1. This is an appeal against the levy of penalty under Section 271B.The assessee is a contractor with the previous year ending on 31-3-1987, relevant to the assessment year 1987-88. Up to the assessment year 1986-87 no accounts were maintained and the assessments proceeded on estimate basis. For the first time the assessee started maintaining accounts in relation to the assessment year 1987-88 in view of the provisions of Section 44A(2) of the Act as the total contract receipts was in the order of Rs. 45,15,499. The provisions of Section 44AB of the Act in regard to tax audit are also attracted in its case and the assessee ought to have got its accounts audited on or before 31-7-1987. This was not done and the assessee obtained the audit report only on 30-10-1987, on which date it filed its return of income involving a delay of about three months. No penalty was levied under Section 271 (1)(a) of the Act for belated filing of the return, but penalty was levied under Section 271B for not getting the accounts audited within the specified date which fell on 31-7-1987. It was explained that the accountant of the assessee fell ill and hence the delay in getting the accounts audited had taken place. The Assessing Officer was of the view that the illness of the accountant had nothing to do with non-observance of the specified date.
2. On appeal, the learned CIT (Appeals) held that with the removal of the expression "without reasonable cause" in Section 271B with effect from 10-9-1986, it was within the competence of the Assessing Officer to levy penalty once the specified date was not adhered to, thus contravening the provisions of Section 44AB of the Income-tax Act. The assessee is on second appeal.
3. We have heard the rival submissions and perused the records. Section 271B as it stood then was as follows: 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, the Income-tax Officer 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, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees which ever is less.
The learned Departmental Representative, supporting the order of the CIT (Appeals) submitted that with effect from 10-9-1986 the words with out reasonable cause occurring after the words "if any person fails" was deleted and therefore, once the specified date was not adhered to, the default/failure would attract penalty. On the other hand, the learned Chartered Accountant Shri KG. Nair emphasised the word "may" occurring in that Section and also contended that the Section should be read with Section 273B of the Income-tax Act, wherein "reasonable cause" was not excluded. We uphold the contention of the learned Chartered Accountant. Section 271B has to be read with Section 273B.Section 273B, as inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 with effect from 10-9-1986, is as follows : Notwithstanding anything contained in the provisions of Section 270, Clause (a) or Clause (b) of Sub-section (1) of Section 271, Section 271A, Section 271B, Sub-section (2) of Section 272A, Sub-section (1) of Section 272AA, Sub-section (1) of Section 272B or Clause (b) of Sub-section (1) or Clause (b) or Clause (c) of Sub-section (2) of Section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.
On a combined reading of Section 271B and Section 273B as inserted with effect from 10-9-1986, we hold that it is not in every case that penalty can be levied laconically or mechanically for mere contravention of the provisions of Section 44AB without examining whether there was reasonable cause as advanced by the assessee for the said failure or default. This is because even though the words "reasonable cause" have been omitted with effect from 10-9-1986 in Section 271B, inasmuch as Section 273B starts with a nonobstante Clause, the provisions of the latter Section have an over-riding effect on the provisions of the former Section as far as "reasonable cause" is concerned. Therefore, we hold that the CIT (Appeals) erred in holding that one need not look for reasonable cause before levy of penalty under Section 271B of the Act.
4. Turning to the existence or otherwise of the reasonable cause, we hold that in the case of the assessee it is not in dispute that the assessee's accountant had fallen ill and within a fortnight of his recovery, the audit report had been obtained. We fail to understand how the part played by an accountant in assisting the audit can, be overlooked or belittled. Accountant's job is not merely to write up the accounts but also to be of some useful assistance to the auditor in having the accounts reclassified, or in explaining to the auditor the entries made by him, or to carry out the corrections with regard to clerical or other mistakes in postings and castings etc., found in the accounts. It is common experience that an accountant will become a first suspect if he absents himself while the audit is in progress.
That would show the importance of the interaction of the accountant with the auditor in the course of audit and the significant role played by him in assisting the audit. These aspects have not been considered in the proper perspective either by the Assessing Officer or by the first appellate authority. Further, penalty was not levied in this case for the belated filing of the return along with the audit report, perhaps for the reason that there was reasonable cause in the accountant's illness in causing delay in the filing of the return.
Further, the fact that it is only for the first time that the assessee had started maintaining accounts should not also be lost sight of. In the circumstances, we have no hesitation in holding that there was reasonable cause for the assessee in not getting the accounts audited or obtaining the report within the specified time in view of the proven illness of the accountant. For these reasons we cancel the levy of penalty.