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SHRI SHARAD KANKARIA, JAIPUR v. INCOME TAX OFFICER, WARD-6-1, JAIPUR

Income Tax Appellate Tribunal

Jan 23, 2020

Judgment

Subsequent
References

CaseIQ

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Concise Analytical Summary of the ITAT Order (Pronounced 23/01/2020)

Factual and Procedural Background

This opinion (per Sandeep Gosain, Judicial Member, with Vikram Singh Yadav as Accountant Member) concerns two separate appeals by the assessee, Shri Sharad Kankaria, against orders of the learned Commissioner of Income Tax (Appeals), Ajmer dated 10-12-2018 and 27-12-2018 for Assessment Year 2011-12. The appeals are registered as ITA No. 262/JP/2019 (penalty under section 271A) and ITA No. 263/JP/2019 (penalty under section 271B).

Relevant factual and procedural points stated in the opinion:

The assessee filed the return of income on 03-02-2012 declaring total income of Rs. 1,85,410/-; assessment under section 143(3) was completed on 05-03-2014 at income of Rs. 7,82,150/-.
Departmental records indicated aggregate receipts from business for the year under consideration (figures appear in the order) and the Assessing Officer (AO) observed failures to maintain or audit books as required by the Income-tax Act.
AO imposed a penalty of Rs. 25,000/- under section 271A (for non-maintenance of books) and a penalty of Rs. 1,50,000/- under section 271B (for failure to get accounts audited). The learned CIT(A) confirmed both penalties.
On appeal to the Tribunal, the assessee pursued challenge to both confirmations; the assessee partly relied on a coordinate-bench decision (Roshni Devi vs ITO, ITA No. 953/JP/2017) in respect of the section 271B issue.
Final pronouncement: order pronounced on 23/01/2020 by the Tribunal.

Legal Issues Presented

Whether the penalty of Rs. 25,000/- imposed under section 271A (for willful failure to maintain books of account as required by section 44AA/44AAA) was valid and should be confirmed.
Whether the penalty of Rs. 1,50,000/- imposed under section 271B (for failure to get accounts audited under section 44AB) should be sustained where it was contended that books were not maintained and a coordinate-bench decision had deleted a similar penalty.

Arguments of the Parties

Appellant's Arguments

In both appeals the assessee's ground was that the learned CIT(A) erred in confirming the AO's imposition of penalties (u/s 271A and u/s 271B respectively); the actions were pleaded to be illegal, unjustified, arbitrary and against facts of the case and relief was prayed by quashing the penalties.
In the section 271B appeal, the assessee contended that the correct turnover from delivery-based transactions was only Rs. 48,61,090/- (or worked out turnover of Rs. 59,61,001/- as per the assessee) and that the larger figure relied upon by AO related to non-delivery speculative transactions; the assessee relied on a coordinate-bench decision (Roshni Devi vs ITO) to argue for deletion of the 271B penalty.
For the section 271A appeal, at the Tribunal hearing the assessee’s representative did not advance any controverting arguments against the findings of the lower authorities (as recorded in the order).

Revenue's Arguments (AO / Department)

AO found the assessee willfully avoided maintaining books of account and other documents that would enable computation of total income, and therefore imposed penalty under section 271A read with section 274.
AO noted the assessee's gross receipts from business exceeded the statutory threshold (referred to section 44AA/44AAA(2)), making maintenance of books mandatory; absence of books constituted default under section 44AA and warranted penalty under section 271A.
Regarding section 271B, AO assessed a large turnover in trading of shares (Rs. 3,13,27,893/- as noted), rejected the assessee’s claim that most transactions were non-delivery (speculative) because the assessee failed to furnish documentary evidence despite opportunities, and observed the assessee failed to get accounts audited under section 44AB without reasonable cause; AO therefore levied penalty under section 271B which was confirmed by CIT(A).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Roshni Devi vs ITO (ITA No. 953/JP/2017), order dated 16-05-2018 (Coordinate Bench)	Held that where penalty under section 271A has been levied for non-maintenance of books of account, penalty under section 271B for non-audit cannot be sustained because books were not kept in the first place; the situation is one of impossibility of performance and double penalisation.	The Tribunal in the present case respectfully followed this coordinate-bench decision and, applying its reasoning, directed the AO to delete the penalty of Rs. 1,50,000/- under section 271B.
Rajmal Parsuram Todi (Hon'ble Gauhati High Court) (as cited in the coordinate-bench decision)	Held that when a person commits the offence of not maintaining books of accounts as contemplated under section 44AA, the offence is complete and thereafter there cannot be an offence as contemplated under section 44AB; imposition of penalty under section 271B in such circumstances is erroneous.	This principle was relied upon by the coordinate-bench decision (Roshni Devi) and that reasoning was followed by the Tribunal in deleting the section 271B penalty in the present matter.

Court's Reasoning and Analysis

The Tribunal’s analysis is divided into the issues arising under section 271A and section 271B respectively and proceeds from the factual findings recorded by the AO and the learned CIT(A), as reflected in the record.

Issue: Penalty under section 271A (Rs. 25,000/-)

The AO concluded that the assessee willfully avoided maintaining books and other documents necessary to compute total income; this conclusion was grounded on the AO's finding that the assessee's gross receipts exceeded the statutory threshold which imposed an obligation to maintain books under section 44AA / 44AAA(2).
The AO therefore imposed penalty under section 271A read with section 274. The learned CIT(A) considered the penalty order, statement of facts and submissions and agreed that gross receipts exceeded Rs. 10 lakhs and the assessee failed to show any reasonable cause for non-maintenance of books; CIT(A) confirmed the penalty.
At the Tribunal hearing, it was recorded that the assessee’s representative did not advance any arguments contesting the findings of the lower authorities regarding non-maintenance of books; having considered the material on record and the lack of contrary submissions, the Tribunal found no reason to interfere with the CIT(A) and sustained the confirmation of the section 271A penalty.

Issue: Penalty under section 271B (Rs. 1,50,000/-)

The AO had levied the section 271B penalty on the ground that the assessee failed to get accounts audited under section 44AB after determining a high turnover in share trading. The assessee contended that a large part of the transactions were non-delivery speculative transactions and produced a lower figure for delivery-based turnover, but could not produce documentary evidence despite opportunities.
CIT(A) confirmed the penalty, noting failure to get accounts audited and lack of reasonable cause.
On appeal, the assessee relied on a coordinate-bench decision (Roshni Devi) which held that where a penalty under section 271A has already been levied for non-maintenance of books, a subsequent penalty under section 271B cannot be sustained because the audit requirement under section 44AB cannot be performed when books are not maintained (an impossibility of performance and double penalisation). That decision in turn relied on the Gauhati High Court decision in Rajmal Parsuram Todi.
The Tribunal, while noting the facts and materials, applied and followed the coordinate-bench decision and its reasoning. Relying on the coordinate bench’s analysis (and the High Court authority cited therein), the Tribunal concluded that the penalty under section 271B could not be sustained in the circumstances of this case and directed deletion of the penalty.

Holding and Implications

Holding:

The appeal against the penalty under section 271A is dismissed. The Tribunal upheld the confirmation of the Rs. 25,000/- penalty imposed by the AO and confirmed by the CIT(A).
The appeal against the penalty under section 271B is allowed. The Tribunal deleted the penalty of Rs. 1,50,000/- and directed the AO to delete the said penalty; there was no order as to costs.

Implications:

Direct practical consequence on the parties: the Rs. 25,000/- penalty under section 271A remains payable (as the appeal seeking its deletion was dismissed), and the Rs. 1,50,000/- penalty under section 271B is deleted and thus not payable.
The Tribunal explicitly followed an existing coordinate-bench decision (Roshni Devi) and the High Court authority cited therein (Rajmal Parsuram Todi) for the proposition that a section 271B penalty cannot be sustained where books were not maintained and a section 271A penalty has already been levied. The order does not purport to lay down a new legal principle beyond following those precedents; its effect is to apply those authorities to the facts of this case.

Order pronounced in open court on 23/01/2020. The order lists parties to whom copies were forwarded as recorded in the original opinion.

Show all summary ...

PER SANDEEP GOSAIN, JM Both these appeals have been filed by the assessee against separate orders of the ld. CIT(A), Ajmer dated 10-12-2018 and 27-12-2018 for the Assessment Year 2011-12 in the matter of confirming penalty u/s 271A and 271B of the I.T. Act, 1961 respectively. The assessee has raised the following ground in the respective appeals. ITA No. 262/JP/2019 Shri Sharad Kankaria vs ITO, Ward- 6(1), Jaipur ITA No. 262/JP/2019 A.Y. 2011-12 u/s 271A in the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the actions of AO in levying penalty of Rs. 25,000/- u/s 271A. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said penalty of Rs. 25,000/- ITA No. 263/JP/2019 A.Y. 2011-12 u/s 271B in the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the actions of AO in levying penalty of Rs. 1,50,000/- u/s 271B. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said penalty of Rs. 1,50,000/- 2.1 The solitary grievance of the assessee in this appeal is regarding confirming the penalty of Rs. 25,000/- u/s 271A of the Act by the ld. CIT(A). In this appeal of the assessee, it is noted that the AO has imposed the penalty of Rs. 25,000/- by observing as under:-

4. I have considered the material available on record and the assessee's above submission. The reply of the assessee is not acceptable. I am satisfied that the assessee has willfully avoided to maintain the books of account and other documents which may enable the AO to compute his total income and accordingly the assessee is liable for imposing penalty as envisaged u/s 271A r.w.s. 274 of I.T. Act, 1961. Accordingly, I hold the assessee is liable for imposing penalty of Rs. 25,000/- and as such penalty of Rs. 25,000/- is hereby imposed u/s 271A r.w.s. 274 of the I.T. Act, 1961. ITA No. 262/JP/2019 Shri Sharad Kankaria vs ITO, Ward- 6(1), Jaipur 2.2 In first appeal, the ld. CIT(A) has confirmed the action of the AO by observing as under:- 4.3 I have gone through the penalty order, statement of facts, grounds of appeal and written submission carefully. In view of the facts discussed by the AO in the penalty order, I am of the considered opinion that the gross receipts from the business of the appellant was more than Rs. 10 lacs and the assessee was required to maintain the books of account as provided u/s 44A. The appellant has failed t show that there was any reasonable cause for non-maintenance of books of accounts. Therefore, the penalty of Rs.25,000/- levied by the AO u/s 271A is hereby confirmed. 2.3 We have heard the rival contentions and perused the materials available on record. Brief facts of the case are that the assessee filed its return of income on 3-2-2012 declaring total income of Rs. 1,85,410/- and the assessment u/s 143(3) of the Act was completed on 5-03-2014 at an income of Rs. 7,82,150/-. As per the details available with the department, the assessee had received aggregate receipt from business of Rs. 5,82,860/- during the year under consideration. The AO noted that the assessee has shown the income from business under the category of no books case. The AO further noted that as per the provisions of Section 44AAA(2) of the Act every person carrying on business or profession and the gross receipts exceeds Rs. 10 lacs in the just preceding year or in case ITA No. 262/JP/2019 Shri Sharad Kankaria vs ITO, Ward- 6(1), Jaipur where the business or profession is newly set up in any previous year and his income from business or profession is likely to exceed Rs. 1.20 lacs or the total sales, turnover or gross receipts as the case may be likely to exceed Rs. 10 lacs is mandatory to keep and maintain such books of accounts and other documents which may enable the AO to compute his total income in accordance with the provisions of this Act. The AO further noted that as the gross receipts of the assessee from business were more than Rs. 10 lacs therefore, the assessee was required to maintain books of account and other documents which may enable the AO to compute his total income. In this case the AO noted that the assessee has not maintained any books of accounts and as such he has committed a default within the meaning of provisions of sec 44AA of the Act which made the assessee liable for penalty u/s 271A of the Act. The AO thus imposed the penalty of Rs. 25,000/- u/s 271A of the Act which was confirmed by the ld. CIT(A). During the course of hearing, the Bench noted that the assessee did not maintain the books of account as provided u/s 44AA of the Act as the gross receipts of the assessee from business was more than Rs. 10 lacs. The ld.AR of the assessee did not advance any controverting arguments against the findings of the lower authorities. In ITA No. 262/JP/2019 Shri Sharad Kankaria vs ITO, Ward- 6(1), Jaipur view of the above facts and circumstances of the case, we find no reason to interfere with the order of the ld. CIT(A). Thus the solitary ground of the assessee as to confirming of penalty of Rs. 25,000/- u/s 271A of the Act by the ld. CIT(A) is sustained. 3.1 The solitary ground of the assessee is regarding confirming the penalty of Rs.1,50,000/- by the ld. CIT(A) made by the AO u/s 271B of the Act. The facts as emerges from the ld. CIT(A)s order are as under:- 4.3 I have gone through the penalty order, statement of facts, grounds of appeal and written submissions carefully. It is seen that the AO has levied the penalty holding that the appellant had the turnover of Rs. 3,13,27,893/- in trading of shares. The appellant has contended that only transaction of Rs. 48,61,090/- were delivery based transactions and the transactions of Rs. 2,60,85,508/- were non-delivery based transactions. Therefore, turnover of the appellant was only Rs. 59,61,001/-which has been worked out by the appellant as under:- S.N. Particulars Amount (Rs.)

1. Intra-day turnover covered under speculative transactions 56994

2. Intra-day turnover other than speculative transactions 42917

3. Turnover for sale of shares (Delivery based) 4861090 Total Turnover 4961001 Code Amount (Rs.) Amount (Rs.) Amount (Rs.)

2. Sale of an equity share in a company 776991 4084099 4861090 ITA No. 262/JP/2019 Shri Sharad Kankaria vs ITO, Ward- 6(1), Jaipur or a unit of an equity oriented fund, where 02 (a) the transaction of such sale is entered into in a recognized stock exchange; and (b) the contract for the sale of such share or unit is settled by the actual delivery or transfer of such share or unit

3. Sale of an equity share in a company or a unit of an equity oriented fund, where 03 (a) the transaction of such sale is entered into in a recognized stock exchange; and (b) the contract for the sale of such share or unit is settled by the actual delivery or transfer of such share or unit 1908225 24177283 26085508 The appellant was provided more than opportunity to furnish documentary evidences in support of his claim that the turnover of Rs. 2,60,85,508/- was non-delivery based speculative transactions but he could not produce the evidence to prove his contention. Therefore, the contention of appellant that only transactions of Rs. 48,61,090/- were delivery based transactions and all other transactions were non-delivery based speculative transactions cannot be accepted. As the appellant has failed to get his accounts audited u/s 44AB and he has also failed to show that there was any reasonable cause for not getting the books of accounts audited, therefore, the penalty of Rs.1,50,000/- made by the AO u/s 271B is hereby confirmed. 3.2 We have heard the rival contentions and perused the materials available on record. At the outset of the hearing the ld.AR of the assessee relied on the decision of the ITAT Coordinate Bench in the case of ITA No. 262/JP/2019 Shri Sharad Kankaria vs ITO, Ward- 6(1), Jaipur Roshni Devi vs ITO (ITA No. ITA No. 953/JP/2017 for the Assessment Year 2011-12) praying that this issue is covered vide order dated 16-05- 2018. The observation of this bench in deleting the penalty u/s 271B is as under:-

17. We have heard the rival contentions and pursued the material available on record. It is an admitted position that the assessee has not maintained the books of accounts in respect of her business run in name and style of M/s Jharkhand Electric & Electronics, the turnover of which was determined at Rs 96.10 lacs. Basis the same, we have upheld the levy of penalty under section 271A for non-maintenance of books of accounts. Once the penalty has been levied for non-maintenance of books of accounts, there cannot be penalty again for non-audit of books of accounts which were not kept at first place. It is clearly a case of impossibility of performance where it is expected that the assessee should get her books of accounts audited when it is a known and admitted fact that there are no regular books of accounts which have been maintained at first place. Our view is fortified by the decision of the Honble Gauhati High Court in case of Rajmal Parsuram Todi (supra) wherein it was held that when a person commits an offence by not maintaining the books of accounts as contemplated under section 44AA, the offence is complete and after that, there can be no possibility of any offence as contemplated under section 44AB and therefore, the imposition of penalty under section 271A is erroneous. In the result, the levy of penalty under section 271B is hereby deleted. Since the issue in question is covered by the decision of the ITAT Coordinate Bench in the case of Roshni Devi vs ITO (supra), therefore, respectfully following the decision of this Bench on the issue of deleting ITA No. 262/JP/2019 Shri Sharad Kankaria vs ITO, Ward- 6(1), Jaipur the penalty u/s 271B of the Act, we direct the AO to delete the penalty of Rs. 1,50,000/- confirmed by the ld. CIT(A). Thus the solitary ground of the assessee is allowed. 4.0 In the result, the appeals of the assessee in the case of penalty u/s 271A is dismissed and in the case of penalty u/s 271B is allowed with no order as to cost Order pronounced in the open court on 23 /01/2020. Sd/- Sd/- foe flag ;kno lanhi xkslkbZ (Vikram Singh Yadav) (Sandeep Gosain) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 23 /01/2020. *Mishra vkns'k dh izfrfyfi vxzsfkr@Copy of the order forwarded to: 1.vihykFkhZ@The Appellant- Shri Sharad Kankari, Jaipur 2.izR;FkhZ@ The Respondent-The ITO, Ward- 6(1), Jaipur

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5. xkMZ QkbZy@ Guard File {ITA No. 262/JP/2019} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar