Section 271A

Section 271A — the law in short

What the courts have decided on section 271A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Surajmal Parsuram Todi v CIT High CourtHelps taxpayer
  I never maintained books of account at all. Can the department penalise me under section 271B for not getting them audited?
  No. The Gauhati High Court held that where an assessee has not maintained books of account at all, penalty under section 271B for failure to get them audited cannot be imposed. Maintenance of accounts is required by section 44AA, and failure there is punished by section 271A. Once that default is complete there is nothing to audit, so no failure under section 44AB can arise and section 271B has nothing to bite on. The Tribunal had overlooked this. The question was answered in the negative and in favour of the assessee, leaving the department to act under section 271A.
• Bright Singh Chelladurai v ITO ITATHelps taxpayerHigh Courts differ
  The officer penalised my client Rs 25,000 under s.271A for not keeping books and then another Rs 1,50,000 under s.271B for not getting them audited. Can he do both for the same year?
  No. Having levied the s.271A penalty for not maintaining books under s.44AA, the officer ought not to have levied a s.271B penalty as well — if no books were kept there was nothing to audit, so s.44AB was not violated. The Tribunal deleted the s.271B penalty and left the s.271A penalty standing.
• Haresh Ghanshyamdas Makhija v ITO ITATHelps taxpayer
  They already penalised me under 271A for keeping no books. Can they levy 271B on top?
  No. Once penalty has been levied under s.271A for non-maintenance of books, a further penalty under s.271B for failure to audit those books cannot stand — the department cannot assert a failure to audit books it has itself found not to exist. The same consolidated order deletes a separate concealment penalty under s.271(1)(c) on the footing that the officer accepted the return and assessed the identical income, so there was nothing concealed.
• Lokesh Kumar Sharma v ITO ITATHelps taxpayerNo later treatment found
  I never maintained books at all. Can they penalise me under 271B for not getting them audited?
  No. Section 44AB requires a person to get 'his accounts' audited, which presupposes that accounts exist. Where the default is at the earlier stage of not maintaining books under s.44AA, the audit obligation never arises, and the penalty for that default is s.271A — not s.271B.
• Somnath Ghosh v ITO ITATHelps taxpayerNo later treatment found
  I kept no books at all. Can they penalise me under 271B for not getting the accounts audited?
  No. Where no books of account exist there is nothing capable of being audited, so s.271B is not attracted, and the penalty was cancelled. The further proposition - that the default, if any, is non-maintenance of books, which is dealt with by s.271A - was the assessee's argument, and the Tribunal did not state a separate holding on it.
• Statutory position — s.44AA(2): who must keep books of account, and the thresholds CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client runs a small business, not a notified profession. At what point is he obliged to keep books at all, and what are the current figures?
  For a business or a non-specified profession, books must be kept if income from the business or profession exceeds Rs 1,20,000 OR total sales, turnover or gross receipts exceed Rs 10,00,000 in any one of the three years immediately preceding the previous year. For an individual or a Hindu undivided family two provisos raise those figures to Rs 2,50,000 and Rs 25,00,000 respectively.
• Statutory position — s.44AD(4) and s.44AD(5): the five-year lock-out, and why the books-and-audit duty bites only if total income exceeds the exemption limit CBDT Circulars & InstructionsCuts both ways
  My client filed under s.44AD for two years and then declared below eight per cent in the third. What happens to him for the next five years, and does he now have to get audited?
  By s.44AD(4), an eligible assessee who has declared profit in accordance with s.44AD and who, in any of the five assessment years relevant to the succeeding previous years, declares profit NOT in accordance with s.44AD(1), is shut out of s.44AD for the five assessment years subsequent to the assessment year in which he broke ranks. By s.44AD(5), that assessee must keep books under s.44AA(2) and get them audited and reported under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax — a condition that both the department and the assessee routinely read out of the sub-section.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.