S.J. AGARWAL & CO. v. INCOME TAX OFFICER
[Citation -2007-LL-0215-3]

Citation 2007-LL-0215-3
Appellant Name S.J. AGARWAL & CO.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 15/02/2007
Assessment Year 2001-02, 2002-03
Judgment View Judgment
Keyword Tags warehousing corporation • business or profession • show-cause notice • tax audit report • civil contractor • prescribed limit • trading account • specified date • closing stock • opening stock • special audit • sales-tax
Bot Summary: In s. 44AB, reference is made to the word accounts and not to the words books of accounts or regular books o f accounts. There are three broad categories of accounts, such as, nominal accounts, real accounts and personal accounts where concerned debits a n d credits of a transaction are recorded. The complexity of accounts of the assessee is to be determined not only by the books of accounts, but even by other documents which are available in the course of an assessment and at any stage subsequent thereto may become available to the AO. To give a narrow meaning to the expression accounts so as to confine it to the books of accounts, submitted by the assessee simpliciter, would amount to giving an interpretation, which would completely defeat the very object of the section. In case where no proper books or regular books of accounts are maintained by the assessee but some accounts or books of accounts are maintained, the auditors would be in a position to give a qualifying report to be given under s. 44AB of the Act. In the light of the decisions of the Hon ble Delhi High Court in above two cases and the expression accounts used in s. 44AB of the Act, it is, thus, clear that the expression accounts used in s. 142(2A) or under s. 44AB is not merely books of accounts of the assessee, but it could include books of accounts, balance sheets and all other records maintained by the assessee, irrespective of the fact whether the accounts maintained by the assessee may or may not be in such form or manner or system as prescribed under s. 44AA of the Act. The interpretation given to the word accounts used in s. 44AB, by the assessee that it would include only the regular books of accounts required to be maintained under s. 44AA is prima facie an unsuccessful and non-bona fide attempt to create an unwarranted or unnecessary controversy as to the meaning of accounts as used in the s. 44AB of the Act so as to get himself rid of the obligation to get the accounts audited as contemplated under s. 44AB of the Act. The assessee s only reason given for not getting the accounts audited is that since he did not maintain any regular books or accounts or books of accounts the question of getting them audited under s. 44AB simply did or could not arise.


C.L. Sethi, J.M.: These two appeals filed by assessee are directed against common order dt. 16th July, 2004 passed by CIT(A) in matter of penalty imposed under s. 271B of Act for asst. yrs. 2001-02 and 2002-03. In these two appeals, assessee has challenged CIT(A) s order in confirming penalty levied by AO under s. 271B for not getting books of accounts audited as required under s. 44AB of Act. For asst. yr. 2001-02 return of income showing total income at Rs. 2,13,069 was filed by assessee on 31st March, 2003. From return of income it was noticed that assessee s turnover was Rs. 1,21,88,750. Similarly, turnover for asst. yr. 2002-03 was Rs. 2,82,94,674. As turnover of assessee exceeded Rs. 40 lakhs, AO has taken view that t h e assessee was under obligation to get its accounts audited by accountant before specified date and furnish audit report by that date as required under s. 44AB of Act. As assessee did not file return by due date nor furnished audit report by specified date, AO initiated penalty proceedings under s. 271B of Act for years under consideration. show-cause notice was, therefore, issued. In reply thereto, assessee has submitted that notice under s. 271B has been issued by AO by assuming that assessee has been maintaining regular books of accounts and has failed to furnish tax audit report as required under s. 44AB of Act within specified date. It was further submitted that assessee did not maintain regular books of accounts and as such question of getting same audited did or could not arise. It was therefore, submitted by assessee that assessee has committed offence under s. 44AA of Act and, thus, liable to be penalized under s. 271A of Act and not under s. 271B of Act. In support thereof, assessee relied on decision of Hon ble Gauhati High Court in case of Surajmal Parsuram Todi vs. CIT (1997) 142 CTR (Gau) 209: (1996) 222 ITR 691 (Gau). assessee s submissions were considered by AO. AO concluded that in light of statements enclosed with return of income, it was clearly proved that assessee had maintained proper books of accounts and, thus, penalty proceedings under s. 271B were not initiated merely on presumption. AO s observations are as under: "The submission made by assessee has been considered carefully and it is noticed that assessee has filed return of income and has annexed along with it statement of total income, trading, P&L a/cs and balance sheet as on 31st March, 2001. On going through these annexures it is observed that assessee has minutely included all items which are normally included in trading, P&L a/cs and balance sheet and figures are given to last decimals. From this it can be concluded that assessee has maintained proper books of accounts which can be audited and has failed to get these accounts audited as required under s. 44AB of Act. penalty proceedings initiated under s. 271B of Act are, therefore, not initiated on any assumption, but on clear- cut conclusion that assessee has maintained proper books of accounts as brought out above." In light of above conclusion drawn by AO, AO held that assessee did maintain books of accounts which were not audited without any reasonable cause and assessee has failed to furnish audit report by specified time as envisaged under provisions of s. 44AB of Act. He, therefore, levied penalty amounting to Rs. 60,943 for asst. yr. 2001-02 and Rs. 1,00,000 for asst. yr. 2002-03 being half per cent of total turnover. Being aggrieved, assessee has preferred appeals before CIT(A), before whom, assessee reiterated same contentions as were made before AO. After considering AO s order, assessee s submissions and facts of case, CIT(A) upheld AO s order in levying penalty under s. 271B of Act by discussing and observing issue as under: "3. AO after consideration of submissions of appellant gave finding that on verification of statements of account of appellant filed along with return of income, it was noticed that figures reflected in these accounts were very minutely given under each head and this could not be possible in absence of books of accounts maintained. AO also noticed continuity of appellant s account from fact of appellant showing closing stock of asst. yr. 2001-02 as opening stock of subsequent asst. yr. 2002-03, which in opinion of AO corroborated that appellant had maintained regular books of accounts. Thus, AO observed that since appellant had maintained regular books of accounts, which appellant had failed to get audited under s. 44AB of IT Act, 1961, penalty proceedings under s. 271B of IT Act, 1961 were not initiated on assumption, but were rightly initiated. In opinion of AO, decision relied upon by appellant was not applicable to its case. According to AO, acceptance of default under s. 44AA of IT Act, 1961 by appellant proved that appellant was aware of quantum of penalties for defaults, both under ss. 44AA and 44AB of IT Act, 1961 and it was only ploy to escape from consequence of penalty under s. 271B of IT Act, 1961, which would have charged appellant with more amount of penalty than maximum penalty leviable under s. 271A of IT Act, 1961. Accordingly, AO was satisfied that appellant had maintained regular books of accounts, which it failed to get audited as required under s. 44AB of IT Act, 1961, and, therefore, penalty under s. 271B of IT Act, 1961 was leviable on appellant. Consequently, impugned penalties were imposed upon appellant, against which present appeals have been filed. During course of appellate proceedings also, appellant s contention is that when it had not maintained any regular books of accounts, how did question of auditing same arise, which fact has been overlooked by AO before issuing notice under s. 271B of IT Act, 1961. In support of this contention, judgment of Gauhati High Court reported in Surajmal Parsuram Todi vs. CIT (1997) 142 CTR (Gau) 209 and decision of Delhi Tribunal reported in Chadha Sudhir Kumar vs. ITO (1996) 56 ITD 470 (Del) were referred to. appellant thus pleaded that in its case, absence of regular books of accounts absolved it from obligation of complying with provisions of s. 44AB, for which provisions of s. 271A should have been applied for non- compliance of s. 44AA of IT Act, 1961. appellant, therefore, pleaded for cancellation of penalties levied for assessment years under appeal. I have considered submissions of appellant. As rightly pointed out I have considered submissions of appellant. As rightly pointed out by AO, trading, P&L a/cs of appellant have been drawn up containing all details of receipts and expenses squared off to single rupee, which implies that appellant must have maintained some books account to cull out figures of expenses, like material, labour, transport, diesel, repair, office, travelling, conveyance, etc., besides expenses like bank interest, sales-tax, depreciation, etc. Such precise drawing up of trading, P&L a/cs could not be possible, unless appellant maintained records for quantifying various expenses as well as receipts, like commission, interest and hire-purchase. I would, therefore, hold that appellant was indeed maintaining books of accounts, but while responding to penalty notice issued under s. 271B of IT Act, 1961, raised defence that no books of accounts were maintained to avoid penal consequences of s. 271B of IT Act, 1961, which are more harsh than penalty consequences under s. 271A of IT Act, 1961. I do not find any reason to differ with findings of AO and penalties levied for assessment years under consideration are confirmed." Still aggrieved, assessee has preferred these appeals before Tribunal. assessee has given synopsis of arguments as under: assessee has not maintained books of accounts. When books of accounts are not maintained, audit of same cannot take place: (i) Ram Prakash C. Puri vs. Asstt. CIT (2000) 68 TTJ (Pune) 703: (2001) 77 ITD 210 (Pune) Para 6; (ii) Surajmal Parsuram Todi vs. CIT (supra); (iii) Chadha Sudhir Kumar vs. ITO (1996) 56 ITD 470 (Del), Para 2/Para 7. AO as well as CIT(A) have presumed that books of accounts have been maintained. On basis of presumption penalty cannot be imposed. (i) CIT vs. Ravail Singh & Co. (2002) 173 CTR (P&H) 429: (2002) 254 ITR 191 (P&H), Para 5; (ii) Bombay Hardware Syndicate vs. CIT 1978 CTR (Mad) 273: (1978) 114 ITR 586 (Mad), Para 4; (iii) CIT vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295: (1972) 83 ITR 369 (SC), Para 8; (iv) Smt. Sheila Rani Anand vs. IAC (1994) 48 TTJ (Asr) 560: (1994) 48 ITD 352 (Asr), Para 13. AO as well as CIT(A) have not adduced any evidence on maintenance of books of accounts. Simple furnishing of final accounts has been equated with maintenance of books. Assumptions and estimates can not lead to penalty. (i) Addl. CIT vs. E. Bhoopathy (1978) 113 ITR 188 (Mad) Para 5; (ii) CIT vs. Subhash Trading Co. (1996) 131 CTR (Guj) 121: (1996) 221 ITR 110 (Guj), Para 12. learned Departmental Representative, on other hand, submitted that assessee s stand that it did not maintain books of accounts is totally false in light of materials and statements enclosed with return of income. He further submitted that all statement of accounts annexed with return of income have been taken into account by AO as well as by CIT(A) for coming to conclusion that assessee did maintain records for quantifying receipts as well as various expenses and as such assessee was under obligation to get these records or documents or books of accounts, as case may be, audited and to furnish report thereof as required under s. 44AB of Act, and since assessee has not given any satisfactory reason in not doing so, authorities below were very much justified in levying penalty. I have heard both parties on this issue and have deliberated upon relevant provisions of law. There is no quarrel as to proposition that as and when any assessee does not maintain any accounts whatsoever, question of getting accounts audited as contemplated under s. 44AB does not or could not arise. In other words, when person does not maintain any accounts, there could not be any possibility of any default contemplated under s. 44AB of Act. However, before applying this proposition in given case, it is necessary to ascertain and see first as to whether assessee was maintaining any accounts or not. Sec. 44AB of Act requires every person carrying on business or profession with gross receipts or turnover or sales exceeding prescribed limits to get his "accounts" audited before specified date and furnish by that date report of such audit in prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. Under s. 44AB of Act, requirement is to get "accounts" audited and to furnish report of such audit by specified date. In s. 44AB, reference is made to word "accounts and not to words "books of accounts" or "regular books o f accounts". requirement under s. 44AB is to get "accounts" audited. "accounts" denotes statement of debits and credits or reckoning of business dealings. There are three broad categories of accounts, such as, nominal accounts, real accounts and personal accounts where concerned debits n d credits of transaction are recorded. nominal accounts deal with revenue and expenditure, real accounts deal with assets and capital and personal accounts deal with list of creditors and debtors. Therefore, whatever records or documents where entries (i) dealing with revenue and expenditure; (ii) giving details of assets and liabilities; and (iii) recording details of creditors and debtors, are made, in whatever mode or form or manner, that would come within term "accounts". It is altogether different matter that though any person maintaining only accounts may not maintain same so accurately or precisely and/or in such manner or system or procedure and/or in such books or records as may be prescribed under any guidelines or rules or notifications issued from time to time by any lawful authority, but still accounts whatsoever maintained by him would nonetheless be considered to be "accounts" of his business or profession for purpose of s. 44AB of Act. Therefore, any records or books or documents whatsoever and in whatever manner or system are maintained or kept by any assessee in respect of revenue and expenditure, assets and capital and/or creditors and debtors of his business or profession are required to get audited by accountant by specified date and report of such audit should have been furnished by such date to ITO if assessee s turnover exceeded prescribed limit as envisaged under s. 44AB of Act. At this stage, useful reference may be made to provisions of s. 142(2A), where it has been provided that if, at any stage of proceedings before him, AO having regard to nature and complexity of accounts of assessee and interests of Revenue, is of opinion that it is necessary so to do, he may, with previous approval of Chief CIT or CIT, direct assessee to get accounts audited by accountant, as defined in Explanation below sub-s. (2) of s. 288, nominated by Chief CIT or CIT in this behalf and to furnish report of such audit in prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as AO may require. words used in s. 142(2A) are in pari materia with words used in s. 44AB of Act, where also, it is provided that every person carrying on business or profession shall, if his total sales, turnover or gross receipts exceed specified limit in any previous year, get his accounts of such previous year audited by accountant before specified date and furnish by that date report of such audit in prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. In both sections, expression used by legislature is "accounts" which are required to be got audited, and not expression "books of accounts" or "regular books of accounts" or "such books of accounts as required to be kept and maintained under s. 44AA of IT. Act". expression "accounts" used in s. 142(2A) had come for interpretation before Hon ble Delhi High Court in two cases, namely, (i) Central Warehousing Corporation vs. Secretary, Department of Revenue & Ors. (2005) 196 CTR (Del) 426: (2005) 277 ITR 452 (Del) and (ii) Rajesh Kumar, Prop., Surya Trading vs. Dy. CIT (2005) 194 CTR (Del) 377: (2005) 275 ITR 641 (Del). In latter case of Rajesh Kumar, Prop., Surya Trading vs. Dy. CIT (supra), Division Bench of Hon ble Delhi High Court has held that there is no merit in contention raised on behalf of petitioner that expression "accounts of assessee" can only refer to books of accounts of assessee and not other records available before AO for examination or otherwise. the other records available before AO for examination or otherwise. complexity of accounts of assessee is to be determined not only by books of accounts, but even by other documents which are available in course of assessment and at any stage subsequent thereto may become available to AO. To give narrow meaning to expression "accounts" so as to confine it to books of accounts, submitted by assessee simpliciter, would amount to giving interpretation, which would completely defeat very object of section. Similarly, in former case of Central Warehousing Corporation vs. Secretary, Department of Revenue & Ors. (supra), Division Bench of Hon ble Delhi High Court held that expression "accounts" used in s. 142(2A) is not merely books of accounts of assessee. It includes books of accounts, balance sheets and all other records, which are available to AO during course of assessment proceedings. General audit, as contemplated under s. 44AB, is obligation of assessee, while special audit contemplated under s. 142(2A) is power vested in AO to direct special audit, over and above general audit. Sec. 44AA provides for keeping and maintaining such books of accounts and other documents as may enable AO to compute total income in accordance with provisions of Act. accounts and other documents required to be kept and maintained under s. 44AA may be prescribed by Board by making rules. It is thus clear that s. 44AA is concerned with keeping and maintenance of books of accounts and other documents as would enable AO to compute total income in accordance with provisions of Act and as may be prescribed by Board and not with regard to any accounts maintained by assessee. Merely because assessee has not kept or maintained such books of accounts and other documents as required under s. 44AA that would not by itself be sufficient to say that any other accounts whatsoever maintained by assessee, shall not be required to get audited under s. 44AB of Act. It is pertinent to note that in audit report in Form No. 3CB, auditor is competent enough to give his qualification report that whether, in his opinion proper books of accounts were kept by assessee so far as it appears from his examination of books. In case where no proper books or regular books of accounts are maintained by assessee but some accounts or books of accounts are maintained, auditors would be in position to give qualifying report to be given under s. 44AB of Act. In Form 3CD, column No. 9 is prescribed under which auditor is required to state whether books of accounts are prescribed under s. 44AA, and, if yes, list of books prescribed is to be given. In other words, if books of accounts maintained by assessee were not prescribed under s. 44AA, auditor would say so in his report. In cols. (a), (b) and (c) of col. (9) of Form 3CD, there is requirement of giving list of books of accounts maintained, implying thereby that whatever books were maintained by assessee that are to be stated in cols. (a), (b) and (c) of col. 9. Thus, for purpose of s. 44AB, it is not necessary that any books of accounts or any accounts maintained by assessee should at first be such books of accounts as required under s. 44AA of Act. In light of decisions of Hon ble Delhi High Court in above two cases and expression "accounts" used in s. 44AB of Act, it is, thus, clear that expression "accounts" used in s. 142(2A) or under s. 44AB is not merely books of accounts of assessee, but it could include books of accounts, balance sheets and all other records maintained by assessee, irrespective of fact whether accounts maintained by assessee may or may not be in such form or manner or system as prescribed under s. 44AA of Act. Therefore, assessee s contention that as assessee was not maintaining any regular books of accounts, he was not supposed to get his accounts audited under s. 44AB of Act is devoid of any merit. interpretation given to word "accounts" used in s. 44AB, by assessee that it would include only regular books of accounts required to be maintained under s. 44AA is prima facie unsuccessful and non-bona fide attempt to create unwarranted or unnecessary controversy as to meaning of "accounts" as used in s. 44AB of Act so as to get himself rid of obligation to get accounts audited as contemplated under s. 44AB of Act. We further hold that giving such meaning to expression "accounts" as given by assessee would completely defeat very purpose and object of s. 44AB of Act, which has been inserted in statute to ensure that books of accounts and other records are properly maintained, that they faithfully reflect income of taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate administration of tax laws by proper presentation of accounts before tax authorities and considerably saving time of AOs in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. time of AOs thus, saved could be utilized for attending to more important investigational aspects of case. In this case, assessee s contention to effect that it did not maintain any accounts, need to be examined in light of facts and material available on record. AO in penalty order has categorically stated that assessee filed return of income along with enclosures viz. statement of total income, trading account, P&L a/c and balance sheet as on 31st March, 2001. AO has also stated that on going through these annexures it was seen that assessee has minutely included all items which are normally required to be included in trading account, P&L a/c and balance sheet. It is also observed by AO that figures are given to last decimals. AO, therefore, concluded that assessee s stand taken in course of penalty proceedings that assessee did not maintain any books of accounts, is not correct. AO concluded that assessee did maintain some books of accounts which were required to be audited under s. 44AB of Act. CIT(A) in his order has also stated that trading account, P&L a/c and balance sheet submitted by assessee contain all details of receipts and expenses squared up to single rupee, implying thereby assessee has maintained some books of accounts to cull out figures of expenses like materials, labour, transport, diesel, repairs, office, travelling, conveyance, etc., besides expenses like bank interest, sales-tax, depreciation. CIT(A) has also observed that such precise drawing of trading, P&L a/c could not be possible unless assessee maintains some records for quantifying various expenses as well as receipts like commission, interest and hire purchase. In light of these specific materials available on record, CIT(A) held that assessee was indeed maintaining records and books of accounts on basis of which trading account, P&L a/c and balance sheets were drawn up by assessee. These specific findings and observations of AO as well as of CIT(A) have not been disproved by assessee to be false and misleading. assessee has not given any clarification in this regard. fact that assessee has submitted trading account, P&L a/c with minute details of all expenses as observed by AO as well as by CIT(A) in their respective orders, have not been disproved by assessee except by making general submission that assessee did not maintain any regular books of accounts. It is altogether different matter that manner, form and system of maintaining accounts by assessee may not be accurate and complete or may not be as per requirement of s. 44AA of Act, but that by itself would not lead to logical conclusion that assessee was not maintaining any accounts for receipts as well as for expenses on basis of which assessee has himself drawn trading account, P&L a/c and balance sheet with minute details. I, therefore, do not agree with assessee s contention that assessee did not maintain any accounts or records in respect of its business. assessee s further contention that AO has drawn conclusion that assessee did maintain books of accounts is purely based on presumption is not acceptable, inasmuch as, as discussed above, AO has drawn conclusion not on mere presumption that assessee might have maintained books of accounts but he has drawn conclusion on basis of documents or annexures filed along with return of income submitted by assessee. In light of facts pointed out by AO as well as by CIT(A) and in light of discussions made above, I am of considered view that AO as well as CIT(A), not merely on presumption but rather on basis of adequate and sufficient evidences enclosed with return of income filed by assessee itself, have concluded that assessee did maintain accounts which were required to be audited under s. 44AB of Act. Therefore, decisions relied on by assessee are not at all applicable to present case where categorical finding has been arrived at that assessee did maintain some accounts on basis of which trading account, P&L a/c and balance sheet with all minute details of receipts and expenses were prepared and were also filed along with return of income. Having regard to totality of facts and circumstances of case, assessee s contention that he did not maintain any books of accounts of any accounts is without any merit being not supported by any adequate or reliable evidence. assessee has taken this plea only with view to avoid consequences of provisions of s. 271B of Act. assessee s such stand taken after receiving show- cause notice of penalty from AO, is not at all found to be bona fide and genuine but is found to be after thought. assessee has not come with c le n hands. assessee has made attempt to hide accounts whatsoever maintained by it from Department. Therefore, there was default on part of assessee under s. 44AB without any sufficient and reasonable cause, is without any doubt. On facts of present case, decision of Gauhati High Court in case of Surajmal Parsuram Todi vs. CIT (supra) is distinguishable inasmuch as in case before Hon bie Gauhati High Court, it was admitted fact that assessee did not maintain any books of accounts and in that case it was held that question of books of accounts being audited as per provisions of s. 44AB did not arise. Similarly, decision of Tribunal, Pune SMC Bench, in case of Ram Prakash C. Puri vs. Asstt. CIT (supra) is also of no help to assessee inasmuch as facts of case are on quite different footing. In that case, it was admitted position that assessee was civil contractor and did not maintain any books and had returned income by estimating profits on contract receipts. However, in case before us, assessee has not returned income by estimating profit but, by drawing trading account, P&L a/c and balance sheet with all details to decimals as rightly pointed out by AO as well as by CIT(A) in their respective orders. In case of Chadha Sudhir Kumar vs. ITO (supra), AO himself has admitted fact that assessee did not maintain any accounts in respect of contracts executed by him and profit was declared on estimated basis. It is thus clear that assessee s case is quite distinguishable on facts as compared to aforesaid cases relied on by assessee. Now question arises as to whether for default committed by assessee under s. 44AB, penalty under s. 271B is still leviable. Sec. 273B provides that notwithstanding anything contained in provisions of s. 271B, amongst other sections, no penalty shall be imposable on person or assessee, as case may be, for any failure referred to in concerned provisions if he proves that there was reasonable cause for said failure. It provisions if he proves that there was reasonable cause for said failure. It is thus to be seen that as to whether assessee has been able to prove that there was reasonable cause for assessee for not getting its accounts audited under s. 44AB of Act and then to furnish report by specified date. assessee s only reason given for not getting accounts audited is that since he did not maintain any regular books or accounts or books of accounts question of getting them audited under s. 44AB simply did or could not arise. No other reason or reasons have been given by assessee for not complying with provisions of s. 44AB of Act. On facts and present case, assessee s stand that he was not maintaining any books of accounts and as such question of getting them audited under s. 44AB did not arise, is not found to be at all bona fide and honest one as held by us above. assessee has taken this stand with motive to avoid penal consequences of s. 271B of Act. It is thus clear that assessee has not been able to give any sufficient and reasonable cause for not getting accounts whatsoever maintained by him audited under s. 44AB of Act. In light of discussions made above, I am therefore, inclined to uphold order of CIT(A) in confirming penalty imposed by AO under s. 271B of Act for both assessment years under consideration. In result, appeal filed by assessee is dismissed. *** S.J. AGARWAL & CO. v. INCOME TAX OFFICER
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