1. This appeal is directed against the order of the learned Deputy Commissioner of Income-tax (Appeals), [hereinafter described as DC (Appeals) for short], dated 16-9-1991 confirming the penalty levied under Section 271 B of the Income-tax Act, 1961 (naming of the Act hereinafter, omitted). The appeal relates to the assessment year 1989-90.
2. In the opinion of the Assessing Officer (AO for short), as the assessee did riot file the audit report under Section 44AB within the stipulated time under Section 139(1), it was liable for penalty under Section 271B. He issued a show-cause notice to the assessee asking for explanation. It was the reply of the assessee that though'the books of account were audited and certificate under Section 44AB was obtained before due date, it could not be furnished as the return inadvertently was not filed within the time stipulated under Section 139(1) due to illness of the partner, who was looking after the Income-tax matters, it had escaped his mind. He ultimately died on 25-8-1990. The A.O. felt that the explanation was unsatisfactory. He opined that there were two other partners looking after day-to-day affairs of the business could have attended the Income-tax matters of the assessee-firm as well. It was also pointed out that the Income-tax matters of the assesses are looked after by a Senior Income-tax Practitioner and the return could have easily been prepared by him on the basis of audit report. The A.O.imposed penalty of Rs. 42,570, which was confirmed by the learned DC (Appeals), 3. The learned counsel for the assessee pointed out that there were reasonable causes for not filing the audit report under Section 44AB, along with the return under Section 139(1), but the same were not properly appreciated by the departmental authorities. He also argued that the main purpose of enacting Section 44AB had been enunciated by the CBDT, Circular No. 387, dated 7th July, 1984 reported in 152 ITR Statute 11. The said circular states as under: A proper audit for tax purposes could ensure that books of account and other records are properly maintained and they faithfully reflect the income of the tax payer and claims for deduction are correctly made by him. Such audit would also help the in-checking of the fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably saving the time of the Assessing Officers in carrying out routine verifications like checking, correctness of the totals and verifying whether purchases and sales are properly vouched or not. The time of the Assessing Officer thus, saved, could be utilised for attending more important investigational aspects of the case.
4. He further pointed out that Section 139(6A) stipulates that an assessee is required to furnish such audit report along with the return. He, therefore, argued that if the return had been filed under Section 139(1) without such report, then in view of Section 139(6A), the return would have been treated as defective and as per explanation (bb) of Section 139(9), fifteen days opportunity had to be given by the A.O. to enable the assessee to file a report and remove the defect.
Hence, he argued the section cannot be construed in a way that the audit report had to be filed within the time allowed under Section 139(1) of the Act.
5. His main thrust of the argument is that when the audit report under Section 44AB had also ready been obtained before the said specified date prescribed in that Section and filed along with the return [even after stipulated time under Section 139(1)], before the assessment was completed, the main purpose of Section 44AB is achieved and hence for technical and venial latches, if any, no penalty should be levied. He further pointed out that the return of income which was filed along with the report under Section 44AB, was accepted in framing the assessment. In view of above, he submitted that the penalty imposed by the A.O. should be cancelled. He also cited separate decisions in support of his contentions and they are: 4. Addl CIT v. Dargapandarinath Tuljayya and Co. [1977] 107 ITR 850 (AP), (FB) & Saurashtra Cement and Chemical Industries Ltd. v. CIT [1978] 115 ITR 27 (Guj.) 5. CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) and Addl CIT v. Bihar Textiles [1975] 100 ITR 253 (Pat.).Hindustan Steel Ltd. v. State of Orissa 6. The learned Departmental Representative submitted that the assessee had not complied with the terms and conditions as envisaged in the Act in respect of filing the audit report under Section 44AB. He pointed out that the audit report was filed after the due date prescribed under Section 271B as the return under Section 139(1) was not filed within the due time along with the report. He further argued that in view of the abolition of the words "reasonable cause" w.e.f. 1-4-1989, from Section 271B, the submissions of the assessee regarding the delay have become infructuous.
7. To appreciate the issue properly, I prefer to quote Section 271B, which reads as under: If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or obtain a report of such audit as required under Section 44AB or furnish the said report with the return of his income filed under Sub-section (1) of Section 139 or along with the return of income furnished in response to a notice under Clause (i) of Sub-section (1) of Section 142, the A.O. may direct that such person shall pay, by way of penalty, a sum equal to one half per cent of the total sales turnover or gross receipts In profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less.
8. From plain reading of the section, it appears to me that penalty was not lawfully levied in this case. The section postulates two alternative conditions violating which the assessee can be visited with penalty. They are: -- 1. Failure to get accounts audited in terms of Section 44AB and obtain the report, or 2. Failure to furnish the said report along with the return filed under Section 139(1) or 142(1)(i). (Emphasis supplied).
9. It is not disputed that the assessee in this case got its audit report before the prescribed date as enumerated in Section 44AB.Therefore, penalty for violation of the first condition does not arise.
Again, as the assessee did not file return under Section 139(1) or Section 142(1)(i), the question of filing the report with the same does not arise. In other words, had it filed return under Section 139(1) or 142(1)(i) without report, it could be visited with the penalty in terms of Section 271B.10. At this stage, I must confess that I was confused to the question: as the assessee did not file return under Section 139(1), consequently the report with it and as there is no prevision to file the report independently, whether it was liable for penalty under Section 271B? But the conjoint analysis of Sections 44AB and 27 IB has clarified the confusion. I feel if the legislature intended, that if an assessee does not file the report under Section 44AB as well as the return within the prescribed time under Section 139( 1) the assessees would be liable for penalty, then it would have been sufficient to enact that failure to file the report within the time stipulated under Section 139(1) along with the return, penalty can be levied. (It may be pointed out that the time stipulated in Section 44AB and Section 139(1) are identical in the case of return to be filed with the audit report). In other words, the following words in Section 271B: to get his accounts audited in respect of such audit as required under Section 44AB would become redundant. To make any part of the section redundant cannot be treated as proper interpretation of a statute (Please see Mother India Refrigeration Industries v. Supdt. [1980] ELT 600 (All.).
11. At this stage, I may refer to the Circular No. 582, dated 23-10-1990 issued by the CBDT and para 3 of it states as under: Penalty under Section 271 B of the Act is leviable only for non-compliance with the provisions of Section 44AB of the Act and not for the delay in payment of self-assessed tax. Therefore, there seems to be an obvious anomaly in the said circular No. 422 insofar as it linked the imposition of penalty under Section 271 B with the payment of self-assessment tax. (Emphasis supplied) 12. It obviously shows that the revenue itself has delinked the payment of self-assessment tax, anatural consequence of filing return under Section 139(1), purview of audit report under Section 44AB. I have emphasised the word only in the Circular of the CBDT, which manifests the view of the CBDT in these matters. In my view as the assessee had obtained the audit report before the prescribed date of Section 44AB and had filed it with the return, which was accepted, no penalty under Section 271 B should be levied. I feel the word under Section 139(1) in the Section 271 B should be replaced by Section 139 only to give a rationality with the view of CBDT.13. I am unable to accept that the deletion of words "without reasonable cause" from Section 271B of the Act w.e.f.1-4-1989 had made the reasonable cause as redundant for the purpose of applying the section as suggested by the learned Departmental Representative. It would be seen that the section still retains the word "made". From this it emerges that the penalty still is discretionary. Moreover, Section 273B postulates that no penalty quoted in that (Section 271B is one of them) can be levied if the assessee proves that there was reasonable cause for the failure. In this case, it is not disputed that the partner who used to look after the Income-tax matters had after prolonged illness in the hospital, eventually died.
It squarely proves that there was reasonable cause for failure to file the returns within the stipulated time.