Non Maintenance of Stock register: Whether penalty for non maintenance of books can be imposed?

 

There is Penalty under s. 271A for failure to maintain books of account.Question arises whether Non-maintenance of stock register would attract penalty?

It may be noted that Provisions of r. 6F have not been made applicable to persons carrying on a business or profession other than those mentioned under s. 44AA(1) and covered under s. 44AA(2). Therefore, r. 6F may not be applicable to all the assessee.

In normal course, assessee is  required to keep and maintain the books of account in such a manner so as to enable the AO to determine his total income in accordance with the provisions of the Act .

If assessee had maintained cash book and ledger, purchase and sale vouchers then it can be said that the books of account and documents as envisaged in section 44AA(2) have been complied with and penalty under s. 271A is not leviable upon the assessee for non-maintenance of stock register

 

ITAT in the case of Sujan Singh vs. AO has observed as under:

1. Sub-s. (1) of s. 44AA provides that every person carrying on legal, medical, engineering and 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 which may enable the AO to compute his total income in accordance with the provisions of the Act. This section is applicable only to persons carrying on the specific professions mentioned therein. Sub-s. (2) of s. 44AA stipulates that every person carrying on a business or profession other than those mentioned under s. 44AA(1) is required to keep and maintain books of account, if his income from business or profession exceeds Rs. 1,20,000 or his total sales, turnover or gross receipts exceed or exceeds Rs. 10,00,000 in any one of the three years immediately preceding the previous year. The provisions of r. 6F have not been made applicable to persons carrying on a business or profession other than those mentioned under s. 44AA(1) and covered under s. 44AA(2). The case of the assessee falls under sub-s. (2) of s. 44AA, as the assessee was carrying on the business of a poultry farm. The Board has not specified or notified the books of account to be maintained by persons covered under sub-s. (2) of s. 44AA. Therefore, r. 6F is not applicable to the case of the assessee.—ITO vs. Dinesh Paper Mart (1999) 64 TTJ (Nag) 674 : (1999) 70 ITD 274 (Nag) relied on.

2. Even though the provisions of r. 6F are not applicable to the assessee, yet it does not mean that the assessee was not required to maintain any books of account. The assessee was still required to keep and maintain the books of account in such a manner so as to enable the AO to determine his total income in accordance with the provisions of the Act, because the turnover of the assessee exceeded Rs. 10,00,000. The assessee had maintained cash book and ledger. All purchase vouchers were also maintained. This fact is admitted by the AO in the assessment order. The AO, vide his remand report submitted before the CIT(A), admitted that the purchase and sale vouchers were maintained and examined. Thus, the only lapse on the part of the assessee was non-maintenance and non-production of stock register and stock inventory. The AO has himself admitted that the return of income filed was accompanied by audit report and other documents. The books of account and documents to be kept and maintained by persons covered under s. 44AA(2) have not been specified under the Act or the Rules. Thus, when the law did not prescribe the type of books of account to be maintained by the assessee and the assessee had indeed maintained the books of account, the assessee cannot be penalised for the default which he has not committed. It must be mentioned that provisions of the taxation laws in general and those relating to penalty specifically require to be interpreted by applying the strict rule of interpretation. Nothing can be added to or subtracted from the plain provisions of the sections of the Act. The law does not prescribe the specific books of account which were required to be maintained. Therefore, no penalty under s. 271A was leviable.

In short, Provisions of r. 6F are not applicable to persons carrying on a business or profession other than those mentioned under s. 44AA(1) and covered under s. 44AA(2); books of account and documents to be kept and maintained by persons covered under s. 44AA(2) have not been specified under the Act or the Rules and therefore assessee maintaining cash book, ledger, purchase and sales vouchers is not liable for penalty under s. 271A for non-maintenance of stock register.

 

The copy of the order is as under:

SUJAN SINGH vs. ASSESSING OFFICER

ITAT, AMRITSAR BENCH

Joginder Pall, A.M. & A.D. Jain, J.M.

ITA No. 151/Asr/2005; Asst. yr. 2001-02

6th July, 2007

(2007) 26 CCH 0372 AsrTrib

(2007) 110 TTJ 0818

In favour of:

Assessee

Counsel appeared:

R.S. Bansal, for the Assessee : Tarsem Lal, for the Revenue

ORDER

JOGINDER PALL, A.M. :

ORDER

This appeal of the assessee has been filed against the order of CIT(A), Bhatinda, for the asst. yr. 2001-02.

2. The only effective issue raised in this appeal is that the learned CIT(A) was not justified in sustaining the penalty of Rs. 25,000 imposed by the AO under s. 271A of the IT Act, 1961 (in short ‘the Act’). The facts of the case are that during the course of assessment proceedings, the AO called for the books of account and observed that the assessee had not maintained quantitative stock register and sale bills were also not produced. He observed that s. 44AA(2) provides that every person carrying on business or profession shall, if his income from business or profession exceeded Rs. 1,20,000 or his total sales in business or profession exceeded Rs. 10,00,000 in any one of the three assessment years immediately preceding the previous year, keep and maintain such books of account and other documents which may enable the AO to compute his total income in accordance with the provisions of the Act. However, the AO observed that the assessee failed to maintain such books of account, which could enable the AO to compute the total income in accordance with the provisions of this Act. Therefore, the assessee committed the default. Accordingly, the AO initiated the penalty proceedings under s. 271A of the Act. Since no reply was furnished by the assessee, the AO imposed a penalty of Rs. 25,000 under s. 271A of the Act for default under s. 44AA of the Act.

3. Being aggrieved, the assessee filed an appeal before the CIT(A). It was submitted before the CIT(A) that the assessee was a senior citizen running a poultry farm. The sales of the assessee were more than Rs. 40 lakhs. The assessee got its accounts audited under s. 44AB and filed the return, declaring therein income of Rs. 1,16,680. It was submitted that the assessee had maintained complete books of account including purchase and sale bills. In the purchase bills, the number of birds purchased was given and in the sale bills the number as well as the weight of the birds sold were given. The AO had wrongly observed that no sale bills were maintained. It was also submitted that at the end of the year, the assessee prepared the stock inventory by physically counting the birds. It was also argued that on the basis of purchase and sale bills, the quantity of stock in hand could easily be ascertained. Thus, it was argued that on the basis of these records, the AO was in a position to compute the income of the assessee. It was also argued that sub-s. (4) of s. 44AA empowers the Board to prescribe by rules the books of account and other documents to be kept and maintained by the persons specified under sub-s. (1) or (2). It was argued that as per r. 6F the Board has prescribed the books of account to be maintained by every person covered under sub-s. (1) of s. 44AA and sub-r. (5) of r. 6F provides the period for retention of such books and documents. It was argued that r. 6F(1) prescribes the books of account to be maintained by persons carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or Authorised Representative or film artist. However, no rule has been prescribed for any other business or profession. It was, therefore, submitted that since there is a no rule prescribing the period of retention of the inventory, no penalty under s. 271A was leviable. Reliance was also placed on decision of Tribunal, Nagpur Bench in the case of ITO vs. Dinesh Paper Mart (1999) 64 TTJ (Nag) 674 : (1999) 70 ITD 274 (Nag). However, these submissions did not find favour with the CIT(A), who upheld the penalty imposed by the AO by recording following findings in the impugned order :

“I have carefully considered the written submissions filed by the learned counsel and the arguments of the AO in the penalty order. The findings are as under :

1. The appellant has relied upon the decision of Hon’ble Tribunal Nagpur Bench decision No. 1999 in case of ITO vs. Dinesh Paper Mart (1999) 64 TTJ (Nag) 674 : (1999) 70 ITD 274 (Nag). The Hon’ble Tribunal held that since r. 6F provides only in maintenance and retention of books of accounts by person carrying on specified profession, the assessee carrying on business other than specified profession could not be penalized under s. 271A for not retaining books of account.

2. With due respect I differ with this decision for the simple reason that s. 271A contemplates imposition of penalty for the specified failure in two situations :

(a) When the provisions of s. 44AA have not been complied or

(b) When the provisions of rules (r. 6F) have not been complied. Either of the two situations attract penalty. It is very difficult for me to agree that the Act would penalize a set of the professions and would leave the others scot-free for the same offence.

Even if the specific set of books is not directed to be maintained for the businessman as per r. 6F, still as per IT Act s. 44AA, it is still a specified requirement on the part of the assessee to keep and maintain such books of accounts and other documents as may enable the AO to compute his total income and still get away with it.

I fail to understand as to how the AO can determine or confirm or compute the total income in the absence of the sale bills, stock register and above all the inventory details of the closing stock. Even Hon’ble Supreme Court in case of Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC) has held that the income cannot be computed in the absence of the details of the closing stock.

3. I understand that the provisions of r. 6F provide only an additional burden on the specified professional to keep the books of accounts and other documents in stricter terms. But this does not imply that for other categories, namely, business class, the legislature intends to put zero priority or low priority on maintenance of the specified books etc. If such attitude is permitted to be given than the whole scheme of computation/confirmation of the taxable income of the assessee would collapse just like the tyre of a vehicle collapses even upon a minor puncture. No sensible law or a law executing body can ever think of entertaining a plea from the appellant that the appellant should be permitted to hold back the very basic and fundamental information leading to the proper determination of his income.

4. I may therefore not be convinced by the arguments of the learned counsel and hold that the appellant should either comply with the provisions of maintenance of necessary books of accounts and if not-pay the penalty as specified in the Act. The appellant has also not pleaded for any really reasonable cause, which prevented him from complying with the provisions of s. 44AA. In view of this, I find no error in the order of the AO and sustain the same.”

The assessee has now filed the present appeal before this Bench.

4. The learned counsel for the assessee reiterated the submissions, which were made before the authorities below. He submitted that sub-s. (1) of s. 44AA stipulates that 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 is required to keep and maintain such books of account and other documents as may enable the AO to compute his total income in accordance with the provisions of the Act. He submitted that sub-s. (2) of s. 44AA prescribes similar treatment for keeping and maintaining such books of account in the cases of persons carrying on business or profession other than those mentioned in s. 44AA(1) of the Act, in case income from such business or profession mentioned under sub-s. (1) or sub-s. (2) exceeds Rs. 1,20,000 or the total turnover/gross receipts of the business or profession exceed or exceeds Rs. 10,00,000. Sub-s. (3) of s. 44AA empowers the CBDT to prescribe, by rules, the books of account to be kept and maintained under sub-s. (1) or sub-s. (2) of the Act. He submitted that r. 6F of the IT Rules, 1962 provides the books of account to be kept and maintained by persons carrying on legal, medical, engineering or architectural profession etc., mentioned in sub-s. (1) of s. 44AA. Sub-r. (2) of r. 6F also prescribes the books of account to be maintained by persons carrying on the abovementioned businesses. However, he submitted that no such books of account have been provided for the persons carrying on business other than those mentioned under s. 44AA(1). Therefore, the provisions of r. 6F are not applicable to the assessee. He relied on the decision of Tribunal, Nagpur Bench in the case of ITO vs. Dinesh Paper Mart (supra), where the difference in the provisions of ss. 44AA(1) and 44AA(2) was duly appreciated and it was held that penalty under s. 271A could not be imposed on the person carrying on business specified under s. 44AA(2) of the Act. He submitted that the learned CIT(A) was not justified in not following the decision of Tribunal, Nagpur Bench. He further submitted that it is not a case where the assessee had not maintained the books of account. He submitted that the AO has himself admitted in the assessment order that the assessee had produced the cash book, ledger and purchase vouchers. He submitted that the AO had wrongly mentioned that sale vouchers were not produced. However, the assessee had categorically submitted before the CIT(A) that the assessee had maintained sale vouchers and the same were produced before the AO. The case was remanded to the AO who confirmed by his remand report dt. 30th May, 2005, that the assessee had maintained the sale bills. These were also examined by the AO. He placed before us a copy of the remand report submitted by the ITO. Thus, he submitted that the learned CIT(A) was not justified in sustaining the penalty of Rs. 25,000 imposed by the AO under s. 271A of the Act.

5. The learned Departmental Representative, on the other hand, heavily relied on the orders of the authorities below. He submitted that the assessee was required to maintain the books of account in such a manner so as to enable the AO to determine the correct income of the assessee. In this case, the assessee had not maintained the books of account in the desired manner so as to enable the AO to determine the income of the assessee. He particularly submitted that the assessee had not maintained the sale bills and stock register. Thus, he submitted that the order of the CIT(A) does not merit any interference.

6. We have heard both the parties and carefully considered the rival contentions, gone through the material and evidence placed on record as well as the orders of the authorities below. Sub-s. (1) of s. 44AA of the Act provides that every person carrying on legal, medical, engineering and 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 which may enable the AO to compute his total income in accordance with the provisions of the Act. This section is applicable only to persons carrying on the specific professions mentioned therein. Sub-s. (2) of s. 44AA stipulates that every person carrying on a business or profession other than those mentioned under s. 44AA(1) is required to keep and maintain books of account, if his income from business or profession exceeds Rs. 1,20,000 or his total sales, turnover or gross receipts exceed or exceeds Rs. 10,00,000 in any one of the three years immediately preceding the previous year. Sub-s. (3) of s. 44AA empowers the Board to prescribe, by rules, the books of account and other documents to be kept and maintained by the persons specified under sub-ss. (1) and (2) of s. 44AA. Sub-s. (4) of s. 44AA empowers the Board to prescribe, by rules, the period for which such books of account and other documents shall be retained. Thus, from these provisions of the Act, it is quite clear that sub-s. (1) of s. 44AA covers certain specified professions where the books of account are required to be kept and maintained so as to enable the AO to determine the income as per provisions of the Act. Sub-s. (2) covers the persons carrying on professions other than those specified under sub-s. (1) and businesses where income exceeds Rs. 1,20,000 or the gross receipts, sales, turnover exceed or exceeded Rs. 10,00,000 in any one of the three years immediately preceding the previous year. It is also clear that the Board has been vested with powers to prescribe, by rules, the books of account maintained and the period for which such books of account are required to be maintained.

6.1 Rule 6F(1) of the IT Rules, 1962 specifically provides the books of accounts and other documents to be maintained by persons carrying on professions specified under s. 44AA(1) of the Act. Sub-r. (2) of r. 6F lists out the books of account to be maintained by persons covered under sub-r. (1) of r. 6F r/w s. 44AA(1) of the Act. Sub-r. (3) of r. 6F provides that a person carrying on medical profession shall, in addition to the books of account specified under sub-r. (2), also maintain a daily case register in Form No. 3C and inventory under broad heads. Sub-r. (4) prescribes the place where such books of account are required to be kept and maintained. Sub-r. (5) of r. 6F prescribes the period upto which the books of account are required to be maintained by persons carrying on professions of the nature mentioned under r. 6F(1) r/w s. 44AA(1) of the Act. However, the provisions of r. 6F have not been made applicable to persons carrying on a business or profession other than those mentioned under s. 44AA(1) and covered under s. 44AA(2) of the Act. The case of the assessee falls under sub-s. (2) of s. 44AA, as the assessee was carrying on the business of a poultry farm. The board has not specified or notified the books of account to be maintained by persons covered under sub-s. (2) of s. 44AA of the Act. Therefore, r. 6F is not applicable to the case of the assessee. This view also finds support from the decision of Tribunal, Nagpur Bench in the case of ITO vs. Dinesh Paper Mart (supra).

6.2 Even though the provisions of r. 6F are not applicable to the assessee, yet it does not mean that the assessee was not required to maintain any books of account. The assessee was still required to keep and maintain the books of account in such a manner so as to enable the AO to determine his total income in accordance with the provisions of the Act, because the turnover of the assessee exceeded Rs. 10,00,000. Now in this case, the assessee had maintained cash book and ledger. All purchase vouchers were also maintained. This fact is admitted by the AO in the assessment order. However, the AO has mentioned that assessee had not maintained the sale bills and stock inventory. This fact was disputed by the assessee. The assessee had emphatically contended before the CIT(A) that he had maintained sale vouchers and these were also produced before the AO. The learned CIT(A) remanded this matter to the AO. The AO, vide his remand report dt. 30th May, 2005, submitted before the CIT(A), admitted that the purchase and sale vouchers were maintained and examined. Thus, the only lapse on the part of the assessee was non-maintenance and non-production of stock register and stock inventory. Now the question is whether non-maintenance of stock register would make the assessee liable to penalty under s. 271A when complete books of account were maintained and these were also audited by the auditors. The AO has himself admitted that the return of income filed was accompanied by audit report and other documents. We have already held that r. 6F applicable to persons covered under s. 44AA(1) is not applicable to this case. Now the books of account and documents to be kept and maintained by persons covered under s. 44AA(2) have not been specified under the Act or the Rules. Sub-s. (12A) of s. 2 of the Act defines books or books of account to include a ledger, day books, cash books, account books and other books, whether kept in the written form or as printouts of data stored in a floppy, disc, tape or any other form of electromagnetic data storage device. This does not specifically include maintenance of stock register. Be that as it may, this sub-section was inserted in the Act by the Finance Act, 2001 w.e.f. 1st June, 2001. The assessment year under consideration is 2001-02, for which, the law as it stood on 1st April, 2001 was required to be applied. Thus, when the law did not prescribe the type of books of account to be maintained by the assessee and the assessee had indeed maintained the books of account, the assessee cannot be penalised for the default which he has not committed. It must be mentioned that provisions of the taxation laws in general and those relating to penalty specifically require to be interpreted by applying the strict rule of interpretation. Nothing can be added to or subtracted from the plain provisions of the sections of the Act. Now in this case, the law does not prescribe the specific books of account which were required to be maintained. Therefore, no penalty under s. 271A was leviable in this case.

7. In the light of these facts and circumstances of the case, we are of the considered opinion that the learned CIT(A) was not justified in sustaining the penalty of Rs. 25,000 imposed by the AO under s. 271A. Accordingly, we set aside the order of the CIT(A) and cancel the impugned penalty. The grounds of appeal of the assessee are accordingly allowed.

8. In the result, the appeal filed by the assessee is allowed.