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TMI ID= 218122
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  • Cases Cited

2012 (11) TMI 137 - ITAT CUTTACK

Shri Subhrajee Mallick, Prop. M/s. BPL. Distributors Versus Income-tax Officer, Ward-2, Paradeep.

Retail trade u/s 44AF - Income below the rate of 5% as prescribed u/s 44AF - Penalty u/s 271(1)(b) for non-compliance and u/s.271(1)(c) holding a view the addition was the result of submission of inaccurate particulars of income in violation to the provisions of Section 44AF - Held that:- CIT(A) can do what the ITO can do and also direct him to do what he has failed to do, as held in Jute Corpn. of India Ltd. v. CIT [1990 (9) TMI 6 - SUPREME COURT]

Since the assessee maintained books of account duly audited u/s.44AB, there is no scope for application of the provisions of Section 44AF, as rightly contended by the learned Counsel for the assessee. The benchmark of 5% therefore was not the basis for the assessee who filed returns according to the audit report u/s.44AB. Therefore, the initiation of proceedings u/s.147 having been initiated by the Assessing Officer for the reason the assessee having violated the provisions of Section 44AF was not at all correct in view of the audit report furnished by the assessee, in our considered view the assessment orders and also the consequential penalty orders for both the AYs under consideration cannot be sustained.

No.- I.T.A.Nos.396,397,398,399,400 and 401/CTK/2012

Dated.- July 13, 2012

Citations:

  1. Commissioner of Income-Tax Versus Nirbheram Daluram - 1997 (3) TMI 2 - SUPREME Court

  2. Jute Corporation of India Limited Versus Commissioner of Income-Tax And Another - 1990 (9) TMI 6 - SUPREME Court

  3. Commissioner Of Income-Tax, Uttar Pradesh Versus Kanpur Coal Syndicate - 1964 (4) TMI 18 - SUPREME Court

  4. Deputy Commissioner of Income-Tax Versus Mahi Valley Hotels And Resorts. - 2005 (8) TMI 84 - GUJARAT High Court

Shri K.K.Gupta And Shri K.S.S.Prasad Rao, JJ.


For the Appellant: Shri S.N.Sahu, AR  

For the Respondent: Shri S.C.Mohanty, DR  

ORDER  

Shri K.K.Gupta, Accountant Member. These six appeals are by the assessee against the orders of the CIT(A) confirming the assessments made u/s.144/147, penalty levied u/s.271(1)(b) and penalty levied u/s.271(1)(c) of the Income-tax Act,1961 for the Assessment Years 2005-06 and 2006-07. Since issues are common and all these appeals are inter-related the same were heard together and are being disposed of by this common order for the sake of convenience.

2. The facts undisputed are that the assessee filed returns of income for the Assessment Years 2005-06 and 2006-07, which were processed u/s.143(1). Subsequently on the reason that the assessee had violated the provisions of Section 44AF by estimating profit at the rate less than 5% of the gross sales without maintaining books of account, the Assessing Officer issued notice u/s.147 and further issued notice u/s.142(1). For non-compliance on the part of the assessee, the Assessing Officer passed the assessment orders u/s.144/147. While doing so, he estimated the net profit @5% of the gross sales by invoking the provisions of Section 44AF and thus brought to tax the differential amount between the amounts returned by the assessee and estimated by the Assessing Officer, which resulted in addition of Rs.93,122 in the Assessment Year 2005-06 and Rs.87,693 in the Assessment Year 2006-07. In view of the above, for both the AYs under consideration, he also levied penalty u/s.271(1)(b) for non-compliance and u/s.271(1)(c) holding a view the addition was the result of submission of inaccurate particulars of income in violation to the provisions of Section 44AF.  

3. Aggrieved, the assessee appealed before the CIT(A) and the learned CIT(A) confirmed the assessments made u/s.144/147 as well as the penalties u/s.271(1)(b) and u/s.271(1)(c) for both the AYs under consideration. Hence, the assessee has filed these appeals before the Tribunal.

4. The learned AR of the assessee initiating his arguments submitted that the assessee derives income from retail sale of medicine. He has maintained books of accounts and those were duly audited u/s.44AB. In support, he furnished the audit report wherein the auditors in Form No.3CB have certified that the balance sheet and the P & L account are in agreement with the books of account maintained by the assessee. It was on the basis such audit reports, the assessee filed its return of income for both the AYs under consideration, which had been accepted u/s.143(1). But the audit reports could not be produced before the Assessing Officer because of passing of order u/s.144, which was due to indisposition of the then Counsel engaged by the assessee. Therefore, the audit reports were filed before the learned CIT(A), which though referred in the appellate order in paragraph 5 of his order, the learned CIT(A) without considering the same confirmed the impugned assessments as well as the penalties for both the AYs under consideration. The learned Counsel for the assessee submitted that the assessee has maintained books of accounts and those were duly audited by qualified auditors and as such, the provisions of Section 44AF was not applicable at all. He further submitted that the assessee having furnished the audit reports showing thereby the assessee has maintained books of account, the learned CIT(A) along with the Assessing Officer was not justified in upholding the assessments and penalties without considering the said audit reports. The Assessing Officer initiated proceedings u/s.147 on the basis of audited financial statements indicating turnover on which he held profit shown less than 5% being escapement of income demolishes the very proceedings u/s.147 ought to be annulled. He, therefore, prayed to set aside the impugned orders of the learned CIT(A) and direct the Assessing Officer to accept the income as returned by the assessee for both the AYs under consideration and also cancel the consequential penalties u/s.271(1)(b) and u/s.271(1)(c).

5. The learned DR, on the other hand, supported the impugned orders of the authorities below. He contended that the assessee failed to avail opportunities allowed by the Assessing Officer to produce the books of accounts., to establish assessment under the provisions of Section 44AB. Therefore, the resultant assessments made u/s.144/147 and consequential penalties levied by the Assessing Officer cannot be faulted with. In that view of the matter, the learned CIT(A) is justified in confirming the action of the Assessing Officer. He further submitted that the learned CIT(A) is also justified having considered the audit report as the same was not submitted before the Assessing Officer but was submitted before the learned CIT(A) for the first time before him. Therefore, he prayed to dismiss all the appeals of the assessee.

6. We have heard the rival contentions of the parties and perused the material available on record. We find that the reason for initiation of proceedings u/s.147 was when the Assessing Officer found that the assessee being a retailer has returned income below 5% without maintaining books of account in contravention to the provisions of Section 44AF and assessed as such u/s.144/147 the assessee having not produced the books of account before him. True it is that as envisaged in Section 44AF, in the case of an assessee engaged in retail trade in any goods or merchandise, a sum equal to five per cent of the total turnover in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. The proviso to the said Section however provides nothing contained in this sub-section shall apply in respect of an assessee whose total turnover exceeds an amount of forty lakh rupees in the previous year. But the present case, the assessee has maintained books of account on the basis of which the auditors have prepared the audit report as required u/s.44AB but the turnover of the assessee not having exceeded Rs. 40 lakhs. Section 44AB provides interalia that every person carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under Section 44AF and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. In the present case at hand the assessee has got its accounts audited, but there was no scope to file the audit report since the returns were processed u/s.143(1). Also the audit reports could not be produced in the proceedings u/s.147 stated by the assessee to be due to the indisposition of then Counsel for the assessee. However, the same was produced before the learned CIT(A) for the first time. We find that though the fact of furnishing of audit reports has been recorded in the appellate order, the learned CIT(A) did not consider the same and confirmed the assessments and penalties based on findings of the Assessing Officer as to the non-compliance of the assessee to the notices for production of books of account. The position in law is well settled that the CIT(A) has the same powers that an AO has and his powers are co-extensive with that of the AO while determining correct income liable to tax in accordance with the provisions of the Act. He can do what the ITO can do and also direct him to do what he has failed to do. For this proposition reliance is placed in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC)]., DCIT v. Mahivalley Hotels & Resorts [201 CTR 308 (Guj)], ITO - CIT v. Nirbheram Daluram [1997] 224 ITR 610 (SC) and Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688. In view of these judicial pronouncements, we hold that the learned CIT(A) is not justified in not considering the audit report furnished before him. Had it been considered by the learned CIT(A), since the assessee maintained books of account duly audited u/s.44AB, there is no scope for application of the provisions of Section 44AF, as rightly contended by the learned Counsel for the assessee. The benchmark of 5% therefore was not the basis for the assessee who filed returns according to the audit report u/s.44AB. Therefore, the initiation of proceedings u/s.147 having been initiated by the Assessing Officer for the reason the assessee having violated the provisions of Section 44AF was not at all correct in view of the audit report furnished by the assessee, in our considered view the assessment orders and also the consequential penalty orders for both the AYs under consideration cannot be sustained. The learned CIT(A) having not considered this aspect of the case in its right prospective, his orders confirming the assessment orders and also the consequential penalty orders passed by the Assessing Officer also cannot be sustained. We, therefore, set aside the impugned orders of the learned CIT(A) by quashing the impugned assessment orders and cancelling the consequential penalty orders for both the AYs under consideration.

7. In the result, all the appeals of the assessee are allowed. 

 
 
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