No scope for imposing penalty u/s 271A in the case of civil contractor-ITAT

No scope for imposing penalty u/s 271A in the case of Civil Contractor which is covered u/s 44AA(2) and is not carrying on any specified profession – ITAT

ABCAUS Case Law Citation:
ABCAUS 2229 (2018) (03) ITAT

Prelude:
Section 44AA if the Income Tax Act, 1961 provides for the maintenance of accounts by certain persons carrying on profession or business.  As per the provisions, assesses have been classified into two categories;

(i) Person carrying on the profession of legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration or any other profession as is notified by the Board [Section 44AA(1)]

(ii) Person carrying on business or profession not covered under (i) above. [Section 44AA(2)]

While the person carrying on a profession which covered under clause (i) are required to maintain books of account prescribed under Rule 6F, a person carrying on business or covered under clause (ii) is required to keep and maintain such books of account and other documents as to enable the Assessing Officer (AO) to compute his/her total income in accordance with the Act.

Further section 271B of the Act provides for imposition of a penalty where any person fails to keep and maintain such books of account and other documents as required by section 44AA or the relevant Rules.

In the instant case, a controversy arose as to if the provisions of sub-section (2) of section 44AA applies to a civil contractor who is not a person carrying on a specified profession.

Important Case Laws Cited/relied upon by the parties
CIT vs. Bisauli Tractors reported in [2008] 299 ITR 219 (Alld)

The Challenge/Grievance:
The appellant assessee was aggrieved by the action of the Assessing Officer in imposing the penalty under section 271A of the Income Tax Act, 1961 (the Act) which was upheld by the CIT(A).

Brief Facts of the Case:
The appellant assessee was a civil contractor. The assessee was served with a notice u/s 148 of the Act by recording reasons to believe that the income had escaped assessment. The assessee did not file any return of income in compliance to the said notice and the assessment order was passed under section 147/144 of the Act.

While passing the order, penalty proceedings under section 271A were also initiated. A show cause notice under section 271A was issued to the assessee specifically asking him to show cause why penalty under section 271A may not be imposed.  

However, the notice which was sent through registered post on the address given in the assessment order was returned back unserved. A reminder show cause notice was issued on the new address available . However, no submission was furnished by the assessee nor there was any appearance on behalf of the assessee.

In view of above, the Assessing Officer, as per the reasons recorded in the order, imposed a penalty of Rs. 25,000/- under section 271A of the Act.

The CIT(A) relying upon the decision of the Hon’ble High Court upheld the imposition of penalty under section 271A.

Observations made by the Tribunal:
The ITAT observed that the judgment of the Hon’ble High Court which was relied upon by the CIT(A) was that whether penalty under section 271B of the Act could be levied in a case where the books of account were maintained by the assessee. The Hon’ble High Court in that case held that where no account has been maintained, section 271B does not get attracted and instead recourse under section 271A can be taken.

The Tribunal found that a three member Bench of the Tribunal after considering the relevant provisions of section 44AA of the Act, had deleted the penalty.

The three member Bench had observed that it had been the consistent view of Benches that no penalty Under Section 271A is exigible in the cases of contractors. The Bench had opined that penalty Under Section 271A may be levied, if the assessee fails to keep and maintain any such books of account and other documents as required by Section 44AA or under Rule 6F. However, the provisions of Section 44AA(1) not apply to a civil contractor which was not a person carrying on a specified profession.

The three member Bench had observed that the Section 44AA(2) requires the assessee to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Act. Therefore where the assessee had kept the books and other documents which enabled the Assessing Officer to determine total contract receipt of the assessee on the basis of which the income of the assessee had been computed by the Assessing Officer it would be a sufficient compliance of section 44AA for the assessee.

The three member Bench had also observed that there was no material or evidence on record to establish that the assessee has not maintained books due to which Assessing Officer could not be able to compute the income. The assessee had maintained such books of account an documents which enabled the Assessing Officer to compute the total income. Therefore, the assessee had not made any default u/s 44A and in the absence of any default being made Under Section 44AA, no penalty Under Section 271A could be imposed.

The Tribunal found that the aforesaid decision delivered by the three member’s Bench was followed by different Benches of the Tribunal. Therefore, the ITAT opined that overall judicial perception in this aspect is that so far as the case of Contractor is concerned, there is no scope for imposing penalty under section 271A of the Act.

Decision/ Conclusion/Held:
The Tribunal ordered deletion of penalty levied under section 271A of the Act.