Penalty u/s 271B for sales disclosed during survey can not be levied for failure to get accounts audited u/s 44AB

Penalty u/s 271B for sales disclosed during survey can not be levied for failure to get accounts audited u/s 44AB when such sales not entered in the regular books of accounts-ITAT

ABCAUS Case Law Citation:
ABCAUS 2273 (2018) (04) ITAT

The appellant assessee had challenged the order of the CIT(A) in confirming the levy of penalty under section 271B of the Income Tax Act, 1961 (the Act).

The assessee was engaged in the business of marble trading through his proprietorship concern. The assessee had filed his original return of income declaring presumptive income in terms of section 44AD of the Act.

A survey u/s 133A was conducted by the Investigation wing which revealed huge cash deposits in the bank account of a third party who in the statement recorded stated that the amount credited in these bank accounts did not belong to him. He stated that many marble traders were affecting sales without recording the same in their books of accounts and the sales consideration for such sales was received in cash through his bank account.

sales disclosed during survey can not be levied

On the basis of diaries and other incriminating documents impounded during the survey, it was found that the appellant assessee had received cash in different years through the said bank account used for receiving undisclosed sales. During the course of assessment proceedings, the appellant assessee offered undeclared business receipts to tax

Regarding the business transactions routed through the bank accounts of third person, the Assessing Officer (AO) opined that since those were not entered in the regular books of accounts of the assessee, true profits could not be deduced from the books of accounts. Accordingly the AO rejected the books by invoking the provisions of section 145(3) of the Act.

The AO apart from the income declared in the original return filed u/s 44AD of the Act added the income by applying GP @ 15.19% on undisclosed business receipts as offered for taxation in the revised return of income.

Simultaneously, the AO initiated the penalty proceedings u/s 271B of the Act stating that during year under consideration, total business turnover of the assessee including the undisclosed income exceeded Rs. 60 lacs as specified in section 44AB of the Act and the assessee had failed to get his accounts audited as required.

During the course of penalty proceedings, the assessee submitted that the assessment was completed on the basis of an estimate and books of accounts were also rejected. It was submitted that during this period the monitory limit was Rs 60 lacs and receipts were less than this amount. It was further submitted that the income was estimated on the basis of third party statement and records and the same could not be basis for levy of penalty.

The AO held that the total receipts were more than Rs. 60 lacs and as per the provisions of section 44AB, the assessee had to get his accounts audited by Chartered Accountant and in this case, no such audit was done. It was further held by the AO that although the assessee had claimed that no books of accounts were maintained and thus audit cannot be conducted, the books were produced which were rejected. It was held by the AO that the books of accounts were maintained but unaccounted turnover not included therein.

Being aggrieved, the assessee carried the matter in appeal before the CIT(A) who confirmed the levy of penalty.

Before the Tribunal, the assessee’s raised several contentions described as under:

Assessee Declared Income u/s 44AD of the Act – Books of Accounts Not Required to be Maintained – Not Required to be Audited:

The assessee had declared its turnover in section 44AD of the Act and this section specifically exempts the assessee not only from getting its accounts audited u/s 44AB of the Act but also exempts the assessee from maintaining of books of accounts u/s 44AA of the Act. Thus neither the assessee was required to maintain any books of accounts u/s 44AA of the Act nor the same were required to be audited u/s 44AB of the Act. Therefore no penalty u/s 271B of the Act could be levied on the assessee.

No Details or Evidence of Additional Sale Declared by the Assessee-No Possibility to Treat Same Books of Accounts and Further Getting Same Audited:

The assessee had contended that he had declared additional sales only on the basis of cash deposit made in some other person’s bank account and the same cannot be treated as books of accounts of the assessee.

The additional sales had been declared simply on the basis of statement given by the other person. There were absolutely no other details available with regard to such additional sales like details of parties, details of relevant purchases, details of expenses, actual margins in trading and so on. Even there was no evidence or details with the department and the estimated additional income declared by the assessee had been accepted without making any variation in the same.

Thus for the purposes of section 44AA the books of accounts must be maintained in the regular course of business and merely some entries in seized documents would not constitute books of accounts as referred to in section 44AA of the Act.

Books of Accounts must Enable the Assessing Officer to Compute Total Income:

Under the provisions of law it was not any books of accounts which may be treated as books of accounts as referred to in section 44AA and rather such books of accounts must enable the assessing officer to compute total income of the assessee.

The provisions of section 44AA makes it clear that the books of accounts should be kept and maintain by the assessee in such a manner so that the total income could be deduced there from. However, in the instant case, the income itself had been declared on estimated basis and even further there are no documents related to the additional turnover declared and there also net profit is declared on estimated basis. Hence the records and books maintained by the assessee were not as required u/s 44AA of the Act and rather there were no books of accounts in relation to the additional turnover.

Some Records Kept by Assessee Cannot be Treated as Books of Accounts – Finding of AO Not Relevant:

That the assessee was not required to keep any books of accounts but still some records or books were kept by the assessee to support figure of its turnover, details of debtors and creditors, advances taken or paid etc. Such books or records cannot be treated as such books of accounts as had been stated u/s 44AA of the Act as these were not adequate to get them audited u/s 44AB of the Act. The income had been declared by the assessee on estimated basis u/s 44AD of the Act and as such the finding of AO was not relevant for determining the issue in hand.

AO had Himself Rejected Books of Accounts:

That the AO himself had rejected the books of accounts by invoking section 145 of the Act. As such where the AO was not able to deduce proper income out of books maintained by the assessee, the same cannot be treated as books of accounts maintained for the purposes of section 44AA of the Act. Hence, there was no possibility of getting the same audited u/s 44AB of the Act and therefore, penalty u/s 271B could not be invoked. In such circumstances, there was impossibility to treat the same as books of accounts and even further get them audited as per provisions of section 44AB of the Act.

Independent Penalty Prescribed for Violation of Section 44AA & Section 44AB of the Act:

That for violation of provisions of section 44AA of the Act, penalty is prescribed u/s 271A of the Act whereas for violation of section 44AB of the Act, penalty can be levied u/s 271B of the Act. But it is to be seen that section 44AB is dependent on section 44AA of the Act in so far as unless books of accounts are maintained as per provisions of section 44AA, question of audit of the same u/s 44AB would not arise.

Books of Accounts Not Maintained – Penalty Could be Levied u/s 271A of the Act – Section 271B Cannot Be Invoked:

That even if the assessee did not maintain any books of accounts with regard to its turnover then still a maximum penalty could be levied u/s 271A of the Act and there was no occasion to levy penalty u/s 271B of the Act and obvious reason for the same is that where there are no books of accounts maintained by the assessee there is impossibility to get the same audited and as such no occasion arises for levy of penalty u/s 271B

Various Case Laws:

There are various decisions wherein it has been held that where no books of accounts were maintained u/s 44AA of the Act, then penalty u/s 271B will not be a proper recourse and rather at best penalty could be levied u/s 271A of the Act.

The Tribunal observed that the AO had accepted the income offered in the return of income filed under section 44AD of the Act and at the same time, had brought to tax the undisclosed business receipts offered for taxation during the course of assessment proceedings. The AO had thus come to a conclusion that since the combined receipts exceed the prescribed threshold of Rs 60 lacs, the assessee has failed to get his books of accounts audited.

The Tribunal opined that by accepting the income offered under section 44AD(1), the AO had accepted the assessee’s eligibility for presumptive basis of taxation under section 44AD. Once the said eligibility is accepted, the provisions of section 44AD and in particular sub-section (5), clearly provides that an eligible assessee who claims his income from the eligible business is below the presumptive rate of 8% of total turnover or gross receipts, he shall be required to maintain books of accounts and also get them audited and furnish a report as required under section 44AB of the Act.

It was noted that only in a scenario, where the assessee claims his income to be lower than 8% of total turnover or gross receipts, he will be required to maintain books of accounts and get them audited. Whereas, in the instant case, the assessee had not made any such claim in his return of income.

The ITAT opined that in view of the fact that the Revenue had accepted the claim of the assessee as being eligible for such presumptive taxation and had not disturbed the said position under section 44AD, it cannot be said that the assessee had failed to get his books of accounted where undisclosed business receipts were brought to tax during the course of assessment proceedings and whereby the prescribed turnover threshold had been breached.

The Tribunal was of the view that had the Revenue rejected the assessee’s claim under section 44AD and thereafter, taking consolidated turnover including undisclosed business receipts had come to a position that the assessee had failed to get offered his books of accounted, that in a such a scenario, the contention of the Revenue could have been accepted.

The ITAT also opined that what has been referred in section 44AB is the books of accounts maintained in the regular course of business and where an admission is made by the assessee based on third party statement during the course of survey that the amount found deposited in the bank account belongs to the assessee, it cannot be said that regular books of accounts are maintained even in respect of unaccounted sales or business receipts and the penalty can be levied under section 271B of the Act.

The Tribunal relied upon the decision of the Coordinate Bench in which it was held that merely because the appellant accepted the additional sales for the purpose of assessment of the relevant year on the basis of entries in the seized documents, the same would not constitute accounts of the appellant maintained in the regular course of business and on that basis alone liability cannot be fastened on the assessee by holding him to have committed the default.

Accordingly, the Tribunal deleted the penalty levied under section 271B.

sales disclosed during survey can not be levied

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