Deliberate non production of books of account is concealment of income – High Court

Deliberate non production of books of account held as concealment of income. Books maintained in computer even if lost can be generated. – High Court

ABCAUS Case Law Citation:
ABCAUS 2463 (2018) 08 HC

In number of, if not the most cases of civil contractors, they often and in particular when they find AO not “friendly” deliberately not respond to scrutiny notices and leave the AO no option but to make a best judgment assessment by estimating the income, say @ 8%. The contractor remains satisfy as he/she avoids uncomfortable verification and penalty u/s 271(1)(c) on the notion that no penalty can be imposed when income is estimated. However, as held in the following case, if the AO can establish that the non production of books of account and other details were deliberate, there is no escapement from the penalty for concealment of income.

In the instant case, the appeal filed by the assessee was directed against the order passed by the Income Tax Appellate Tribunal (Tribunal/ITAT) whereby the ITAT reversed the order of the Commissioner of Income Tax (Appeals) and sustained the penalty u/s 271(1)(c) of the Income tax Act, 1961 (the Act).

The assessee firm was carrying on work of civil construction. The return of income was processed under Section 143(1) of the Act. Later on the case was selected for scrutiny and notice under Section 143(2) of the Act was served on the assessee. 

During the course of the assessment proceedings, the assessee was required to produce books of account, expenses vouchers etc. The assessee neither produced books of account nor expenses vouchers etc., nor he filed the name and address of sundry creditors.

The asssessee took the plea before the Assessing Officer (AO) that its books of account were lost in transit for which an FIR was lodged. However, the AO noted that books of the assessee were generated through computer and, therefore, even if the audited books of account were lost, he could have submitted computer generated copies thereof for verification.

The AO was supported for his this stand from the audit report where the auditor has mentioned in column 9(b) as “Cash Book, Ledger maintained by computer”. In column 9(c) it was written that only cash book and ledger had been examined by auditor meaning thereby that no purchase voucher and expense voucher had been maintained by the assessee. In view of the aforesaid facts, the AO rejected the claim of the assessee regarding the books of account having been lost and invoked the provisions of Section 145(3) of the Act and completed the assessment by applying net profit rate of 8% on total contact receipt.

Against the aforesaid assessment, the assessee filed an appeal before the CIT(A) who did not believe the story set up by the assessee for loss of books of account. The CIT(A) specifically observed that the story was a cooked up story. He accordingly dismissed the appeal.

The AO thereafter, initiated penalty proceedings under Section 271(1)(c) of the Act. After considering the reply of the assessee to the notice, the AO passed the penalty order under Section 271(1)(c) of the Act and imposed the minimum prescribed penalty.

Aggrieved by the aforesaid penalty order, the assessee filed an appeal before the CIT(A). The CIT(A) held that the only reason for application of Section 145 of the Act was loss of books of account and the income was determined by applying flat rate on the returned turn over. The CIT(A) was of the view that the assessee was not guilty either of fraud or willful negligence. The CIT(A) further held that there was no positive proof regarding concealment of income and, therefore, the order passed by the AO under Section 271(1)(c) of the Act was set aside. 

The Department filed an appeal against the aforesaid order of the CIT(A) before the Tribunal. The Tribunal in its impugned judgment and order has held that it is not in dispute that the assessee could not furnish books of account, expenses vouchers etc. either before the AO or before the CIT(A) and same could not be furnished before the Tribunal as well. Though it was an admitted fact that the books of account were maintained in the computer but the computer generated copies were also not furnished for verification.

The Tribunal held that there was a deliberate attempt on the part of the assessee to conceal the particulars of income by not producing the books of account, bills, vouchers etc., despite several opportunities given to the assessee. It was not the case that the assessee did not have the books of account inasmuch as the same were prepared in the computer but the assessee deliberately did not produce the same and failed to file appropriate explanation with regard to concealment of particulars of income. 

The Tribunal also held that non production of books of account amounted to concealment of particulars of income. The Tribunal, therefore, vide the impugned judgment and order set aside the order passed by the CIT(A) and allowed the appeal of the Department and restored the order of the AO imposing penalty.

The Hon’ble High Court observed that it is no longer res integra that deliberate non production of books of account and other details of income and expenditure amounts to concealment of income.

It was observed that the assessee did not produce books of account, bills, vouchers etc., despite having been given adequate opportunity by the AO, CIT(A) and the Tribunal itself. The assessee could not furnish any explanation except setting up a cooked up story for loss of the books of account. It was admitted case that the books of account were maintained in the computer. The assessee did not even furnish the computer generated copies of the books of account. 

Thus, the Hon’ble High Court opined that the assessee, throughout made an attempt to conceal its correct income from assessment proceedings and, therefore, the penalty order was not liable to be interfered with by the CIT(A).

Therefore, the Hon’ble High Court upheld the impugned order passed by the Tribunal and dismissed the appeal filed by the assessee. .

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