provisions have simultaneously been introduced w.e.f. 1st April, 1976 by insertion of s. 271A. penalty is leviable under s. 271A if any person fails to keep and maintain any such books of account and other documents as required by s. 44AA or rules made thereunder in respect of any previous year or to retain such books of account and other documents for period specified in said rules. AO is empowered to impose penalty in case of default. It may be mentioned that w.e.f. 10th Sept., 1986, provisions of s. 273B have come into operation as inserted by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 and very appropriately it is provided in Act that no penalty shall be imposable on person or assessee for any failure referred to in said provision which includes s. 271A, if he proves that there was reasonable cause before imposition of any penalty listed in s. 273B. We have to examine this aspect while deciding these appeals. Next comes application of r. 6F. This rule prescribes that every person carrying on legal, medical, engineering, etc., profession shall keep and maintain books of account or other documents specified in sub-r. (2) of r. 6F. rule says that books of account and other documents are to be kept and maintained as mentioned under s. 44AA(3) and sub-r. (2) has listed books of account to be maintained by taxpayer. As pointed out by learned Authorised Representative, we have to examine applicability of sub-r. (4) of r. 6F. For reference sub-r. (4) is reproduced below: "The books of account and other documents specified in sub-r. (2) and sub-r. (3) [other than those relating to previous year which has come to end] shall be kept and maintained by person at place where he is carrying on profession or, where profession is carried on in more places than one, at principal place of his profession." (emphasis, italicised in print, supplied by us). application of sections referred to hereinabove has to be in specific sequence. Sec. 44AA provides in general that persons qualified as professionals carrying on business such as legal, medical, engineering, etc. are expected to keep and maintain such books of account as may enable AO to compute his total income in accordance with provisions of IT Act. Sub-s. ( 3 ) of s. 44AA empowers Board to prescribe rules for purpose of maintenance of books of account. Thus, r. 6F prescribes form and manner in which and place at which such books of account shall be kept and maintained. This rule prescribes that medical professionals have to maintain Form No. 3C as daily case register but most important part of this sub-r. (4) is that taxpayer is required and shall keep and maintain books at place where he is carrying on profession. taxpayer is not required to keep books of account relating to previous year which has come to end. While reproducing relevant portion of this sub-rule, we have already emphasized relevant portion by underlying same hereinabove. In statute, reference of r. 6F is not only in s. 44AA but there was mention of existence of rule in penal provision as well i.e. s. 271A. This s. 271A prescribes that documents as required by s. 44AA or rules made thereunder in respect of any previous year have to be maintained. So, applicability of rule has to be kept in mind even at time of imposition of penalty. In other words, penalty under s. 271A cannot be imposed in isolation, only with reference to s. 44AA, by ignoring r. 6F. However, admitted position is that penalties have been imposed for asst. yrs. 1997-98 to 2002-03 i.e. assessment years which have come to end on date of survey i.e. 20th March, 2003. Another admitted position is that no penalty was imposed for asst. yr. 2003-04. sub-r. (4) i s unambiguous and clearly indicates intention of legislature that taxpayer is required to keep and maintain books of account other than those relating to previous year which has come to end at place of profession. In view of these specific and unambiguous wordings, we have to examine whether AO was legally correct to impose penalty in respect of past assessment years for non-production or non-maintenance of accounts. From above discussion and on careful analyzation of sections involved, law emerges in clear terms that taxpayer is required to keep books of account at place of business or profession of current year other than those books of account relating to previous year which has come to end. After ascertaining legal position, now we have to examine factual aspect so as to ascertain whether assessee has committed any default for assessment years for which penalties were imposed. Certain factual findings are worth mentioning such as referred by learned CIT(A) that: "Quote As per assessment records produced by AO, it is seen that appellant has filed P&L a/c, balance sheet and details of expenses for each of years concerned with return of income filed before date of survey. AO has produced papers impounded at time of survey. register indicates details of OPD and indoor patients, but amounts received from such patients were not entered. Unquote." learned CIT(A) has further specified in subsequent para that P&L a/c and balance sheets were enclosed with returns and same were available with Department before date of survey. He has given very important factual findings that this indicated that appellant had maintained books of account but has not kept them with him to be produced to AO at time of survey. learned CIT(A) has concluded that "AO s argument that P&L a/c and balance sheet might have been prepared without maintaining books of account is not accepted". So, only default which was found by Revenue authorities was that appellant had not produced books of account at time of survey. Not only first appellate authority but AO has also admitted that books of account of relevant assessment years w e r e produced though after lapse of 386 days, relevant portion of assessment order already reproduced (supra). On basis of above factual matrix, it is manifest that books of account of earlier years were admittedly maintained by assessee and P&L a/cs, etc. were annexed along with returns filed in regular course of profession, however, those books of account were not available at time of survey and were beyond reach of AO on date of survey. So, question is that as per r. 6F(4), appellant has actually committed any default of non-production of books of account at time of survey? Obviously answer is negative. legal position is amply clear, as emerges out of above discussion, that assessee was expected to keep books of account of current year and not pertaining to years which have come to end. No penalty has been imposed for current year i.e. 2003-04 as survey was conducted on 20th March, 2003. Penalties have been imposed for assessment years which have come to end and for all those years, returns have already been filed much before date of survey as dates of filing of returns have duly been acknowledged in impugned penalty orders itself. In our considered opinion, penalties have been wrongly imposed on both counts firstly, same were asked to be produced beyond jurisdiction of sub-r. (4) of r. 6F and secondly, Revenue authorities have accepted maintenance of books of account of assessment years for which penalty was imposed for non-maintenance of accounts. We hereby hold that no default was committed by assessee of non-production of books of account pertaining to past assessment years which have already come to end at time of survey. With these observations and in view of detailed discussion made hereinabove, we hereby quash penalties levied by Revenue authorities. In result, all appeals filed by two assessees are allowed. *** DR. VINAY T. KARNAWAT v. INCOME TAX OFFICER