M/s. S.K. Properties, Bangalore V. ITO, Bangalore

ITA 67/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9545 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-08-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 23-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Keywords: Period of limitation; Retrospective amendment; Reasonable cause; Set aside
• Section: 40A(3); 273B; 143(3); 274; 139(1); 147; 68

Judgement Text

ITA NO.66 & 67/B/09 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N.L KALRA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.66 & 67/BANG/09 (ASST. YEAR 2005-06 & 2006-07) M/S S.K PROPERTIES, NO.103, ALFA CARIESTON, WHEELER ROAD, COOKE TOWN, BANGALORE. . APPELLANT VS. THE INCOME-TAX OFFICER, WARD-1(2), BANGALORE. . RESPONDENT APPELLANT BY : SHRI KIRAN KUMAR RESPONDENT BY : SMT. V.S SREELEKHA O R D E R PER N.L. KALRA, ACCOUNTANT MEMBER THE ASSESSEE HAS FILED APPEALS AGAINST THE RESPECTIVE ORDERS OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - I, BANGALORE DATED 6TH NOV, 2008. 2. THE ASSESSEE HAS RAISED AS MANY AS FIFTEEN GROUNDS OF APPEAL BUT THESE CAN BE REGROUPED AS UNDER: (1) THE LOWER AUTHORITIES HAVE ERRED IN IMPOSING THE PENALTY UNDER SECTION 271A, ITA NO.66 & 67/B/09 2 THOUGH THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF SECTION 44AA. (2) THE LEARNED AUTHORITIES BELOW HAVE ERRED IN CONFIRMING THE PENALTY, THOUGH PENALTY PROCEEDINGS ARE QUASI-CRIMINAL IN NATURE AND AO HAS NOT BROUGHT ON RECORD TO SHOW THAT ASSESSEE HAS DELIBERATELY ACTED IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST. (3) THE AUTHORITIES BELOW HAVE ERRED IN CONFIRMING THE PENALTY, THOUGH THE PRESCRIBED BOOKS OF ACCOUNT AS PER RULE- 6F ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. (4) THE ASSESSEE WAS HAVING REASONABLE CAUSE IN NOT MAINTAINING THE SO CALLED PROPER BOOKS OF ACCOUNT. (5) THE AUTHORITIES BELOW HAVE ERRED IN CONFIRMING THE PENALTY, THOUGH PENALTY ITA NO.66 & 67/B/09 3 ORDER HAS BEEN PASSED PRIOR TO THE ASST. ORDER. 3. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 271A OF THE INCOME-TAX ACT, THE ASSESSEE VIDE REPLY DATED 16 TH NOV, 07 STATED THAT FIRM WAS FORMED ON 24 TH OCT, 05 GIVING RETROSPECTIVE EFFECT FROM 2 ND SEPT, 03 AND DUE TO INITIAL DIFFICULTIES THE FIRM FACED A LOT OF PROBLEM TO MAINTAIN PROPER BOOKS OF ACCOUNT. THE AO OBSERVED THAT THE SURVEY UNDER SECTION 133A(1) WAS CONDUCTE D ON 13 TH FEB, 08. STATEMENT OF SHRI SARDAR KHAN, ONE OF THE PARTNERS WAS RECORDED DURING THE COURSE OF SURVEY, IN WHICH, SHRI SARDAR KHAN STATED THAT BOOK S OF ACCOUNTS HAVE NOT BEEN MAINTAINED. HOWEVER, DURING THE COURSE OF ASST. PROCEEDINGS, THE AR SUBMITTED A COPY OF BOOKS OF ACCOUNT. ACCORDING TO THE AO, SUCH BOOKS OF ACCOUNTS HAVE BEEN PREPARED WITHIN ONE MONTH AFTER THE DATE OF SURVEY. THE AO, THEREFORE, INFERRED THAT ASSESSEE HAD NO REASONABLE CAUSE FOR NOT MAINTAINING BOOKS OF ACCOUNT. THE AO , THEREFORE, LEVIED PENALTY UNDER SECTION 271A FOR BOTH THE ASST. YEARS. ITA NO.66 & 67/B/09 4 4. THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) HAS SUMMARIZED THE ASSESSEES ARGUMENT AS UNDER : THE MANAGING PARTNER OF THE FIRM WAS NEW TO THE BUSINESS OF LAND DEVELOPMENT (REAL ESTATE) AS THIS WAS THE INITIAL YEAR IN WHICH PLOTS WERE SOLD. SINCE THE OFFICE WAS SITUATED IN A VILLAGE WHICH WAS 22 KMS. AWAY FROM BANGALORE CITY, THE APPELLANT COULD NOT GET AN ACCOUNTANT TO MAINTAIN BOOKS OF ACCOUNT. HENCE THERE WAS REASONABLE CAUSE WITHIN THE MEANING OF SEC. 273B OF THE I.T ACT. THE PENALTY ORDER WAS PASSED ON 24-3- 2008 DURING THE PENDENCY OF RE-ASST. PROCEEDINGS AND BEFORE THE COMPLETION OF THE RE-ASST. U/S 143(3) R.W.S 148 ON 13- 06-2008. ONCE A NOTICE U/S 148 WAS ISSUED, THE ORIGINAL R/I FILED U/S 139(1) CEASES TO BE OPERATIVE. THE EFFECT OF REOPENING THE ASST. IS TO VACATE OR SET ASIDE THE R/I AND TO SUBSTITUTE IN ITS PLACE A R/I U/S 147. THE ORDER U/S 271B DURING THE PENDENCY OF RE-ASST. U/S 147 BASED ON THE ORIGINAL AND INOPERATIVE R/I IS, THEREFORE, LIABLE TO BE CANCELLED. ITA NO.66 & 67/B/09 5 RELIANCE WAS PLACED ON THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MYSORE IRON & STEEL LTD., 157 ITR 531. THE BOARD HAS NOT PRESCRIBED ANY BOOKS OF ACCOUNT U/S 44AA(3). HENCE, LEVY OF PENALTY UNDER THE CIRCUMSTANCES WAS UNJUSTIFIED. RELIANCE WAS PLACED ON THE DECISIONS OF ITAT, NAGPUR BENCH IN THE CASE OF ITO VS. DINESH PAPER MART REPORTED IN 70 ITD 274 (1999) AND THE APPELLATE ORDER OF CIT(A)-I, BANGALORE IN THE CASE OF SHRI MAHENDRA (ITA NO.167/R-1/CIT(A)- I/01-02 DATED 05-09-2002 WHICH BASICALLY FOLLOWED THE DECISION IN DINESH PAPER MARTS CASE (SUPRA). 5. BEFORE THE LEARNED CIT(A), THE LEARNED AR RELIED ON THE DECISION OF THE NAGPUR BENCH, IN THE CASE OF DINESH PAPER MART, 70 ITD 274. THE LEARNED CIT(A) OBSERVED THAT THE DECISION OF THE NAGPUR BENCH IN THE CASE OF DINESH PAPER MART (SUPRA) WAS WITH REFERENCE TO NON PRODUCTION OF BOOKS OF ACCOUN T DURING THE COURSE OF ASST. PROCEEDINGS DESPITE SEVERAL OPPORTUNITIES. THUS, THE DEFAULT IN THE CASE OF DINESH PAPER MART (SUPRA) CASE WAS THE FAILURE TO RETAIN THE BOOKS OF ACCOUNT BY A PERSON CARRYING ON A SPECIFIED PROFESSION. THE LEARNED CIT(A), THEREFORE, HELD THAT THE DECISION IN THE ITA NO.66 & 67/B/09 6 ABOVE REFERRED CASE IS NOT APPLICABLE. THE LEARNED CIT(A) FURTHER HELD THAT THE DECISION OF THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MYSORE IRON AND STEEL LTD., 57 ITR 531 IS ON A DIFFERENT ISSUE. IN THAT CASE, THE HONBLE JURISDICTIONAL HIG H COURT HELD THAT ONCE ASST. IS REOPENED, THE INITIAL ORDER OF ASST. AUTOMATICALLY STANDS CANCELLED AND THE ORDER OF RE-ASST. TAKES THE PLACE OF THE ORIGINAL ASST. ORDER. HENCE, PENALTY CANNOT BE TREATED AS VOID MERELY DUE TO PENDENCY OF RE-ASST. PROCEEDINGS. THE LEARNED CIT(A), THEREFORE, CONFIRMED THE PENALTY. 6. DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LEARNED AR DREW OUT ATTENTION TO SECTION 2(12A) OF THE INCOME-TAX ACT. SECTION 2(12A) DEFINES THE BOOKS OR BOOKS OF ACCOUNT AND ACCORDING TO THIS DEFINITION, IT INCLUDES LEDGERS, DAY BOOKS, CASH BOOKS, ACCOUNT BOOKS AND OTHER BOOKS. THE LEARNED AR SUBMITTED THAT IT IS AN INCLUSIVE DEFINITION. THEREAFTER, THE LEARNED AR DREW OUR ATTENTION TO SECTION 44AA OF THE INCOME-TAX ACT. AS PER SECTION 44AA(2), A PERSON CARRYING ON BUSINESS OR PROFESSIO N HAS TO KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS MAY ENABLE THE AO TO COMPUTE HIS ITA NO.66 & 67/B/09 7 TOTAL INCOME IN ACCORDANCE WITH PROVISIONS OF THE ACT. THUS, IT WAS SUBMITTED THAT THE DUTY OF THE ASSESSEE WAS TO MAINTAIN BOOKS OF ACCOUNT, WHICH MA Y ENABLE THE AO TO ASCERTAIN THE INCOME OF THE ASSESSEE. THEREAFTER, THE LEARNED AR DREW OUR ATTENTION TO THE COPY OF THE ASST. ORDER FOR BOTH THE ASST. YEARS, WHICH ARE AVAILABLE AT PAGE 94 TO 134 OF THE PAPER BOOK FILED BY THE LEARNED AR. FOR THE ASST. YEAR 2005-06, THE AO HAS MADE ADDITIONS UNDER SECTION 40A(3) AND ALSO HAS MADE ADDITION UNDER SECTION 68 OF THE INCOME-TAX ACT. SIMILAR ADDITION HAS BEEN MADE FOR THE ASST. YEAR 2006-07. IN CASE, THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNT, THEN THE AO COULD HAVE ESTIMATED THE INCOME AND THERE WAS NO NEED TO MAKE DISALLOWANCE UNDER SECTION 40A(3) OR UNDER SECTION 68 OF THE INCOME-TAX ACT. THE AO HAS COMPUTED THE INCOME AS PER THE ACCOUNTING STANDARD. THE LEARNED AR, THEREAFTER DREW OUR ATTENTION TO PAGE 19 OF THE ASST. ORDER FOR THE ASST. YEAR 2005-06. THE LEARNED AO, IN THE ASST. ORDER HAS MENTIONED AS UNDER : AS PER THE ASSESSEES CASH BOOK, PAYMENTS HAVE BEEN EFFECTED IN CASH ITA NO.66 & 67/B/09 8 7. THUS, THE AO HAS ACCEPTED THE MAINTENANCE OF BOOKS OF ACCOUNT IN THE ASST. ORDER. THE ADDITIONS HAVE BEEN MADE ON THE PREMISES THAT THE ASSESSEE HA S MAINTAINED THE BOOKS OF ACCOUNT. 8. BOOKS OF ACCOUNT FOR THE PERSONS CARRYING ON CERTAIN PROFESSION HAVE BEEN PRESCRIBED UNDER SECTION RULE-6F. THE ASSESSEE IS NOT CARRYING ON TH E PROFESSION AS MENTIONED UNDER SECTION 44AA(3) AND, THEREFORE, THE PRESCRIBED BOOKS OF ACCOUNT AS MENTIONED IN RULE-6F OF THE INCOME-TAX RULES WERE NOT REQUIRED TO BE MAINTAINED BY THE ASSESSEE. THE LEARNED AR DREW OUR ATTENTION TO PAGE 34 TO 93 OF THE PAPER BOOK FILED BY HIM. THESE ARE THE COPIES O F THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THEREAFTER, THE LEARNED AR DREW OUR ATTENTION TO PAGE 135 OF THE PAPER BOOK. IT CONTAINS THE COPY OF THE ORDER UNDER SECTION 131(3) OF THE INCOME-TAX ACT, VIDE WHICH, THE NOTE BOOK, WHICH THE ASSESSEE HAS MAINTAINED HAS BEEN IMPOUNDED BY THE REVENUE. THE LEARNED AR, THEREFORE, SUBMITTED THAT THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCOUNT AND, THEREFORE, PENALTY WAS NOT LEVIABLE. ITA NO.66 & 67/B/09 9 9. THE LEARNED AR, THEREAFTER DREW OUR ATTENTION TO SECTION 273B OF THE INCOME-TAX ACT. IT WAS SUBMITTED THAT THE ASSESSEE IS AN ILLITERATE PERSON AND THE OFFICE OF THE ASSESSEE IS SITUATED IN A PLACE WHICH IS 22 KMS AWAY FROM THE CITY OF BANGALORE. DESPITE THE BEST EFFORT BY THE ASSESSEE , HE WAS NOT ABLE TO GET ACCOUNTANT TO MAINTAIN HIS BOOKS OF ACCOUNT. THE ASSESSEE HIMSELF WAS IGNORAN T OF THE WAYS OF MAINTAINING THE BOOKS OF ACCOUNT. THUS, THERE WAS REASONABLE CAUSE WITH THE ASSESSEE IN NOT MAINTAINING BOOKS OF ACCOUNT IN THE FORM AS DESIRED BY THE AO. 10. THE LEARNED AR FURTHER SUBMITTED THAT THE PENALTY PROCEEDINGS HAVE BEEN COMPLETED BEFORE THE COMPLETION OF ASST. PROCEEDINGS. ON THIS GROUND, THE PENALTY PROCEEDINGS ARE VOID BECAUSE THE BASIC REQUIREMENT IS THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE SHOULD ENABLE THE AO TO COMPUTE THE INCOME AS PER THE PROVISIONS OF THE ACT. SUCH FINDING CAN BE ARRIVED AT DURING THE COURSE OF ASST . PROCEEDINGS. HENCE, THE LEARNED AR SUBMITTED THAT PENALTY PROCEEDINGS ARE VOID. FOR THIS PROPOSITION, THE LEARNED AR RELIED ON THE DECISION OF THE COCHIN ITA NO.66 & 67/B/09 10 BENCH IN THE CASE OF C.H ABOOBACKER HAJI VS. ITO, 300 ITR 310 (AT). 11. ON THE OTHER HAND, LEARNED DR SUBMITTED THAT AT THE TIME OF SURVEY, IT WAS ADMITTED THAT ASSESSEE I S NOT MAINTAINING THE BOOKS OF ACCOUNT. THE BOOKS OF ACCOUNT PRODUCED DURING THE COURSE OF ASST. PROCEEDINGS ARE NOT THE BOOKS, WHICH WERE MAINTAINE D CONTEMPORARILY. SUCH BOOKS OF ACCOUNT WERE PREPARED AFTER THE SURVEY. IN CASE, THE ASSESSEE WAS ABLE T O PREPARE SUCH BOOKS OF ACCOUNT AFTER SURVEY, THEN THERE WAS NO DIFFICULTY WITH THE ASSESSEE IN MAINTAINING SUCH BOOKS OF ACCOUNT. IT IS A FACT THAT BOOKS OF ACCOUNT WAS ADMITTEDLY NOT MAINTAINED AS PER THE FINDINGS RECORDED AT THE TIME OF SURVEY. 12. WE HAVE HEARD BOTH THE PARTIES. THE HONBLE APEX COURT IN HE CASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA TEXTILE PROCESSORS AND OTHERS, 306 ITR 277 HAS HELD THAT PENALTY IS A CIVIL LIABILITY AND WILLFUL CONCEALMENT IS NOT ESSENTIAL INGREDIENT FOR IMPOSING CIVIL LIABILITY. HENCE, WE HAVE TO CONSIDER THE EXPLANATION OFFERED BY THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED AND THERE IS NO BURDEN ON THE REVENUE TO ESTABLISH THAT THERE ITA NO.66 & 67/B/09 11 WAS WILLFUL DEFAULT ON THE PART OF THE ASSESSEE. W E HAVE GONE THROUGH THE ASST. ORDER. IT IS CLEAR FROM THE ASST. ORDER THAT THE AO HAS COMPUTED THE INCOME ON THE BASIS OF THE BOOKS OF ACCOUNT. THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT FOR THE PURPOSE O F COMPUTATION OF INCOME. THE BOOKS OF ACCOUNT HAVE BEEN REJECTED, SIMPLY ON THE BASIS THAT THE ASSESSE E HAS NOT FOLLOWED THE ACCOUNTING STANDARD AS-2. RUL E 6F OF THE INCOME-TAX RULES PRESCRIBES THE MAINTENANCE OF SPECIFIC BOOKS OF ACCOUNT FOR THE PERSONS, WHO ARE CARRYING ON CERTAIN PROFESSION. THE ASSESSEE IS NOT COVERED UNDER RULE-6F, HENCE THERE WERE NO BOOKS OF ACCOUNT, WHICH WERE PRESCRIBED BY THE BOARD, TO BE MAINTAINED. IN THE BOOKS OF ACCOUNT, AS AVAILABLE IN THE PAPER BOOK, THE ASSESSEE HAS MAINTAINED THE DETAILS OF DEVELOPMENT COST, ADMINISTRATIVE EXPENSES, WAGES ETC. DEVELOPMENT COST HAS BEEN SEPARATELY SUB- DIVIDED INTO CEMENT, BRICKS AND WATER. THE DETAILS OF PAYMENT AND THE DATES ON WHICH PAYMENT HAVE BEEN MADE ARE MENTIONED. HOWEVER, THE DETAILS DO NOT CONTAIN THE PERSON TO WHOM SUCH PAYMENT HAS BEEN MADE. THE ASST. YEARS UNDER CONSIDERATION WER E THE INITIAL ASST. YEARS, FOR WHICH, THE REVENUE HAS MADE ASST. THUS, THERE WAS REASONABLE CAUSE WITH TH E ITA NO.66 & 67/B/09 12 ASSESSEE FOR MAINTAINING THE BOOKS OF ACCOUNT, IN THE FORM, WHICH HAVE BEEN PRODUCED DURING THE COURS E OF ASST. PROCEEDINGS. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S S.C NAREGAL I N IT 263/2004 VIDE DECISION DATED 23.9.08 HAS HELD THAT PERIOD OF LIMITATION FOR SECTION 271B IS FROM INITIATION OF PROCEEDINGS AND IS NOT TO BE LINKED WITH THE PERIOD UP TO WHICH ASST. COULD HAVE BEEN COMPLETED. PENALTY PROCEEDINGS CAN BE INITIATED EITHER DURING THE COURSE OF ASST. PROCEEDINGS OR DURING THE COURSE OF OTHER PROCEEDINGS. SECTION 271A DOES NOT MENTION THAT SUCH PROCEEDINGS ARE TO BE INITIATED DURING THE COURSE OF ASST. PROCEEDINGS . HENCE, SUCH PROCEEDINGS COULD HAVE BEEN SEPARATELY INITIATED. SINCE THE TIME LIMIT FOR COMPLETION OF SUCH PROCEEDINGS IS ON THE BASIS OF THE INITIATION AND, THEREFORE, IT CANNOT BE SAID THAT SUCH PROCEEDINGS COULD NOT HAVE BEEN COMPLETED BEFORE TH E ASST. PROCEEDINGS AS TIME LIMIT FOR COMPLETION OF ASST. PROCEEDINGS WAS SEPARATE AND DISTINCT. HOWEVER, IT IS TRUE THAT THE FINDINGS IN THE ASST. ORDER ARE RELEVANT WHILE DECIDING THE PENALTY. IN CASE, THE INCOME IS COMPUTED ON THE BASIS OF THE BOOKS OF ACCOUNT MAINTAINED, THEN THE REVENUE CANNO T SAY THAT THE ASSESSEE HAS NOT MAINTAINED THE BOOKS ITA NO.66 & 67/B/09 13 OF ACCOUNT. HENCE, CONSIDERING THE ABOVE FACTUAL POSITION, WE FEEL THAT PENALTY WAS NOT TO BE IMPOSE D IN THIS CASE FOR BOTH THE ASST. YEARS, AS THE ASSESSEE HAS REASONABLE CAUSE AND AO WAS ABLE TO DETERMINE THE INCOME AS PER THE BOOKS OF ACCOUNT PRODUCED BEFORE HIM DURING THE COURSE OF ASST. PROCEEDINGS. PENALTIES IMPOSED BY THE AO ARE CANCELLED AND THE APPEALS ARE ALLOWED. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21ST AUG,2009. SD/- SD/- (GEORGE GEORGE K) (N.L KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED 21/08/09 VMS COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF 7. GF, ITAT, NEW DELHI. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.