1. There has been a difference of opinion between the members constituting the Division Bench and the matter is, therefore, referred to the Hon'ble President, I.T.A.T. for nominating a Third Member to resolve the following point of difference :- "Whether on the facts of the case and in law, the penalty u/s 271-B of the Income-tax Act, 1961 was not leviable on the assessee as held by the Vice President or the view taken by the Judicial member to the effect that the penalty was leviable, was the correct one ?" 1. The revenue is appeal against the order of CIT (A) in appeal No.ROT/255/IT/92-93/CIT(A) (C)/ Ldh dated 15.11.93 on the following ground :- "On the facts and in the circumstances of the case, the Id. CIT (a) (C) has erred in deleting the penalty imposed u/s 271B of I.T. Act, 1961 for not complying with the provisions of section 44AB within the stipulated period." 2. The relevant and material facts for the disposal of this ground of appeal are that the assessee firm was required to obtain audit report as per provisions of section 44AB on or before 30.10.92 and file the same alongwith return within stipulated period as provided u/s 139(1) of IT Act. Since the same was not filed within stipulated period as provided u/s 139(1) the AO visited the business premises of the assessee firm and recorded the statement of Raj Kumar, partner of the assessee firm on 4.11.92 wherein he specifically stated before the AO that the return for 1922-93 had already been filed and acknowledgment thereof was available with the C.A., Shri R. K. Kapoor. He further specifically stated that the assessee firm has not obtained the tax audit report u/s 44AB but the same was available with the C.A., Shri R.K. Kapoor. On that very day the AO also visited the office of the C.A. Shri R.K. Kapoor and came to know that Shri Kapoor was out of station for 3/4 days. Thereafter the AO issued a show cause notice u/s 271B dated 5.11.92 asking the assessee as to why the penalty should not be imposed against the assessee for non-compliance of the provisions of section 44AB. The assessee filed a reply dated 23.11.92 and stated therein that though the IT return was filed on 9.11.92 but the audit report has been obtained on 30.10.92. In support thereof the assessee filed a certificate from the C.A. confirming that the audit report was given to the assessee on 30.11.92.
3. The AO rejected this explanation of the assessee and held that audit report has not been obtained by the assessee on 4.11.92 because the partner of the assessee firm, Shri Raj Kumar, who was fully aware of the affairs of the firm had made a categorical statement on 4.11.92 that the audit report has not been received till date. Accordingly the AO imposed a penalty of Rs. 1.00 lakh on the assessee u/s 271B of IT Act.
4. The assessee filed an appeal before the CIT(A) and contended before him that Raj Kumar was only educated upto 10th Std. and could not understand the implication of the word "obtain" but had explained to the AO that the books were examined by the auditors which were also shown to the AO, and were even ticked by the C.A., showing that audit had been completedand which was further clear from the signatures of the partners, including Raj Kumar on the balance sheet etc. to indicate that the audit was completed on 30.10.92. He further contended that even the C.A. while handing over the report to the assessee, has taken a receipt to show that the audit report was obtained by the assessee from the auditor on 30.10.92. In support thereof the Id. AR for the assessee relied upon the certificate of the C.A. and audit report to show that it was completed on 30.10.92 and that the assessee received the report on 30.10.92. Thus the Id. AR contended that the assessee has not violated the provisions of section 271B and the penalty has been wrongly imposed by the AO.5. The CIT(A) deleted the penalty on the reasoning that Shri Raj Kumar, the partner of the assessee firm has stated before the AO on 4.11.92 that the audit report u/s 44AB alongwith audit report has not been obtained and may be available with Shri R.K. kapoor, the C.A. which indicated that the said report was not with the assessee but was with the C.A. and his further statement that the return alongwith report must have been obtained by the assessee otherwise no report could have been filed by the assessee and secondly on the reasoning that the reply of the assessee clearly states that the audit was completed within time i.e. 30.10.92 which was apparent from the certificate of the auditors and thus the penalty, according to the CIT (A), was result of mis-understanding on the part of the AO and hence liable to be deleted and accordingly he cancelled the penalty imposed bythe AO.6. Now, aggrieved with the order of CIT(A), the revenue is in appeal before us for setting aside the order of CIT(A) and restoring that of the AO.7. According to the Id. DR for the revenue firstly the report is anti dated and secondly when the partner of the firm, Shri Raj Kumar, in his statement recorded by the AO on 4.11.92, has categorically stated that the audit report has not been obtained till date then any subsequent explanation by the assessee asserting that the audit report was obtained by the assessee on 30.10.92, was an after-thought and so the explanation of the assessee is liable to be rejected. He further contended that the CIT(A) has wrongly deleted the penalty on the reasoning that the statement of Shri Raj Kumar, recorded on 4.11.92 by the AO, wherein he stated that the audit report u/s 44AB alongwith the audited accounts, has not been obtained by the assessee till date, was misunderstood by the AO because had the audit report not been completed on 30.10.92, Shri Raj Kumar would have not stated on 4.11.92 that the said report was not with the assessee but was with the C.A.The Id. DR for the revenue contended that the CIT(A) has in fact mis-interpretted the statement because had the accounts of the assessee firm been audited on 30.10.92, Shri Raj Kumar, the partner of the assessee firm would have been definitely in the knowledge of the exact facts because he is also signatory to the audit report and further because his statement has been recorded four days after the alleged date of completion of audit as well as, the date of obtaining the audit report bytheassessee i.e. on 30.10.92 so he could have clearly stated as to when audit was completed and as to when the audit report was obtained by the assessee since he has not categorically stated so, the CIT(A) was in error in accepting this explanation of the assessee which was nothing but an after-thought of the assessee.
The Id. DR for the revenue further contended that there was no logic in the order of the CIT(A) wherein he came to the conclusion that the report must have been obtained by the assessee because Shri Raj Kumar on 4.11.92 has stated that the return has been filed because no return could have been filed by the assessee without the same being accompanied by the audit report. According to the Id. DR, it was not a condition precedent to file the return alongwith audit report even otherwise the return has been filed by the assessee alongwith an audit report on 9.11.92 i.e. much after 4.11.92 and so the CIT(A) was not justified in accepting the explanation of the assessee with regard to the report being completed on 30.10.92 and the same being also obtained by the assessee on 30.10.92 in the absence of any specific evidence on behalf of the assessee as to who collected the audit report on behalf of the assessee.
8. In this manner the Id. DR for the revenue summarising his arguments contended that in this case the assessee has failed to prove that the audit report was completed and obtained on 30.10.92 and the CIT(A) was in error in accepting the selfserving explanation of Shri Raj Kumar, the partner of the assessee firm, which has been simply given in order to get rid of rigour of imposition of penalty amount imposed by the AO because his explanation was contrary to what he stated before the AO on 4.11.92.
9. On the other hand the Id. AR for the assessee has relied upon the reasoning given in the order of CIT(A), its reply given in response to notice u/s 271B (page 3,4 of PB), certificate of C.A. and the audit report indicating completion of audit i.e. 30.10.92 as well as the signatures of three partners appearing on audit report including that of Shri Raj Kumar on various papers which form part of the audit report).
10. We have considered the rival submissions of both the parties, perused the records and carefully gone through the orders of lower authorities.
11. The simple question required to be decided by this Bench is whether a categorical statement made by a partner of the assessee firm before the AO, should be accepted or whether the retraction from the same by that very partner furnished subsequently in response to penalty notice issued by the AO, in the form of explanation of the assessee, should be accepted.
12. In order to appreciate this controversy we have to again restate and revert to relevant facts of this case. In this case the audit report was to be completed and obtained by the assessee on or before 31.10.92. When the AO found that the assessee has not filed the audit report alongwith the return so he went to the business premises of the assessee on 4.11.92 and recorded the statement of Raj Kumar, the partner of the assessee firm. In his statement Shri Raj Kumar categorically stated "the books of account of the firm have been audited but the copy of the tax audit report has not been obtained by the firm till date." Lateron in his reply to the notice u/s 271B, the same partner, Raj Kumar has explained that "account books were audited and audit report was also obtained from the C.A. on 30.10.92" and the earlier statement made by him on 4.11.92 was said to have been simply made on the basis of his best memory and that in fact the assessee had not committed any default u/s 271B.13. In this case during the relevant AY in order to show that the assessee has not committed any default u/s 271B, the assessee is required to prove the following two facts : (i) That the audit of the firm was completed within the prescribed time' (ii) The Tax audit report was obtained by the assessee within the stipulated period.
The certificate of the C.A., the date mentioned on the tax audit report coupled with the statement of Shri Raj Kumar, the partner of the assessee firm, is simply able to indicate that audit of the assessee firm was completed on 30.10.92 i.e. within prescribed period u/s 44AB.However, the second fact that tax audit report was also physically obtained on behalf of the assessee firm on 30.10.92, does not stand proved on account of following reasons: (i) Shri Raj Kumar is a partner of the reasons: firm so it cannot be said that the was not in the knowledge of the affairs of the assessee firm, (ii) The audit report is alleged to have been obtained on 30.10.92 whereas Raj Kumar's statement made on 4.11.92 that "the audit report had not been obtained till date" cannot be said to have been made mistakenly because had the report actually been obtained on 30.10.92 then Raj Kumar in his statement, which was simply recorded after about 4 days after the illeged ** of complication of about would not have specifically stated that the audit report has not been obtained till date i.e. upto 4.11.92 (iii) The audit report as per requirement of section 271B is to be physically obtained on behalf of the assessee but neither according to the explanation of Raj Kumar, nor in the certificate given by the C.A. nor in the tax audit report, has anywhere been stated as to who obtained the taxaudit report on behalf of the assessee. This was a very significant fact which was required to be disclosed by the assessee while giving the explanation as to who obtained the audit report on 30.10.92 on behalf of the assessee.
In these facts, the bare explanation of the assessee that the audit report was obtained by the assessee on 30.10.92, does not prove the fact that the audit report was obtained on behalf of the assessee on 30.10.92.
14. Hence we are of the opinion that the AO was fully justified in rejecting the explanation of the assessee with regard to the fact that the assessee had obtained the audit report on 30.10.92. He was also justified in imposing the penalty upon the assessee because by not obtaining the audit report within prescribed period, the assessee has violated the provisions of section 271-B.15. For the reasons stated above, the order of AO is restored and order of CIT(A) is set aside and ground of appeal taken by the revenue is allowed.
1. I have perused the order passed by the learned Judicial Member restoring the penalty u/s 271-B levied by the A.O. but which had been cancelled by the CIT(A). After receiving his draft order, I discussed the matter with him but unfortunately, I have not been able to persuade him or to convince myself to concur with his view. I have perforce to pass a dissenting order as follows : - 2.The facts are not in dispute and these have been well set out in the order of the learned Judicial Member but I would like to highlight some relevant facts and aspects. The A.O. in para 2 of the penalty order observes :- " Accordingly, on 4.11.1992, the undersigned visited the business premises under section 133A(b) and statement of Sh. Raj Kumar, partner of the firm was recorded. He stated that the return of income for the assessment year 1992-93 had already been filed and acknowledgement thereof was available with their Chartered Accountant Sh. R.K. Kapoor. He also stated that the Tax Audit Report under section 44AB had not been obtained as yet and they were available with Sh. R.K. Kapoor CA. The undersigned visited the office of Sh. R.K. Kapoor CA and was informed that Sh. R.K. Kapoor CA had been out of station for the last 3-4 days." 3. Two things stand out and these are (1) Sh. Raj Kumar states that return has already been filed and (2) the tax audit report was available with the CA.4. There is also a reference to the query of the A.O. during his visit to the business premises of the assessee about the tick marks on the assessee's books of account and the assessee explained that these were of the auditors. The other explanation of the assessee in the reply was that how could it be stated by the partner that the return had ben filed as on 4.11.92 when the accounts had not been audited as was the allegation of the department. The aforesaid explanations are plausible and acceptable whereas the AO has chosen not to consider them in totality giving a strict and narrow interpretation to the statement of Raj Kumar and that also a single sentence. It is trite law that a statement has to be read as a whole and conclusions drawn only thereafter.
5. That apart the CA gave a certificate (reproduced earlier) and in the fitness of things the A.O. should have confronted him about the facts certified but chose not to do so stressing on a part of the statement of Raj Kumar. After all the CA gave the certificate fully realising the implications in case the fact certified was not correct. It may be relevant to state that the CIT(A) in para 5 of his order has stated and which is not rebutted by Revenue in the hearing before the Tribunal that the assessee filed a photocopy of receipt dated 30.10.92 obtained by the Auditor while handing over the audit report to the assessee.
6. My learned colleague, the Judicial Member has relied heavily on the portion of the statement of Raj Kumar to which the A.O. has adverted in levying the penalty and has attributed complete knowledge to him in running the affairs of the firm. He has also accepted at page 7 of his order that the certificate of the CA proves that the audit u/s 44 AB was completed on 30.10.92 i.e. within the prescribed time but his view is that as per law the assessee should also be physically in possession of the audit report on 30.10.92. This, in my opinion, is neither the import of the section and nor was it the intention of the law makers.
Section 44AB was brought on the statute book to ensure that certain categories of assessees had the accounts audited in the specified proforma and the audit report was made available to the A.O. for purposes of facilitating a proper assessment. There was in fact no requirement to even file such an audit report alongwith the return, till the law was amended w.e.f. 1.7.95. Under these circumstances even if one were to assume that the assessee was not in physical possession of the report as on 30.10.92, the penalty u/s 271-B, in my opinion, would not be attracted. The view taken by the learned Judicial Member is too hyper technical though on the facts, I hold that the audit report was" obtained" by the assessee within the time specified as emerges from the material on record and the factual aspect of the certificate of the CA and the receipt evidencing the obtaining of the audit report by the assessee on 30.10.92, not challenged by the Revenue. The explanations given by the assessee being plausible and acceptable and there being an error committed by the AO in reading a part of the statement and not the whole, I in the final analysis, hold that the penalty u/s 271-B, was not attracted both on facts and in law and the CIT(A) rightly cancelled the same.
1. There was a difference of opinion between the Members of Chandigarh Bench 'A', Hon'ble Shri R.M. Mehta, Vice President and Hon'ble Sh. D.R.Singh, Judicial Member, who heard the aforesaid appeal and the following point of difference was referred by them to the Hon'ble President, Income-tax Appellate Tribunal for the nomination of the Third Member :- "Whether on the facts of the case and in law, the penalty u/s 271-B of the Income-tax Act, 1961 1961 was not leviable on the assessee as held by the Vice President or the view taken by the Judicial Member to the effect that the penalty was livable, was the correct one?" 2. The Hon'ble President, Income-tax Appellate Tribunal, nominated my name as Third Member. The case was heard on 8.12.2003.
3. The learned Departmental Representative relied upon the reasons mentioned in the penalty order and the elaborate reasons given by the learned Judicial Member in his prosposed order. He also placed heavy reliance on the statement of Shri Raj Kumar, partner of the respondent assessee in which he inter alia, admitted that tax audit report had not been obtained by the firm till that date. The learned Departmental Representative strongly urged that penalty levied by the Assessing Officer u/s 271B has rightly been confirmed by the learned Judicial Member.
4. The learned counsel for the respondent assessee strongly relied upon the elaborate reasons given in the order proposed by the learned Vice President directing the Assessing Officer to cancel the said penalty.
He also placed reliance on the detailed reasons given in the order of the Commissioner of Income-tax (Appeals), who cancelled the said penalty. The learned counsel reiterated the arguments as were earlier made before the Tribunal.
5. I have carefully considered the rival submissions made by the representatives and have gone through the orders of the learned Departmental authorities. I have also gone through the dissenting views expressed by the learned Judicial member and the learned Vice President. I have also carefully gone through all the documents submitted in the compilation, to which my attention was drawn during the hearing, or those which have been referred to in the orders proposed by the learned Members in their respective order.
6. The learned Judicial Member has very aptly narrated all the relevant facts in the order proposed by him. He has arrived at the conclusion that the audit of accounts of assessee firm was got completed on 30.10.922 i.e. within the time prescribed u/s 44AB. However, the second requirement prescribed u/s 44AB, namely, that the tax audit report should be obtained before that date, has not been complied with as Shri Raj Kumar, in his statement recorded by the Assessing Officer on 4.11.1992, clearly stated that "the audit report had not been obtained till date".
7. It may, therefore, be imperative to once again carefully go through the statement of Shri Raj Kumar, recorded by the Assessing Officer on 4.11.1992, when he visited the business premises of the assessee u/s 133A of the Act. Shri Raj Kumar has inter alia stated in his statement that "the books of account of the firm have been audited but the copy of the tax audit report has not been obtained by the firm till date".
When the Assessing Officer further asked him to produce the copy of tax audit report u/s 44AB, Shri Raj Kumar inter alia stated that the same is not available with him or the firm and, therefore, Chartered Accountants, Shri R.K. Kapoor may be having the details. It is not worthy to mention that Shri Raj Kumar had specifically mentioned in the said statement the the books of account of the firm have been audited.
However, he could not produce the copy of the tax audit report and stated that the same had not been obtained by the firm. The assessee in the course of penalty proceedings u/s 271B submitted a certificate from M/s R.K. Kapoor & Company, Chartered Accountants confirming that the books of account of the assessee firm had been audited by them and as per their records, the balance-sheet, other statements of accounts and audit report u/s 44AB in the prescribed form 3CB & 3CD alongwith annexures thereto had been given by them to the respondent assessee on 30.10.1992. The assessee vide letter dated 23.11.1992, stated before the Assessing Officer that the audit report in the prescribed form was obtained from the auditors on 30.10.1992 and the same was given alongwith other papers for filing income-tax return to M/s R.K. Kapoor & Co., Chartered Accountants (Sh. Prem Kapoor/R.K. Kapoor). The return could not be filed by them before the due date for want of some TDS certificate. Therefore, the return of income was filed late on 9.11.1992 alongwith tax audit report. After submission of the said letter dated 23.11.1992, the Assessing Officer neither examined any of the partners of the respondent firm, nor examined the auditors, who were also their consultants engaged for preparation of income-tax returns etc.
8. The learned Vice President has reproduced the certificate given by the auditor as well as the contents of the aforesaid letter in para 4 and 5 of his order. The learned Vice President thereafter has observed that the certificate given by the Chartered Accountants confirm the fact that the audit was completed by them on 30.10.1992 and the report was also handed over to the assessee on that day. The certificate, so issued, by the Chartered Accountants, can not be brushed aside without interrogating him or without confronting him with any adverse material.
The Assessing Officer has not examined the auditors after submission of the said certificate, nor has he brought any material in rebuttal of the facts stated in the said certificate given by the auditors. The learned Vice President has arrived at the conclusion that there is no justification for sustaining the penalty.
9. After giving a deep and thoughtful consideration to the entire material, I am inclined to agree with the view expressed by the learned Vice President holding that the penalty u/s 271B was not attracted both on facts and in law, on the facts and circumstances of the present case. The provisions of section 44AB were introduced to ensure that the books of account and other records are properly maintained and that they faithfully reflected the income of the tax payers and claims for deductions are correctly made by him. Such audit would also facilitate the administration of tax laws by a proper presentation of the accounts before tax authorities. It was, therefore, made obligatory by inserting section 44AB for a specified person to get his accounts audited before the specified date, so that such tax audit report could be submitted alongwith return of income,and the desired objective could be achieved.
The meaning of words "obtained before that date" is to be understood in the context in which said expression has been used in section 44AB. The said provision requires the specified person to get his accounts audited before the specified date and obtain the said audit report in the prescribed form duly signed and verified in the prescribed manner.
The words "obtained before" have been substituted by words "furnishing by" in section 44AB by finance Act, 1995 w.e.f. 1.7.1995. Prior to the aforesaid amendment, there was no specific penalty provided for failure to furnishing of the report. The said provisions have been amended which now provide that penalty is leviable in a case where any person fails to get his account audited and also in cases of failure on the part of an assessee to furnish his report of such audit alongwith the return of income filed u/s 139(1) or alongwith the return of income filed in response to a notice u/s 142(1) of the Act. The substantial requirement of section 44AB are i) to get the audit of accounts completed before the specified date and also ii) to furnish the said audit report before that date alongwith return of income. It is an undisputed fact that the audit report had duly been completed and signed on 30.10.1992 i.e. before the specified date, Thus there was a sufficient compliance of the provisions of section 44AB and no penalty u/s 271B was then leviable for failure on the part of the assessee to furnish such audit report. The amendment made w.e.f. the cut-off date of 1.7.1995 cannot be applied in relation to assessment year 1992-93.
It may also be relevant here to make a useful reference to the judgment of Hon'ble Punjab & Haryana High Court in the case of ITO Vs. Kaysons India, 2003-TAXINDIAONLINE-48-HC-P & H-IT, and in the case of CIT Vs.
Janta Service Station, 251 ITR 347 in which the Hon'ble High Court had held that the Tribunal was justified in canceling the penalty levied u/s 271B in a case where the audit report had been obtained before the specified date but had been filed alongwith belated return u/s 139(4) and not with the return filed u/s 139(1). Ordinarily, the date on which audit report is signed by the auditor, is considered to be the date on which the assessee had obtained the said audit report because in most of the cases, the auditors are themselves the tax consultants of the said concern and the audit report is retained or given back to them for furnishing the same alongwith their income-tax returns, as wa done by the assessee in the present case.
10. Once it is accepted that the audit was got completed on 30.10.1992 i.e. before the specified date, the further fact as to when that audit report was physically obtained without there being any statutory requirement, at the relevant time, to furnish the said report before the specified date, looses its significance, and, therefore, such a default, if any, would only be a technical or venial breach, for which no penalty could be sustained on the facts of the present case, in view of judgment of Hon'ble Apex Court in the case of Hindustan Steel Ltd. Vs. State of Orissa, 2002-TAXINDIAONLINE-148-SC-CT. In the present case, soon after the expiry of the specified date on 31.10.1992, the Assessing Officer visited the assessee's premises u/s 133A on 4.11.1992 and examined the books of account, which had the necessary ticks put by the auditors. The partner in his statement dated 4.11.1995 had stated that the books had duly been audited and the audit report is not with them but may be with the auditors. The Assessing Officer visited the office of the auditors and found that he was out of station. The return of income alongwith the audit report was duly furnished on 9.11.1992.
Thus there was a delay of only 8 days in furnishing of the return alongwith the audit report. The aforesaid circumstances constituted a reasonable cause for explaining the delay of 8 days. The penalty levied u/s 271B deserved to be cancelled in view of existence of reasonable cause in terms of section 273B explaining the short delay of 8 days. It will, however, be pertinent to repeat that after submission of certificate of auditors and assessee's reply during penalty proceedings, the Assessing Officer did not examine any one, nor brought any material on record to challenge the facts stated in the auditor's certificate. The correctness of the facts stated in the said certificate cannot, therefore, be validly disputed.
11. In view of the aforesaid facts and discussion, I am inclined to agree with the view expressed by the learned Vice President. The matter will now go before the regular Bench for decision according to the majority opinion.