TMI Blog2009 (11) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The assessee-firm is carrying on business of civil construction. In course of the assessment proceeding, the Assessing Officer observed that as the assessee has failed to comply with the requisition made for assessing its income applying "Accounting Standard-7" prescribed by ICAI, there was violation of the provisions of section 44AA of the Act and on such basis, the Assessing Officer initiated penalty proceeding and imposed penalty of Rs. 25,000 upon the assessee under section 271A of the Act vide order dated 13-2-2008. On appeal, the CIT(A) upheld the penalty relying on the decision of ITAT, Pune Bench in the case of ITO v. Mahesh M. Chandan [1993] 46 ITD 264. Hence this appeal by the assessee. 3. The learned counsel submitted that the assessee has maintained books of account comprising of cash book, bank book, general ledger and purchase and sale registers and the accounts are duly audited by an auditor under the statutory requirement of section 44AB. He further submitted that, in course of assessment proceedings, the assessee had complied with all other requisitions made by the Assessing Officer. However, the Assessing Officer observed that the correct method of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the books of account were in consonance with the statutory requirement of section 44AA. It further pointed out that there is no finding by the Assessing Officer that he was unable to compute the income from the books of account of the assessee. Relying on the decision of the Hon ble ITAT, Delhi Bench in Sant Construction Co. v. ITO [1996] 86 Taxman 268 (Delhi) (Mag.), he submitted that when the assessee maintained such records which enabled the Assessing Officer to make the assessment under the provisions of the Act, the provisions of section 271A are not attracted. He further relied on the decision of the Hon ble ITAT Delhi Bench in Harilal Dhanwani v. ITO [1993] 70 Taxman 70 (Mag.) (SMC) wherein it was held that the levy of penalty under section 271A was not proper where the assessee contractor maintained such books of account and other documents which enabled the Assessing Officer to compute his total income without any difficulty. At this juncture, he submitted that the statutory prescription contained in the provision of section 44AA man- dates that an assessee is required to maintain regular books of account as understood in the commercial parlance so as to enable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, Kolkata Bench "A" in the case of M.R. Construction v. ITO [IT Appeal No. 2098 (Kol.) of 2008, dated 8-5-2009] wherein all these facts were taken into consideration for cancelling the penalty under section 271A. On the above submissions, the learned counsel submitted that there was no infringement of the provision of section 44AA, as alleged by the Assessing Officer and, therefore, the penalty levied by the Assessing Officer under section 271A and confirmed by the CIT(A) should be cancelled. 5. The Ld. Departmental Representative, on the other hand, relied on the orders of the authorities below and submitted that the crux of the principle of administering the provisions of the Income-tax Act, 1961 is to determine the correct income of an assessee and levy appropriate tax thereon. Such ultimate aim can be achieved only if the assessee maintains records of business or profession from a scrutiny of which the actual income can be computed. This aspect being of the essence in tax administration has been prominently dealt with in section 44AA of the Act. Conditions are laid down therein as to under which circumstances the provisions thereof are to be mandatorily followed. The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "(1) Every person carrying on legal, medical engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall 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 this Act. (2) Every person carrying on business or profession not being a profession referred to in sub-section (1) shall, ( i )if is income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lakh rupees in any one of the three years immediately preceding the previous year, or ( ii )where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed ten lakh rupees, during such previous year; or ( iii )where the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous details of purchase, statement of Labour Charges (Party-wise), Bank statement, statement of gross amount received from the flat owner, copy of partnership deed and other details which are examined." From the above observation of the Assessing Officer, we find that there is no doubt or dispute that the assessee maintained books of account which were produced before the Assessing Officer and he did not give any adverse finding in this regard. In fact, the Assessing Officer has recorded his satisfaction in the assessment order as regards the rejoinder dated 26-12-2007 to the show-cause notice dated 20-11-2007 which reads as under: "An explanation was sought regarding veracity of the parties concerned during the year under consideration which was duly explained by the assessee by way of documentary evidence which are kept on record." Therefore, it is evident that the Assessing Officer had not doubted the correctness of the books of the assessee as all the requisitions made were complied with by the assessee from time to time. In fact, the Assessing Officer did not record any grievance that he is unable to compute the income of the assessee from such books of account. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as required by him to apply a new method of accounting, i.e., "Accounting Standard-7" in the instant case which the assessee did not oblige. The statutory prescription contains in section 271A is that on failure to maintain books which are accepted in commercial parlance would invite penalty under such provision which cannot be stretched to include in its ambit where the method of accounting is faulty the provision will apply. It is the prime requirement of construing a penal statute, the rule of strict construction shall apply thereto and as such it cannot cover cases which are not specifically included within their letter. The decision of the Hon ble Calcutta High Court in the case of Ganesh Properties (P.) Ltd. ( supra ) is squarely applicable in support of the case that a penal provision must be construed strictly in accordance with the conditions laid down therein. In any case, there is no adverse finding regarding the books of account maintained by the assessee and as such penalty in our humble opinion cannot be levied in the instant case. The decision of ITAT, Pune Bench in Mahesh M. Chandan s case ( supra ) relied on by the CIT(A) is thoroughly distinguishable on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction s case ( supra ) is also squarely applicable in favour of the assessee. In that case, the assessee was a promoter and civil constructor. The Assessing Officer imposed penalty under section 271A of the Act for not complying with the provision of section 44AA. The Tribunal deleted the penalty by holding as under : "6.2 After hearing both the sides we find that penalty under section 271A is leviable when the assessee fails to keep, maintain or retain the books of account or documents as required by section 44AA or rules made therein. As per rule 6F the books of account and other documents to be maintained by the assessee are as under : (2) The books of account and other documents referred to in sub-rule (1) shall be the following namely : ( i )a cash book; ( ii )a journal, if the accounts are maintained according to the mercantile system of accounting; ( iii )a ledger; ( iv )a carbon copies of bills, whether machine-numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine-numbered or otherwise serially numbered receipts issued by him; Provided that nothing in this clause shall app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 273B had a reasonable cause for failure to comply with provision of section 44AA. The reply of the assessee was not at all considered. After reading rule 6F of Income-tax Rules, there is doubt that sub-rule ( ii ) of the aforesaid rule is applicable to a case having business income from contract receipts. The said rule is not at all clear. At any rate the assessee made out a case that he did maintain such books of account and other documents which enabled the Assessing Officer to compute his total income in accordance with the provisions of this Act. Further, the assessee s income was computed on the basis of similar books of account in the last several years and even in the year under consideration the assessment was made under section 143(1) without any difficulty and, therefore, it is not possible to hold that non-maintenance of cash book and ledger in any way affected computation of assessee s total income for purposes of section 44AA. The revenue, therefore, failed to prove that provision of section 271A was applicable in this case and levy of penalty was justified. For the aforesaid reasons, the penalty in question is cancelled. 6.6 Similarly the Hon ble ITAT SMC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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