- Introduction
This article covers the miscellaneous
provisions for penalty u/ss. 271(1)(b), 271A, 271B and 271C.
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Penalty u/s 271(1)(b)
Section 271(1)(b) provides
for levy of penalty for failure to comply without reasonable cause
a notice u/s 142(1) or 143(2) or a direction issued u/s 142(2A) of
the I.T. Act.
Section 142(1) provides for
calling for a return of income or to produce or cause to be produced
such accounts or documents as the Assessing Officer may require or
furnish information on specific points.
Section 143(2) notice requires
the assessee to produced such evidence as he might wish to rely in
support of the return.
Sections 143(2A) allows the
Assessing Officer to direct the assessee to get the accounts audited
by an accountant nominated by CCIT or CIT and furnish an audit report.
In this connection, it may
be noted that the delay in filing return of income after the issue
of notice u/s 142(1) would attract penalty u/s 271(1)(b) in addition
to interest u/s 234A of the Act.
This penalty can be levied
only if the Assessing Officer comes to a prima facie conclusion
during the course of assessment proceedings that there has been failure
on the part of the assessee to comply with the notices u/s 142(1)
or 143(2) or 142(2A) of the Act.
The penalty leviable under
this provision is Rs. 10,000/- for each default.
Other points
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The onus is on the person who
has failed to comply with the notices and he must show the reasonable
cause – CIT vs. Standard Merchantile Co. 160 ITR 613 (Pat).
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Before imposing penalty for failure
to produce books, the Assessing Officer must have evidence that
the assessee possessed books. CIT vs. Vedaptla Venkatramiah 11
ITR 308 (Madras).
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Before initiating penalty proceedings,
the Assessing Officer has to form his own opinion and record satisfaction
about the default having been committed. CIT vs. Ram Commercial
Enterprises Ltd. 246 ITR 568 (Delhi).
-
A letter enclosed along with
notice u/s 142(1) cannot be treated as notice and no penalty could
be imposed particularly if in the notice the words "details of
the documents required" was struck out. Calcutta Chromotype Pvt.
Ltd. vs. ITO 79 ITR 442 (Cal).
- Penalty u/s 271A
Section 271A provides for levy of
penalty for failure to keep and maintain books of account and other
documents as required by the provisions of section 44AA and the rules
made thereunder in respect of any previous year or retain such books
of account and other documents for the period specified in the rules.
Before discussing the details of
the provisions of section 271A, one must essentially look into the
provisions of section 44AA of the Act.
Section 44AA(1) provides that every
person carrying on legal, medical, engineering or architectural profession
or profession of accountancy or technical consultancy or interior
decoration or any other profession as is notified by the Board shall
keep and maintain such books of account and other documents as may
enable the Assessing Officer to compute the total income as per provisions
of the Act.
Section 44AA(2) provides that every
person carrying on the business or profession not being a profession
referred to in section 44AA(1) shall if his income from business or
profession exceeds Rs. 1,20,000/- or his total sales, turnover or
gross receipts as the case may be in business or profession exceed
or exceeds Rs. 10 lakhs in any one of the 3 years immediately preceding
the previous year, 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 the Act. In addition,
it has also been provided that in cases where the profits and gains
from the business are deemed to be the profits and gains of the assessee
u/s 44AD or 44AE or 44AF or 44BB or 44BBB and the assessee has claimed
the profits and gains to be lower than the profits and gains so deemed
to be the profits and gains of the business during the previous year
shall also have to keep and maintain such books of account and other
documents as may enable the Assessing Officer to compute the total
income in accordance with the provisions of the Act.
Section 44AA(3) empowers the Board
for prescribing by rules the books of account and other documents
to be kept and maintained by persons specified in sections 44AA(1)
and 44AA(2).
Section 44AA(4) empowers the Board
to prescribe the period for which the books of account and other documents
shall be retained. Accordingly, the Board has formulated Rule 6F of
the I. T. Rules, 1962 prescribing the books of account to be maintained
and retained by person carrying on the business or profession specified
in section 44AA(1).
Thus this penalty is leviable for
failure to keep and maintain books of account, documents etc. as per
the provisions of section 44AA and the penalty leviable is Rs. 25,000/-.
This penalty is appealable u/s 246A(1)(j)(B)
of the Act.
Although there is no bar for initiating
proceedings even after the completion of the assessment proceedings,
the limitation of time as laid down in section 275(1)(C) would apply
for imposing penalty.
Other points
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No penalty u/s 271A is leviable
for not retaining books of account in case of assessees carrying
on business other than specified professions ITO vs. Dinesh
Paper Mart 70 ITD 274 (Nag.)
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The provisions of section 44AA
have unmistakable nexus with the assessment proceedings. In the
absence of any specified time frame within the provisions of section
44AA or any rules made thereunder in respect of assesses falling
under the class of persons prescribed under section 44AA(2) it
cannot be said that the default in respect of keeping and maintaining
of books of account has taken place at any time before the date
for filing return of income u/s 139(1) Dy. CIT vs. Smt. Jyoti
Mehta 107 Taxman 77 (Mum. Mag.)
- Penalty u/s. 271B
This section provides for levy of
penalty on any person who fails to get his accounts audited as required
by the provisions of section 44AB of the Income-tax Act.
Section 44AB provides for the auditing
of the accounts of any person having business turnover of Rs. 40 lakhs
or more or gross professional receipts exceeding Rs. 10 lakhs and
filing the audit report along with the return of income. It has also
been provided that where the profits and gains from the business are
deemed to be profits and gains u/s 44AD or 44AE or 44AF or 44BB or
44BBB and it has been claimed that the income is lower than the profits
and gains so deemed to be profits and gains of the business in any
previous year as the case may be shall also get the accounts audited
and filed along with the return of income.
The terms used in section 44AB are
sales turnover and gross receipts and have not been defined in the
Act. They are commercial terms to be construed in a commercial sense
and in accordance with normal rules of accountancy. Accordingly, turnover
and gross receipts means gross inflow of cash receivable and other
consideration arising from the activity of sale of goods or from rendering
of service to the buyer or client.
However, while speaking of persons
carrying on profession, the section uses the expression gross receipts,
meaning thereby the term "turnover" applicable to business has a different
connotation from the term "gross receipt" used for professions.
In this regard a reference may be
made to the following case laws:
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Growmore Exports Ltd. vs. ACIT
78 ITD 95 (Mum.)
In this case it was held that
turnover in commercial terms would mean account of money turned
over or drawn in business in given time. It was further held that
where assessee without any liquid funds or working capital has
purchased and sold units of Rs. 7 crore without taking delivery,
the transaction was a speculative transaction; i.e., no actual
purchase as contemplated under the Sale of Goods Act takes place
and the assessee had to treat only the differences paid or received
as turnover.
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DCIT vs. Mangal Dayak Chit Fund
Pvt. Ltd. 92 ITD 258 (Hyd.)
In case of chit fund companies,
chit subscriptions are not to be treated as income or turnover.
The quantum of penalty leviable
is ˝% of the total sales, turnover or gross receipts as the case
may be in business or of the gross receipts in profession or a
sum of one hundred thousand rupees whichever is less.
However, it may be noted that
no penalty u/s 271B is leviable if the person is able to show
a reasonable cause for his failure to comply with the provisions
of section 44AB. The expression "reasonable cause" has to be interpreted
liberally and in a fair and reasonable manner so as to advance
the cause of justice particularly when it comes to levy of penalty.
ACIT vs. Gayatri Traders 222 ITR 1 (AT)(SB).
To understand more about the
term reasonable cause, the following case laws may be referred
to:
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Bonafide belief of the assessee
that the amount obtained by a sub-contractor was not to form
part of his income is held to be a reasonable cause for not
getting the accounts audited ITO vs. Nanak Singh 257 ITR
677 (M.P.)
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Bonafide belief that turnover
of the dealing in shares made on behalf of various buyers
and sellers through the assessee in the capacity as sub broker
is not to be considered as his turnover R. Wadiwala &
Co. vs. ACIT 72 TTJ 34 & 35.
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Mistake of assessee’s counsel
is held to be a reasonable cause ITO vs. Gulabdas Stores
69 TTJ 472
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Sickness of Chartered Accountant
held to be a reasonable cause Asiatic Leather vs. ITO 100
Taxman 245 (Cal. Mag.)
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Department’s failure to provide
photocopies of assessee’s books of account impounded during
survey, held to be a reasonable cause ITO vs Babulal Jain
251 ITR 656 (P & H)
It may be noted that till 30-6-1995
the requirement of section 44AB was only to obtain the report
before the specified date and consequently no penalty could be
levied in cases where the assessee has got its accounts audited
before the specified date and had obtained the report of Audit
before the specified date. In other words, there was no obligation
to furnish the report to Assessing Officer before the specified
date. The following cases may be referred to :
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CIT vs. Gramin Sadhan 245
ITR 536 (All)
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CIT vs. Jain Durga Construction
245 ITR 857 (All)
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ITO vs. Kaysons India 246
ITR 89 (P&H)
However, w.e.f. 1-7-1995, the
law has been amended and the requirement now u/s 44AB is not only
to get the accounts audited
before the specified date, but also to
furnish such audit report to the Assessing Officer.
This penalty cannot be levied
without giving an opportunity of being heard.
The penalty order is appealable
to the CIT (A) under section 246A(1)(m).
Other points:
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The provisions of limitation
laid down in section 275 would apply to penalty u/s 271B.
ACIT vs. Birkmyre Exports Co. Pvt. Ltd. 255 ITR 72 (Cal.)
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Once penalty u/s 271A is
levied no penalty u/s 271B can be imposed
Surajmal Parsuram Todi vs. CIT 222 ITR 691 (Gau.) and
Ram
Prakash C Puri vs. ACIT – 77 ITD 210 (Pune)
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In the case of publicity
agents the entire amount of total transaction cannot be treated
as receipts accruing to assessee only agency commission could
be taken into account for section 44AB purposes CIT vs.
Heros Publicity Services 248 ITR 256 (Bom).
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In the cases of persons engaged
in construction activities value of work in progress representing
current assets including cost of material, labour and other
direct overheads incurred by assessee does not constitute
turnover ACIT vs. B.K. Jhala & Associates 69ITD 141(Pune).
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Penalty u/s 271C
This section provides for penalty
for failure to deduct the whole or any part of the tax as required
by or under the provisions of Chapter XVIIB or to pay the whole or
any part of the tax as required by or under section 115-0(2) or second
proviso to section 194B.
The penalty leviable under
this provision is a sum equal to the amount of tax, which the person
failed to deduct or pay. The levy of penalty is governed by the procedural
provisions of sections 274, 275 & 273B. i.e. the penalty can be
levied only after giving an opportunity of being heard to show cause
absence of default or reasonable cause. Further as per section 271C(2)
the penalty can be levied only by a Jt. CIT.
Apart from default of non-deduction
of TDS the section also provides a penalty for failure to comply with
provisions of section 194B, which includes a proviso inserted by finance
Act 1997 w.e.f. 1-6-1997. The same reads as under:
"Provided that in a case where
the winnings are wholly in kind or partly in cash and partly in kind
but the part in cash is not sufficient to meet the liability of deduction
of tax in respect of whole of the winnings, the person responsible
for paying shall, before releasing the winnings, ensure that tax has
been paid in respect of the winnings"
This proviso provides that
the person responsible for paying any income by way of winnings from
any lottery or crossword, puzzle exceeding Rs. 5000/- is required
to deduct tax at source. The tax is required to be deducted irrespective
of whether the winnings are in cash or in kind. In cases where the
winnings are either wholly in kind or where they are partly in cash
and partly in kind and the part cash is not sufficient to meet the
TDS liability in respect of whole of the winnings and consequently
difficulty arises in complying with the provision. Further, a beneficial
circular (Circular No. 428 dated 8-8-1985) provided that tax need
not be deducted in cases where the winnings are wholly in kind. This
further lead to winnings in kind escaping taxation. Therefore, to
safeguard the interest of revenue the Finance Act, 1997 amended section194B
to provide that in cases where the winnings are wholly in kind or
where they are partly in kind and in cash and that the part of the
cash is not sufficient to meet the liability of tax deduction in respect
of the whole winning, the persons responsible shall before releasing
such winnings whether in cash or kind ensure that tax has been paid
in respect of aggregate winnings.
Further it may also have to
be noted that the concluding portion of section 271C refer to capping
limit of penalty saying that it shall be restricted to the amount
of tax which such person failed to deduct or pay. This reference to
payment is only to payment of tax payable by the payee himself u/s
194B and to payment of tax u/s 115O
Section 115-O deals with payment
of dividend tax payable by a domestic company on the amount declared,
distributed or paid.
Other points
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Wherever non-deduction is authorised
by Assessing Officer, no penalty u/s 271C can be levied. Drill
Well Associates Co-op. Society Ltd. vs. ITO 73 ITD 240 (Ahd.)
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Where the non-deduction on account
of a bonafide belief that no tax is to be deducted no penalty
is leviable.
Mitsui Company Ltd. vs. Dy. CIT 65 TTJ 1 (Del.)
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To the extent the default is
covered by specific provision of section 271C, no penalty can
be levied u/s 221 for the same default. ITO (TDS) vs. Titagarh
Steels Ltd. 79 ITD 532.
