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Levy of a penalty is a part of the assessment proceedings and hence it signifies importance. U/s 44AA of the Income-tax Act, 1961 a duty on the assessee to maintain books of account, and on any such failure to do so the assessee can be liable to penalty under section 271A of the Act of Rs.25k. And further the same assessee is obliged to get his accounts audited in case his turnover in business exceeds the specified limit. Any failure in this regard would mean penalty upto Rs.1 Lac u/s 271B. Often the AO is found to have initiated proceedings for levy of penalty for both the offences.

The Pune Bench of the ITAT in the case of Ram Prakash C. Puri vs. Assistant Commissioner of Income-tax (77ITD210) held that when a person commits the offence of not maintaining the books of account as contemplated by section 44AA, the offence would be complete. After that, there can be no possibility of any offence as contemplated by section 44AB of getting the accounts audited. In other words no penalty can be imposed u/s 271B.

The Gauhati High Court in the case of Surajmal Parsuram Todi Vs. Commissioner of Income-tax (222ITR691) also held that no penalty could be imposed u/s 271B after penalty u/s 271A is imposed.

In such cases it may be open to the assessing officer to impose a composite penalty for multiple defaults of such kind. In the case of Durga Dutt Chunni Lal Vs. Commissioner of Income-tax (67ITR33) the Tribunal in affirming the order of the assessing officer pointed out that no authority had been cited for the proposition that the levy of a composite penalty for two offences is not permissible under the law. In fact the composite penalty in this case worked out to the benefit and advantage of the assessee since in case of separate penalties being imposed the quantum of penalties would have been much more and would have been prejudicial to the assessee.

In affirming the order of the Tribunal the Allhabad High Court further pointed out that in some cases it may be advisable to take separate proceedings but it cannot be laid down as a matter of law that proceedings for two or more defaults must invariably be taken separately and can never be disposed of by one penalty order especially when there has been no prejudice whatsoever to the assessee. In this case it was found that the maximum penalty leviable for the two defaults was well over Rs. 20K and the penalty that was levied was around Rs.6K. The Court held that the levy of a composite penalty in these circumstances was not at all prejudicial to the assessee, and, therefore, it is difficult, if not impossible, to say that any principle of natural justice has even been violated in the present case.

It would therefore be of interest for the assessing officer to either initiate proceedings only under high value penalty section or resort to levy of composite penalty to optimize the revenue.

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