1. In view of the majority opinion, the order of the CIT(A) is upheld and, accordingly, the levy of penalty is deleted.
1. On a difference of opinion between the two Members, the following question has been referred by the President, ITAT for my opinion as third member Under-Section 255(4) of the I.T. Act, 1961:- Whether, on the facts and in the circumstances of the case, Id.
CIT(A) was justified in cancelling the penalty levied Under-section 271B of the Income-tax Act, 1961 holding that there, was a "reasonable cause" within the meaning of Section 273B of the Act? 2. The assessee was required to get the accounts audited and obtain a report thereon as per the provisions of Section 44AB on or before the specified date i.e. on or before 31-10-1994, It, however, obtained the report on 27-3-1995. It was thus late by four months and 2.7 days. The return was filed by the assessee on 31-8-1995. Finding no reasonable cause for the delay in obtaining the report, the Assessing Officer treated the assessee in default and levied a penalty of Rs.64,521/- He rejected the contention of the assessee that delay of audit of accounts for earlier previous year relevant to assessment year 1993-94 was reasonable cause because the accounts of each assessment year are independent and it is possible to get the accounts audited for a particular assessment year even though the accounts were not audited for the preceding accounting year. He also did not find force in the contention of the assessee that Section 44AB requires that accounts can be audited at any time. Another contention of the assessee that provisions of Section 271B are not applicable because the audit report was not filed along with the return Under-section 139 or in pursuance of notice Under-section 142(1) of the Act because the provisions of Section 271-6 applies if the assessee failed to obtain a report of such audit as required Under-section 44AB i.e. before the specified date and that filing of the return is a different Issue than obtaining of the report within the specified perld. He also rejected the contention of the a.ssessee that delay was due to search Under-section 132 at the business premises of the assessee which was conducted on 11-8-1992 as the Department had supplied the copies of the accounts in the month of December,1992.
3. The CIT(A) deleted the penalty by considering the submissions of the assessee and the decisions of the court cited before him. He held that due to search at the premises of the assessee and consequent seizure of the accounts caused the delay in the flnalisation of accounts and getting the accounts audited Under-section 44AB. According to him the Assessing Officer was not correct in saying that each year is independent for the flnallsation of accounts for obtaining the audit report Under-section 44AB, as according to him it is only after the finalisation of account for earlier year an assessee can carry, forward the accounts and finalise the books for the subsequent year. The accounts were audited. In steps i.e. first, the accounts for 92-93 were audited, then the accounts for A.Y. 93-94 were audited and then finally accounts for A.Y. 94-95 were audited. Therefore, according to him, there was a reasonable cause for delay in getting the accounts audited.
He accordingly directed the Assessing Officer to cancel the penalty levied Under-section 271B of the I.T. Act.
4. When the matter came up before the Tribunal, there struck a difference of opinion between the Members- i) the Accountant Member holding that the assessee failed to furnish any evidence apart from seizure of its record in August, 1992 which it got back in December,.
1992 and to explain as to how could the dislocation or complete suspension after the said period four months required 21 months to finalise the accounts specially when no material was brought fourth to establish the same and that a period of six months from October, 1994 to March, 1994 to obtain the audit report of accounts which was held to be only for want of correct carry forward of opening balance and which became available latest by September, 1994 and knowing that matter stands already delayed for the second year in running was again difficult to understand. According to him, the submission of audit report dated 27-3-1995 immediately thereafter and upon amendment in law, making the furnishing of the report mandatory, is nothing but a conscious disregard of Its statutory obligation; ii) the Judicial Member, on the other hand, opining that when the audit of the preceding year was completed on 28th October, 1994, It was difficult to presume the auditors proceeding with audit In absence of authenticated closing figures of the immediately preceding year and that even thereafter when the same are provided the auditors would be taking their own time to complete the audit'. According to him, the assessee got his accounts audited within the period of five months from the date of audit of the immediately preceding year which could not be. said to be unreasonable in view of the fact that even the statute has given a period of seven months to compile the accounts and obtain the audit report, seven months being from the end of the financial year I.e. from 1^st April to, 31^st October. According to him, it cannot be said that the assessee took unreasonable time to get the accounts audited for the year under consideration, He further observed that In the immediately preceding year, no penalty was levied and that presupposes that there existed a reasonable cause and the same cause would be considered to be reasonable cause for non-levy of penalty for the year under consideration. He also observed that it is not the case of the Revenue that provisions of Section 44AB as they stood amended by Finance Act, 1995 with effect from 1^st July, 1995 were applicable as the Revenue did not base its penalty under such a mended previsions.
5. The parties were heard and their rival contentions considered. A search and selzure action has taken place in the case of the assessee on 11-8-1992. That event falls in assessment year 1993-94. Xerox copies of the accounts were given and made available to the assessee in December 1992. With the help of these accounts the assessee completed the audit of the earlier year 1993-94 on 29-10-1994. Apparently that was also late. As per the provisions of Section 44AB, accounts for the immediately preceding year were also required to be completed on or before 31^st October 1993. No action for levying any penalty has been taken for that year. In these circumstances, the period until the completion of audit of the earlier year would constitute a reasonable cause because the audit for the subsequent year under consideration cannot be completed without opening balances of the earlier year. It would be irrespective of the fact whether the delay in audit of earlier year was with reasonable cause or without a reasonable cause or whether penalty was levied in the earlier year or the assessee was exonerated for the levy thereof. Again if it was a reasonable cause in the earner year it has to be a reasonable cause for the subsequent year as Well.
If there was no reasonable cause for that year, it would still be a reasonable cause for the year under consideration, the reason being that In the absence of audit of the earlier year the opening balances of the account's would not be available and without which no audit can be completed validly. The audit without conslderatlori of opening balance would be Incomplete and would have no sanctity. To this extent, therefore, theassessee cannot be said to be in default.
6. The reason that there was a search and seizure action in the earlier year whether could be a reasonable cause for delayed audit, need not be discussed in detail while considering the delay of audit of this year as that would be a valid reason for non-completion of naccounts for the earller year. In so far as this year Is concerned, the fact thataudit of the earlier year was completed late the delay of period until the date of that audit would be a reasonable and sufficient cause for delay in getting the accounts audited for the year under consideration.
7. In my opinion, it is also not necessary to examine as to whether that was a valid cause for getting the accounts audited in the earlier year or not -because in considering the delay in the year under consideration one need not go into that aspect as the fact that the earlier year's audit was delayed by itself would be a reasonable cause for getting the accounts audited of this year. This view is supported by the decision of the Gujarat High Court in the case of Tea King 158 CTR 413 wherein a survey was carried out by the department on 1^st and 2^nd March, 1990 and pursuant thereto the assessee filed return for assessment year 1985-86 to 1989-90 simultaneously on 10th October, 1990. The Assessing Officer levied penalty for not auditing the books of accounts for all the years. The CIT(A) upheld the levy of penalty for assessment year 1985-86 but deleted the penalty for subsequent year on the ground that since books of accounts for preceding year were not ready there was a reasonable cause which prevented the assessee to get the accounts audited for the subsequent year. This order of the CIT(A) was upheld by the by the Tribunal and ultimately by the High Court by stating that there'was nothing wrong in the order of the Tribunal in deleting the penalty.
8. In the case of Rajasthan Rajya Vidyut Parasan Nigam, 262 ITR 262 (Raj), the assessee had received the audft report for AY 1989-90 on August 28, 1990 and the process took time to adjust accounts of the AY1990-91 in conformity with the audit report received for the AY 1989-90 for submission of the accounts for AY 1990-91. the court held that the assessee had a reasonable cause for the delay in submission of three part for AY 1990-91 and also for AY 1991-92.
9. In the case of Shri Swastik Steel Private Ltd case (Supra) the dispute amongst the directors for the delay In audit report was though held to be not reasonable for AY 1992-93, the delay in the audit of that year on that account was held by the Bombay High Coyrt to a reasonabie ground for delayed obtaining the audit report of AY 1993-94.
10. It is also to be kept In mind that after the audit of the earlier year's accounts on 29-10-1994 the assessee took about 4 to 5 months in getting the accounts audited for the year under consideration on 27-3-1995. This period a so cannot be said to be unreasonable as the audit for the whole year's account generally takes this much time and that is probably the reason of allowing seven months period for getting the accounts audited after the close of the year namely the accounts are closed on 31^st March of a particular year and the audit is required to be done on 31^st October of that year; In my opinion it would also not be advisable to comment on the action of the auditor and attempt to find reasons as to why he has taken that much time, particularly when the legislature itself provides for a time limit of 7 months in obtaining the audit after the close of the accounts at the end of the accounting year. In the case of Rajasthan Rajya Vidyut Parasan Nigam,(Supra) the assessee had received the audit report for AY 1989-90 on August 28, 1990. It took time to adjust accounts of the AY1990-91 in conformity with the audit report received for the AY 1989-90 and submitted the accounts of AY 1990-91 for audit for on 29-12-19990 and obtalned the audit report on 20-1-1992. This period of 4 moths in submlssion of the accounts for audit of AY 1990-91 and almost 1 year thereafter in obtaining the audit report was held to be reasonable. The court held that the assessee had a reasonable cause for the delay in submission of the report for AY 1990-91 and for similar reasons also for AY 1991-92.
11. The penalty has been levied by the Assessing Officer under the pre-amended provisions. At that time, the. requirement was to obtain the report on or before the specified date. Therefore, any delay in furnishing the same as is made a requirement under the amended provisions with effect from 1-7-1995 by Finance Act, 1995 would not be of any consideration.... In these circumstances, in my opinion, this is not a fit case for levying the penalty.
12. The case will now be placed before the Division Bench which heard the appeal for passing a majority order.
As there is a difference of opinion, the matter is being referred to the Hon'ble President of ITAT with a request that following question may be referred to a Third Member or pass such order as the Hon'ble President may think fit.
Whether, on the facts and in the circumstances of the case, Id.
CIT(A) was justifie in cancelling the penalty levied Under-section 271B of the Income-tax Act, 1961 holding that there was a reasonable cause within the meaning of Section 273B of the Act? 1. This is an appeal by the department against the order of the CIT(A)-XI, Ahmedabad dated 19-6-1998 for the assessment year 1994-95, deleting the penalty Under-section 271B of the Income-tax Act, 1961 (hereinafter referred to as the "Act") levied by the Assessing Officer vide his order dated 9-9-1997, 2. The facts of the case, in brief, are as follows. The assessee is an HUF dealing in textiles, and belonging to a group generally known as Raghuvir Textile Group. It filed its return of income for the assessment year under question on 31-8-1995 at an income of Rs. 10,77,919, and enclosed alongwith an Audit Report prescribed Under-section 44AB, in terms of Section 139(9) of the Act. The said report is dated 27-3-1995, while the due date for obtaining the same is before 31^st October, 1994. There is thus a delay of 4 months and 27 days in obtaining the same leading to a contravention of Section 44AB of the Act, resulting in levy of penalty Under-section 271B. Before the A.O., the assessee, on being given an opportunity to submit its case in the said penalty proceedings, vide its letter dated 30-7-1997, explained that its premises, as also those belonging to the group above referred, were searched by the Department Under-section 132 of the Act on 11-8-1992. All the records for the current as well as past years, including vouchers and related documents, were seized by the department and it was only much later, i.e., in December 1992, that the assessee's request for copies of the seized material was granted. There, thus, occurred considerable delay, in firstly, the preparation of accounts for the financial year 1992-93 (relevant to the assessment year 1993-94) and then their audit which was completed only in the month of December 1994. The said delay ipso facto led to the delay in the compiling of accounts for the financial year 1993-94 (relevant to the assessment year 1994-95) and their audit which was completed on 27-3-1995. He thus pleaded reasonable cause for the delay, which, reckoned with reference to the due date works out to 4 months and 27 days. His argument, however, did not find favour with the Assessing Officer, who proceeded to levy the penalty at Rs. 64,521, i.e., at the rate of 1/2 per cent of the gross .receipt of Rs.l,29.04,247 vide his order aforereferred. The primary reason(s) for rejection of the assessee's arguments, as gathered from the said order, is as (a) that each year is an independent year and, therefore, the audit of accounts of one year was possible without the need to wait for the completion of the audit for" the previous accounting year; (b) that as the accounting year under reference is the financial year 1993-94, there could have been possibly no delay in the compilation of accounts for the said financial year which commenced only in April 1993.
3. Before the learned CIT(A), the assessee made similar pleadings, and which found acceptance on the grounds of consequential link between the account books of successive years and the Judgments of Allahabad High Court CIT v. S.R.Parmand Chichar - 212 ITR 536 and also that of juiisdictional ITAT in the case of M/s. Kashiram Textile Mills (P) Ltd. v. ACIT 48 TTJ 226 wherein it had been held, in ratio, that the delay in audit for a subsequent year on account of delay in the audit for an earlier year constituted a reasonable cause saving the penalty imposed Under-section 271B of the Act.
4. Before us, the learned A.R. for the assessee cited the case of CIT v. Tea King of the jurisdictional High Court reported at 248 ITR 526, which he stated to be covering the matter on all fours. The learned D.R., on the other hand, relied wholly on the order of the Assessing Officer, submitting that the maintenance of books of account, for the relevant previous year, and the subsequent audit, could not be impacted by the search conducted on 11-8-1992, which fell in the previous year 1992-93, i.e., relevant to the assessment year 1993-94, or the year preceding the assessment year under question.
5.1 The delay in obtaining of the Tax Audit Report, and the consequent breach of the provisions of Section 44AB, is undisputed. However, the levy of penalty Under-section 271B is saved by Section 273B of the Act, i.e., upon the assessee proving that the default or contravention arises due to a reasonable cause. The explanation offered by the assessee, thus, has to be examined on the touch-stone of its platisibility, so that an inference as to its constituting a reasonable cause, in respeot the failure under question, or otherwise, can be made. As such, the application of Section 273B, which spares penalty has two components: (a) the offering of an explanation as the reason for its default by the assessee; and (b) the judicial interpretation of the same as reasonable under the given facts and circumstances of the case.
5.2 In the present case, we find that the sole ground for the impugned delay has been attributed by the assessee to the delay in the finalization of its accounts for the immediately preceding previous year, i.e., financial year 1992-93, the Tax Audit Report for which could only be obtained in December 1994. And whereafter only the audit report for the assessment year under question, i.e., 1994-95, could be obtained, being so done on 27-3-1995, i.e., within a period of three months, so that the same cannot be considered as excessive or unreasonable. We find, for the reasons discussed hereafter, the assessee's explanation as being not tenable so as to satisfy the test of a judicial scrutiny.
5.3 (a) The seizure of the assessee's records by the department on 11-8-199(sic) would have definitely caused dislocation of its regular business operations, including the upkeep of the regular books of account. However, the release of the same as photocopies, in December 1992, would therefore, restore the assessee back in time to August 1992. Justifying, thus, a delay for a period equivalent to the intervening four months. In fact, the process of generation and maintenance of all bills, vouchers, etc. would goon unabated, if the assessee was, in fact, conducting the business during the said period, arises as it does spontaneously therefrom. As such, recording of the same, i.e., the primary vouchers, in the regular books, even if it were to be in books that were seized, and not in separate set of books (though that was not the case as the assessee was released only zerox copy(s)) would not consume a time period of four months, so that the equivalent period afore-referred would work out to much less than four months. However, even discounting the above proposition, and accepting its assertion, which related principally to the accounts of financial year 199.2-93, would not, by any score, justify the time period of 21 months, i.e., from April' 1993 to December 1994, that the assessee took to obtain the audit report for the financial year ending 31^st March, 1993, having been already restored back the seized material as far back as in December 1992, i.e., well before the close of the previous year.
(b) The account books for each year start with the carry forward of the closing balances of the, various assets and liabilities as at the close of the preceding year, as the opening balances thereof, However, that apart, there is no link between the accounts of one year with another and the same can be written, being only a recording of the business transactions as they arise on the day to day basis, independent and irrespective of the opening balances. No doubt, the opening balances form an integral part of the accounts and which cannot be said to be complete, or be finalized, prior to their being recorded. But, to contend that the same, i.e., the opening balances, in the present case, could be made available only in December 1994, i.e., when the audit report of the F.Y. 1992-93 was obtained, is highly presumptuous. The process of maintaining of the books of account having been normalized towards the latter pan of the financial year 1992-93, so that it fell in step with the time, i.e., became current thereat, the balances as at the close of 31-3-1993, therefore, should have been available in the beginning of April 1993 itself, or soon thereafter assuming that some time lag still persisted. Any delay thereafter, if contended, would heed to be proved or positively shown for it to be accepted.
(c) In view of the above, the time period availed by the assessee in obtaining the report after the close of the relevant previous year, i.e., 31^st March, 1994, or one full year, is again highly excessive considering the time period already afforded by the Act. To contend,otherwise as the assessee does, of not availing such time, in view of the non-finalisation of books of account for the preceding year would not hold, as firstly that would imply that its processes had not normalized even upto as late as March 1994' and which under the circumstance very exaggerated claim, and for which no explanation has been offered or material brought-forth. Secondly, if that were to be the case, the audit report for each year being obtained, by far, only by the month of October of the following year, would delay the account finalization, and therefore, the audit report for the succeeding year: (d) In any case, even going by the assessee's staternent the opening balances of the relevant assessment,year, i.e., A.Y. 1994-95, being available prior to December 1994 (or latest by, November, 1994 i.e., apon the accounts for theearlier year (A.Y. 1993-94) being given to the auditor for audit, and being otherwise written, presumably in regular course (or ought to have been so), a further time period of four months, i.e., December 1994 to March 1995 for obtaining the audit report for a period of 12 months, is again, very excessive and unreasonable, especially considering the fact that the time limit for that was only upto 30th October, 1994 (so that the same should have been rather expedited), and also the fact that the audit of the accounts for assessment year 1994-95, and thus, the audit report, could be substantially completed much earlier,(SIC) based, in major upon the transactions for that year which were presumab being recorded in the regular course.
6.1 Further, the assessee did not furnish the audit report Under-section 44AB of the Ac immediately after 27-3-1995, i.e., the date on Which it was obtained, and only five months later, on 31-8-1995, along with the return of income. On bein specifically queried as to why did it hang on to a report for no apparent reasor which it had already obtained late by five months, and of which default it was well aware, the learned A.R, submitted that there being no requirement in lav(SIC) for him to do so and that the default having already occurred, the same could no be reversed or undone by the furnishing thereof.
6.2 The argument of the learned A.R, though cannot be faulted with technically, is self-defeating, and also legally infirm Firstly, proving one's bonafides is an essential ingredient m any legal proceedings, more so in penal ones, where a reasonable and bonafide conduct (action or non-action as the case may be) spares penalty for a default/breach which is otherwise undisputed. Secondly, the law stood amended by Finance Act-1995 w.e.f. 1-7-1995, extending the scope of Section 44AB, which hereinbefore was limited to only obtention of the audit leport, to its furnishing by the specified date. Consequential amendments to Section 139(9) [Explanation (bb)J and Section 271B were also made, effective from the said date This amendment was made specifically to check the tendency of obtention of audit reports dated, back in time, and thus, ostensibly complying with the provisions of Section 44AB the furnishing being done only with the return of income as required Under-secction 139(9), and thus, effectively circumventing the rigor of the provision.
6.3 The amendment is applicable to any assessment year for which audit report is required to be obtained, and as such, to any audit report which had been obtained but not already furnished Though, no doubt it would apply with more force to audit reports the. due date for whichhad not elapsed, yet it is equally applicable to audit report? for which it had For, if as the assessee contends, the audit report was not furnished on 27-3-1995 or immediately thereafter only as it w,as not obliged in law to do so (other than along with the return of income) the argument becomes invalid for the period'commencing 1-7-1995 Rather, the Finance Act, poor to its being legislated is widely circulated and debated (as a Finance Bill). As such the assessee, even if not aware of the malpractice (which arises only, through the natural tendency to beat an innocuous provision with a simple and effective action, and which, thus, is only too well known) or not engaging in it itself in the present case, ought to have been aware of the proposed amendment, and being hit, immediately furnished the audit report having already obtained the same, i.e., even before 1-7-1995.
7.1 Both the learned CIT(A), and the learned A.R. have relied upon certain case law in support of their stand The proposition that the accounts of a subsequent year cannot be finalized and thus the audited version thereof, along with audit report thereon, not possible to be obtained unless that of the prior [eropd sp dpme, is undeniable and axiomatic. That however, is not a statement of law but of fact anyone aware of the process of accounts fmalization and/or audit would be able to state so a mastter of fact. The non-finalization of accounts or their audit however does not preclude business to carry forward the balances of outstanding assets and liabilities, the business being a continuous affair; the same being only subject to any adjustment in their respect, for example, valuation, etc as the finalization/audit process ensues. The relevant question to be asked, therefore, is not whether the accounts of a subsequent year could possibly be finalized or audited prior to an anterior year's, but that whether the delay, given the fact of finalization of accounts of the earlier year belatedly, is reasonably explained, i.e., justified. And which, as also mentioned earlier, is a matter of judicial analysis (of the said explanation) under the facts and circumstances of the case, and which would necessarily vary from case to case and further, subject to their being proved so that no general proposition of law emanates to form a precedent. Goingiby the explanation in the present a dislocation for some period and which is a normal incidence of business would cause delay not only for that year irrespective of the fact that the delay is to be reckoned with reference to a date much later than the close of the year and well before which the dislocation .occurred but for a few subsequent years as well, while the law itself affords considerable time for compliance and that too not for account finalization, which are maintained, in the regular course of business, but only due to the demand the said audit requirement places on the auditing profession.
7.2 We are aware that the Courts have generally adopted a liberal approach in the matter so that where the delay in the audit for the first year has attracted penalty, a similar default for the following year(s) would be construed as being reasonably explained to that extent, and the subsequent default reckoned only with reference to the delay beyond that of the previous year's as it would, otherwise, amount to penalizing essentially the same delay-twice. However, in the present case, no penalty has been leyied in respect of A.Y. 1993-94, so that the said ratio is not strictly applicable, and secondly, the 'explanation' of the delay, even for a moment granting the earlier delay, has to be examined on-merits, i.e., with reference to the reasons cited and considering the remaining/impending work that was required to be performed (for compliance), while we find that none exists in the present case.
8. The word reasonable' is not amenable to a clear definition, much less a precise one. The Courts have explained reasonable cause as one that can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bonafides. As such the interference by the Courts in the decisions of the authorities below would only ensus when the same can be said to be perverse.
Commenting upon the scope of the Court's intervention where reasonable cause is alleged to have been, overlooked, the Hon'ble Delhi High Court in Azadi Bachao Andolan v.. Union of India [2001] 252 ITR 471 (Delhi) held that "What would constitute reasonable cause cannot be laid down with precision. It would depend upon the factual background and the scope for interference, in a reference application or much less in a writ petition is extremely limited and unless the conclusions' are perverse based on conjectures or surmises and/or have been arrived at without consideration of relevant material and/or taking into account irrelevant material; there is no scope for interference." Like-wise, in the decision of the jurisdictional High Court in the case of Tea King 158 CTR 413 it was held that no question of law arose in view of the concurrent finding of the CIT(A) and ITAT, and their exercise of discretion in favour of the assessee in view thereof. As such, the claim of the learned A.R, of the said decision as covering the specifie case in all respects, is drfficulat to agree with (refer para4).
9. The learned A.R. has further informed, in response to a specific query in this respect by the Bench, on consultation of assessment records, that the audit report Under-section 44AB for A.Y. 1993-94 is dated October 29, 1994, which means that the relevant date mentioned in impugned order(December, 1994) is not correct.
10. The onus to establish reasonable cause lies squarely on the assessee. However, we find that in the present case the assessee has completely failed to furnish any evidence apart from the seizure of its records in August 1992, which it got back in December 1992. However, how could, the dislocation, or complete suspension, even if we were to presume so, by four months (August 1992 to November 92), require 21 (twenty one) months (and not 24 i.e., from December 92 to (now) September 94 (and not, November 94) the accounts of financial year 1992-93 being only finalized thereat) to be finalized is difficult to accept, specially with no material brought-forth to establish the same.
Secondly, a further period of six months (October 94 to March 95) to obtain the audit report of accounts for 12 months (previous year 1993-94) and which was held up only for want of correct carry forward of opening balances, and which became available latest by (now) September 94, and knowing that the matter stand already delayed, for the second year in running, is again, difficult to understand. Finally, the non-submrss'ioh of the audit report dated 27-3-1995 immediately thereafter or upon the amendment in law making the furnishing of the report mandatory, is nothing but a conscious disregard ef its statutory obligations.
11. In conclusion, we uphold the levy of penalty and the order of the CIT(A) is dismissed.
1. I have carefully gone through the draft order passed by my Id.
brother and I find myself in respectful disagreement with the view taken by Id. brother. I, therefore, proceed to write separate and dissenting order.
2. The assessee is an HUF. Its turnover for the year under consideration exceeded Rs.40 lakhs, therefore, according to Section 44AB of the IT Act, the assessee was required to get its account audited by 31^st October, 1994. As against the said date it obtained its audt eport on 27.3.1995. Therefore, the AO initiated penalty proceeding under Section 271B of the Act for the delay of four months and 27 days in obtaining the audit report. In response to show cause notice, the sum and substance of assessee's reply was that due to search operation the audit in respect of immediate preceding year i.e.
AY 1993-94 could be got audited, in October, 1994, therefore, there was a delay in obtaining the audit report for the year under consideration and -the same constitute reasonable cause within the meaning of Section 273B of the Act. The AO did not accept such explanation of the assessee as satisfactory one and imposed penalty of Rs.64,521/-. The levy of penalty was challenged before CIT(A) who has deleted the penalty. He held that after finalisation of account of earlier year the assessee could carry forward the account and finalise the books for subsequent year. Thus he accepted that the non-finalisation of earlier years account constituted reasonable cause. The revenue is aggrieved hence in appeal.
3. Before us, the Id. DR relied on the order of AO. As against the submissions of Id. DR, Id. counsel of the assessee, Shri S.N. Soparkar relied on the decision of Jurisdictional High Court in the case of CIT v. Tea King 158 CTR 413(GUJ). He also placed reliance on the order of CITA) and pleaded that the order of CIT(A) should be upheld.4. The facts of the case are not in dispute. Before proceeding further it will be relevant to reproduce the following observations of their Lordships of Hon. Jurisdictional High Court in the afore-cited case of CIT v. Tea King (supra).
4. No doubt S.44AB of the Act lays down that every person carrying on business shall, if his total sales, turnover or gross receipts as the case may be, in business exceed forty lakh rupees in any previous year or carrying on profession, shall if his gross receipts in profession exceed ten lakh rupees shall get the accounts of such previous year audited by an account before the specified date and obtain before the date the report of such audit in the prescribed form.
5. It is required to be noted that in this section, as originally enacted, absence of reasonable cause was a necessary condition for imposing penalty. Present Section 27 IB'reads as under : ...the AO may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover of 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, whichever is less.
6. Section 273B indicates that no penalty shall be imposed on the person or assessee as the case may be for any failure as referred to in the said section if he proves that there was reasonable cause for the said failure. Thus, reading of Section 273B of the Act, it is clear that onus is on the assessee. Looking to the provisions of Section 27 IB of the Act where the word "may" is used and as per the provisions contained in Section 273B whether the explanation offered by the assessee can be said to be the reasonable explanation or not is the only aspect required to be considered. The CIT(A) has found that for the first year there was no reasonable explanation, but for the subsequent years, there was existence of reasonable cause. Can it be said that an error is committed more particularly when the Tribunal in its elaborate Judgment has dealt with the aspect? Their Lordships have considered all the relevant provisions with regard to defuld Section 44AB and levy of penalty in this regard. After apalzing these provisions they have concluded that as the word may has been used in Section 271B, the only aspect to be seen for levy of penalty is that whether the explanation offered by the assessee can be said to be reasonable explanation or not.
5. Now coming to the facts in the afore-cited case of CIT v. Tea King (supra). A survey operation was carried out by the department at the premises of assessee on 1^st and 2^nd March, 1990. The returns for AY 1985-86 to 89-90 were filed simultaneously on 10th October, 1990, Since the books of accounts were not audited, the AO levied penalty for all the years. Penalty for AY 1985-86 was upheld by the CIT(A) and penalty for other years was deleted on the ground that since the books of accounts for preceding year was not ready, there was a reasonable cause which prevented assessee to get its accounts audited for subsequent years. The order of CITA) was upheld by this Tribunal. Their Lordships of Jurisdictional High Court found that there was nothing wrong in the order of Tribunal vide which deletion of penalty was upheld.6. Besides afore-cited case of Jurisdictional High Court, other courts have also considered non-completion of immediate preceding year's audit as "reasonable cause" for non-levy of penalty under Section 271-B. Some of these cases are as under :- In the afore-cited case of ITO v. Bhuwalka (supra) a co-ordinate Bench has held that penalty proceedings Under-section 271B read with Section 273B are not in the nature of criminal trial and the standard of proof required in such penalty proceedings is lower compared to criminal case. Evidence which can convince a reasonable man in a rationale way is sufficient and penalty is not exigible.
7. Now coming to the facts of the present case, the audit of immediate preceding year was completed on 29^th October, 1994. It is difficult to presume that any auditor will proceed with the audit in absence of authenticated closing figures of immediate preceding year and even after the same are provided he will take his own time to complete the audit. For the year under consideration the assessee has got its account audited on 27^th March, 1995 which is within the period of 5 months from the date of audit of immediate preceding year. The period of 5 months cannot be said to be unreasonable period as the period should be seen from the angle of reasonable common man. Even the statute in the cases of audit has given a period of seven months to compile the account and file the return of income alongwith audit report as in the case that like of assessee the prescribed date is 31^st October which constitutes a period of seven months from the end of F.Y. Thus it cannot be said that assessee took unreasonable time to get its audited for the year under consideration.
8. The levy of penalty or otherwise for immediate preceding year has no much relevance in the year under consideration as each year is an independent year. The default of late audit for Assessment Year 1993-94 is a separate default for which the penalty is leviable separately.
There is nothing on record to say that whether or not the penalty was levied for Assessment Year 1993-94. If the penalty was levied for Assessment Year 1993-94 then for the same default assessee cannot be penalized again. If no penalty has been levied for immediate preceding year for the reason that there existed a reasonable cause, the same cause will be considered to be reasonable cause for non-levy of penalty for the year under consideration and thus in either of the situation no penalty can be levied for the year under consideration.
9. It is also not the case of revenue that the assessee has committed default of non-furnishing audit report as per amended provisions of Section 44AB which stood amended by Finance Act, 1995 with effect from 1^st July, 1995 as revenue did not base its penalty under amended provisions. Moreover, it will be a point of debate that whether the said provision is applicable for AY 1994-95 and in case of debatable point benefit of doubt, as per well settled law, should go in the favour of assessee particularly in the case of levy of penalty.
Therefore , on this ground also levy of penalty cannot be held justified.
10. Keeping in view the entirety of facts and above position of law, I am of the opinion that Id. CIT(A) has rightly deleted the penalty and his order should be upheld. The departmental appeal is, therefore, liable to be dismissed and is dismissed.