2007 (2) TMI 285 - AT - Income Tax

Summary

Issues Involved:

1. Penalty under section 271B for not getting accounts audited as required under section 44AB.
2. Whether the assessee maintained proper books of account.
3. Applicability of section 271A versus section 271B.
4. Reasonable cause for failure to comply with section 44AB.

Issue-wise Detailed Analysis:

1. Penalty under section 271B for not getting accounts audited as required under section 44AB:

The core issue revolves around the penalty imposed under section 271B of the Income-tax Act for the assessment years 2001-02 and 2002-03. The Assessing Officer (AO) initiated penalty proceedings as the assessee did not get its accounts audited by the specified date despite having turnovers exceeding Rs. 40 lakhs, which mandates an audit under section 44AB.

2. Whether the assessee maintained proper books of account:

The assessee contended that it did not maintain regular books of account, and thus the question of getting them audited did not arise. However, the AO and CIT(A) concluded that the assessee did maintain proper books of account based on the detailed trading account, profit and loss account, and balance sheet submitted with the return of income. The AO noted that these documents included all items typically found in such financial statements, indicating the maintenance of proper books of account.

3. Applicability of section 271A versus section 271B:

The assessee argued that the penalty should be levied under section 271A for not maintaining books of account as required under section 44AA, rather than under section 271B for not getting the accounts audited. The CIT(A) and the Tribunal disagreed, stating that the presence of detailed financial statements implied the maintenance of books of account, thus justifying the penalty under section 271B. The Tribunal emphasized that the term "accounts" in section 44AB includes any records or documents maintained for revenue and expenditure, assets and liabilities, and creditors and debtors, and not just the regular books of account prescribed under section 44AA.

4. Reasonable cause for failure to comply with section 44AB:

The assessee's primary defense was the non-maintenance of regular books of account. The Tribunal found this defense to be neither bona fide nor genuine, considering the detailed financial statements submitted. The Tribunal concluded that the assessee's claim was an afterthought to avoid the more severe penalty under section 271B. The Tribunal held that the assessee failed to provide a reasonable cause for not getting the accounts audited as required under section 44AB.

Conclusion:

The Tribunal upheld the penalty imposed by the AO under section 271B for both assessment years, dismissing the appeals filed by the assessee. The Tribunal's decision was based on the detailed financial statements submitted by the assessee, which indicated the maintenance of proper books of account, thereby necessitating an audit under section 44AB. The assessee's defense was found to be an attempt to evade the harsher penalty under section 271B, and no reasonable cause was established for the failure to comply with the audit requirements.