Assessing agriculture income as business no basis for penalty u/s 271A for non maintaining books

Assessing agriculture income as business income no basis for imposing penalty u/s 271A as it would not ipso facto lead to conclusion that assessee was aware of the requirement maintaining books of accounts u/s 44AA

ABCAUS Neutral Case Law Citation:
ABCAUS 3677 (2023) (02) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming penalty order passed u/s 271A of the Income Tax Act, 1961 (the Act). by the Assessing Officer (AO) 

The in response to the notice under section 142(1) filed return of income declaring taxable income which was far less then basic exemption limit and net agriculture income.

The assessee explained the source of deposits in the bank account. The AO accepted the the explanation towards amount received from uncle. However, the explanation of the assessee regarding agriculture income was partly accepted by the AO and the balance amount was treated as income from business.

Accordingly, the AO completed the assessment, initiated penalty proceedings and finally levied a penalty under section 271A of the Act for default of not maintaining the books of accounts

Before the CIT(A), the assessee contended  that  the  assessee  was not  required to maintain the books of accounts under section 44AA as the  turnover of the assessee as well as income from business was not more than the minimum limit provided under the said provision.

Before the Tribunal, the assessee contended that the AO had made an addition to the business income from the agriculture income declared by  the assessee. The estimation made by the AO by treating the agriculture income as business income cannot be a basis of levy of penalty under section 271A of the Income Tax Act.

The Tribunal observed that out of agricultural income declared by the assessee, the AO accepted part of the agriculture income as the assessee filed the supporting evidence to that  extent. Since, the assessee did not file any supporting evidence for the remaining amount was treated as business income instead of agriculture income claimed by the assessee.

The Tribunal opined that in the given facts and circumstances, when the assessee had claimed the agriculture income, the assessee was under bona fide belief that he was not required to maintain the books of accounts as per the provisions of section 44AA(2)(i) of the Income Tax Act.

The Tribunal held that since in consequence of the assessment order, the income of the assessee was assessed as business income instead of agriculture income, it would not ipso facto lead to the conclusion that the assessee was very well aware about the requirement of keeping and maintaining the books of accounts.

The Tribunal further held that even business income of the assessee prior to the assessment order was not above the limit prescribed under section 44AA(2)(i) for keeping and maintaining the books of accounts, therefore, the case falls in the ambit of reasonable cause for the said failure as provided under section 273B of the Income  Tax  Act. 

Accordingly, the penalty levied under section 271A of the Income Tax Act was deleted.

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