| SooperKanoon Citation | sooperkanoon.com/880096 |
| Subject | Direct Taxation |
| Court | Kolkata High Court |
| Decided On | Feb-26-1997 |
| Case Number | ITA No. 698/Cal/1991 : Asst. yr. 1986-87 |
| Reported in | (1997)59TTJ(Cal)214 |
| Appellant | Deputy Commissioner of Income Tax |
| Respondent | Machino Techno Sales (P) Ltd. |
| Cases Referred | Hindustan Steels Ltd. vs. State of Orissa |
R. ACHARYA, A.M. :
This appeal is instituted by the Revenue against the order of CIT(A) for the asst. yr. 1986-87 and the only ground raised therein is that the CIT(A) erred in vacating the order imposing a penalty of Rs. 1,00,000 under s. 271B of the IT Act, 1961, holding that the provisions of s. 44AB are complied with by filing of provisional audit report dt. 30th July, 1986.
2. During the assessment proceedings, penalty proceedings under s. 271B were initiated and thereafter a show-cause notice was issued to the assessee. In response to that the assessee submitted that they have obtained the audit report as required under s. 44AB of the IT Act, 1961 on 30th July, 1986, i.e., within the time-limit. It was also explained that the statutory audit could not be completed within the time as voluminous work was involved and bank statement was not received in time. On verification the ITO found that the tax auditor has submitted his final report only on 29th September, 1986, though a provisional report was obtained on 30th July, 1986. The ITO was of the opinion that as there is no provision for such a provisional report, the tax audit report dt. 29th September, 1986, is the actual report obtained under s. 44AB. He rejected the provisional audit report dt. 30th July, 1986, on the ground that there are several variations in para. 7(1), para. 9(b), annexure-D, annexure-E, etc. According to him, since the assessee has not filed Form No. 6 seeking the extension of time and since the provisional tax audit report does not reflect the correct state of affairs of the assessee, in the absence of important document like bank statement, he rejected the explanation of the assessee and imposed a penalty of Rs. 1 lakh under s. 271B.
3. The matter was carried in appeal and before the CIT(A) it was submitted that the provisional report was the final step prior to the approved report under the Company law was also certified by the auditor. It was also submitted that the variation between two audit reports was substantial in nature, as observed by the ITO, does not stand the scrutiny as the amount under s. 43B came down from Rs. 23,79,334 to Rs. 16,62,506. The CIT(A) observed that the compliance with s. 44AB can be said to have been made by the assessee by having filed the provisional report dt. 30th July, 1986. According to him the assessee has satisfactorily discharged the burden of establishing a case against the imposition of penalty under s. 271B. He, therefore, vacated the penalty order and allowed the appeal.
4. Aggrieved by the above order of CIT(A), the Revenue has preferred this appeal to Tribunal. The learned Departmental Representative at the outset contended that there is no such provision in the Act to furnish the provisional audit report or to accept the provisional audit report. He also emphasised on the variations pointed out by the AO and argued that because of these variations the provisional report cannot be accepted as final report. The learned Departmental Representative further submitted that CIT(A) has not given any reason for accepting the provisional report and, therefore, his order deserves to be vacated.
5. The learned authorised representative, on the other hand, submitted that the final audit report was furnished on 22nd September, 1986, and the provisional audit report was submitted on 30th July, 1986, and, therefore, the compliance with the requirement of law has been completed by the assessee and there is no default as such under s. 271B. He also filed a paper-book containing 52 pages and submitted that the provisions of ss. 179 and 230A of IT Act, 1961, have curtailed the provisions of Company Act unlike s. 44AB and, therefore, in this case according to provision to s. 44AB r/w s. 210 of the Companies Act, as report was submitted before 30th September, 1986, the requirement of law as envisaged in s. 44AB is fulfilled and the assessee is not liable to any penalty. He further submitted that moreover there was sufficient cause for the delay as explained before the authorities below. In reply, the learned Departmental Representative argued that the proviso is non est in the eye of law. He also contended that the assessee has not explained the delay for two months and, therefore, penalty is imposable.
6. We have carefully considered the rival contentions, relevant facts and materials placed on record. We find that the arguments and contentions of the learned counsel of the assessee do not carry much weight as proviso to s. 44AB requires that the person should get the accounts audited under such law before the specified date and obtain before that the report of the audit as required under such other law and a further report in the form prescribed under this section. We find that in this case although the specified date is 30th July, 1986, but the assessee has failed to get its accounts audited before the specified date. Even under Companies Act the assessee has not got its accounts audited before that specified date and, therefore, it cannot be said that the compliance has been made with the requirement of the provisions of s. 44AB by the assessee. Since the assessee has furnished the audit report late by two months and since the default has not been explained properly by giving sufficient cause the assessee cannot be exempted from the penalty imposable under s. 271B. We also find that the CIT(A) was not justified in treating the provisional audit report as the final audit report and in deleting the penalty on the facts and circumstances of the case. In view of this we, therefore, hold that the penalty under s. 271B is exigible in this case and, therefore, the order of the CIT(A) is vacated and the order of the AO is restored.
6. In the result, the Departmental appeal is allowed.
R. V. EASWAR, J.M. : 29th July, 1994.
I have carefully gone through the order proposed by my learned brother. I am unable to persuade myself to agree to the proposed order restoring the penalty of Rs. 1 lakh imposed under s. 271B of the Act. I, therefore, wish to record my respectful dissent.
2. The essential facts have been brought out in the proposed order. To those, I only wish to add that in response to the notice issued under s. 271B, the assessee filed a reply dt. 23rd April, 1990 which is as under :
'Please refer to your aforesaid notice. It is submitted that the audit report under s. 44AB was completed and obtained on 30th July, 1986, and a copy of the same has duly been filed. The statutory audit under companies Act was completed on 29th September, 1986. But as mentioned earlier, since the audit report under s. 44AB was obtained on 30th July, 1986, there is no default of under s. 44AB. Further, the account were given to the auditor alongwith the P&L; a/c etc. Since voluminous work was involved and the bank statement were also not received in time, it took time to complete the statutory audit. Therefore, the assessee was also prevented by sufficient cause from getting the statutory audit completed within the time.
Considering all the facts the proceeding under s. 271B, please be dropped.'
3. The ITO was not convinced by the explanation. He, therefore, imposed the penalty.
4. The fact that there was a delay in furnishing the audit report is not in dispute. The only question is whether the assessee had reasonable cause for the delay in furnishing the same. It is here that I am unable to agree with my learned brother. In my humble opinion, there was reasonable cause for the delay. The assessee had taken steps to get its accounts audited under the Companies Act. This is clear if reference is made to the 'provisional' audit report under s. 44AB filed by the assessee on 30th July, 1986. The provisional report (a copy of which is filed in the paper-book) acknowledges the fact that the statutory audit under the Companies Act is pending finalisation and, therefore, the audit report under the Companies Act along with the P&L; a/c and balance sheet, duly audited have not been annexed to the audit report under s. 44AB. The provisional report further acknowledges that it is prepared on the basis of the provisional accounts produced before the auditors and also states that it is subject to change on the basis of the finalisation of the statutory audit report under the Companies Act. From the provisional audit report it is clear that the statutory audit under the Companies Act had not been completed by 31st July, 1986 which is the due date for filing the audit report under s. 44AB. The statutory audit under the Companies Act was completed and the audit report thereunder was signed only on 20th September, 1986, as I find from the papers furnished in the paper-book. After the completion of the statutory audit the audit report under s. 44AB of the Act was signed on 29th September, 1986. The ITO has not doubted those facts. It is difficult for me to imagine that the assessee would have been in a position to obtain the audit report under s. 44AB even without the completion of the statutory audit under the Companies Act. The second proviso to s. 44AB itself recognises the fact that in the case of limited companies where audit under the Companies Act is compulsory that audit has to be completed first before the assessee is able to obtain the audit report under s. 44AB. If the statutory audit under the Companies Act gets delayed, consequentially the audit under s. 44AB also gets delayed. Both are inter-linked. Therefore, the delay in getting the statutory audit finalised has to be necessarily considered as reasonable cause for the delay in obtaining the audit report under s. 44AB. The Calcutta Bench of the Tribunal has taken the same view in the order reported in the case of Kumar Bros. vs. Asstt. CIT 47 ITD 552 (Cal). In fact, the Calcutta High Court has taken the view in the case of CIT vs. Sulekha Works (P) Ltd. : [1985]156ITR190(Cal) that any delay in getting the accounts audited would constitute reasonable cause for the delay in filing the return of income and it was this decision that was followed by the Tribunal (supra). In the present case the statutory audit under the Companies Act was completed on 20th September, 1986. The audit report under s. 44AB was signed by the auditors on 29th September, 1986. It should have been obtained on 31st July, 1986. The delay of nearly two months is only due to the delay in finalisation of the statutory audit under the Companies Act. There was thus, in my opinion, reasonable cause for the delay in obtaining the audit report under s. 44AB and such delay was beyond the assessees control. The existence of reasonable cause has been proved by the assessee with sufficient evidence as required by s. 273B of the Act introduced by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 w.e.f. 10th September, 1986.
5. In the case of K. Ravikumar & Co. vs. ITO (1989) 33 TTJ (Mad) 509 : (1989) 29 ITD 537 (Mad) it was held by the Madras Bench of the Tribunal, after referring to the judgment of the Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa : [1972]83ITR26(SC) , that the expression 'reasonable cause' must receive a liberal interpretation so as to advance substantial justice and if so interpreted, it would require consideration of all attendant circumstances, including the period of default, the conduct or the intention of the assessee, etc. The conduct of the assessee in the present case shows anxiety to comply with the statutory obligations. This is clear from the fact that the assessee filed a 'provisional' audit report under s. 44AB on 30th July, 1986, notwithstanding the fact that the accounts were not finalised and the statutory audit under the Companies Act had not been completed. This shows the bona fide of the assessee. The assessees conduct cannot, therefore, be considered contumacious or in conscious disregard of the statutory duties.
6. The period of default, which is also to be considered as one of the criteria for testing the validity of the levy of penalty in the present case, is only two months. The assessee was bound to furnish the report under s. 44AB on 31st July, 1986 but had furnished the same only on 29th September, 1986. For a delay of just two months which was also on account of reasonable cause, the assessee cannot be penalised. This is more so if regard is had to the purpose of introducing s. 44AB. As explained in para. 17 of the Circular No. 387 dt. 6th July, 1984 [published at (1985) 43 CTR (TLT) 3 (issued by the CBDT), the tax audit can facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably save the time of AOs in carrying out routine verification, such as checking of totals, vouchers, etc. In the present case, the delay in filing the tax audit report does not appear to have in any manner handicapped the ITO from completing the assessment. In fact, the assessment was completed only on 30th March, 1990. We also do not find from the assessment order that any penalty proceedings were initiated under s. 271(1)(a) of the Act for the delay in filing the return. When the delay in filing the return has not been penalised it is difficult for me to hold that a short delay of two months in furnishing the tax audit report should be visited with penalty, especially when such delay does not appear to have handicapped the ITO from making a proper assessment.
7. It is no doubt true as held by my learned brother that there is no provision in the IT Act enabling the assessee to file a 'provisional' audit report under s. 44AB but in my view the act of filing a provisional audit report merits consideration in judging the conduct of the assessee or its bona fide. As I have already held earlier such act establishes the Bona fide of the assessee and it would be incongruous to impose penalty notwithstanding such bona fide conduct.
8. Much has been made by the ITO about the 'discrepancies' between the two tax audit reports the 'provisional' and the final. But I do not wish to attach undue importance to that aspect and such discrepancies are bound to exist since the 'provisional' report is based on 'provisional' accounts and a complete picture would be available only when the accounts are finalised.
9. The letter dt. 23rd April, 1990 written by the assessee in reply to the penalty notice, in substance, brings out the fact that the delay was occasioned due to the delay in completing the audit under the Companies Act. It also points out to further facts viz., that the work involved was voluminous, non-receipt of certain bank statements, etc. The combined effect of all that is stated in the explanation is that the delay in furnishing the tax audit report was due to reasonable cause. In my opinion, the explanation should be accepted.
10. The CIT(A) has cancelled the penalty and one of his grounds is that the filing of the provisional audit report on 30th July, 1986 is sufficient compliance with s. 44AB. It is rather difficult to uphold this conclusion as a matter of law. I, therefore, wish to make it clear that I have relied on the filing of the provisional report only for the purpose of showing the bona fide of the assessee or the lack of any defiance on its part to comply with the requirements of law. On a totality of the facts and circumstances of the case, I am of the opinion that there was reasonable cause for the delay in filing the tax audit report.
11. I would, therefore, dismiss the appeal.
D. MANMOHAN, J.M. : 31st December,1996
Penalty levied under s. 271B of the IT Act, 1961 was challenged before the Tribunal which was heard by a Division Bench. As there was difference of opinion, amongst the learned Members, the point of difference was referred to the Honble President under s. 255(4) of the IT Act. The Honble President was pleased to nominate me as the Third Member to give in opinion on the point referred to me. The question set out by the Division Bench reads as under :
'Whether, on the facts and in the circumstances of the case, the assessee is liable to penalty under s. 271B of the IT Act, 1961?'
2. The facts in brief are as follows : For the asst. yr. 1986-87, the specified date for obtaining the audit report ended on 31st July, 1986, whereas the final tax audit report was obtained by the assessee-company on 29th September, 1986. As the Tax audit report/further report, as prescribed under s. 44AB of the Act, was not ready before the specified date, a report claimed to be Provisional Tax Audit Report was filed on 30th July, 1986 i.e. before the specified date.
3. In response to the penalty proceedings, it was submitted that the audit report under s. 44AB was obtained on 30th July, 1986, and thus there was no default under s. 44AB of the Act though the statutory audit under the Companies Act was completed on 29th September, 1986. It was further contended that the delay in completion of statutory audit was due to non-availability of bank statement and also because voluminous work was involved. It was thus pleaded that the company was prevented by sufficient cause from getting the statutory audit completed within time. The AO observed that the purported tax audit report dt. 30th July, 1986 is not acceptable as there is no provision under the Act for such a provisional report. He further observed that the provisional report and the final report vary to some extent and the very fact that the assessee-company has not received the bank statement in time proves that the provisional tax audit report is not reflecting the correct state of affairs of the company in the absence of such an important document like bank statement. As the provisional report cannot be equated to a final report, AO concluded that there is delay in filing the tax audit report and thus imposed penalty under s. 271B of the Act. CIT(A), however, vacated the penalty order as, in his opinion, the act of the assessee-company in filing the provisional tax audit report dt. 30th July, 1986, can be said to be sufficient compliance with the provisions of s. 44AB of the Act. Aggrieved, the Revenue has appealed before the Tribunal.
4. Learned Accountant Member was of the opinion that the delay of 2 months in filing the tax audit report has not been explained properly by giving sufficient cause. In this regard he observed that even under the Companies Act, the assessee failed in getting its accounts audited before the specified date and, therefore, it cannot be said that compliance has been made with the requirements of the provisions of s. 44AB of the Act.
5. Learned Judicial Member, dissenting from the order of the learned Accountant Member, was of the opinion that the delay in obtaining the audit report was supported by a reasonable cause. In a nutshell he made the following observations :
(a) It is difficult to imagine that the assessee would have been in a position to obtain the audit report under s. 44AB even without the completion of the statutory audit under the Companies Act, which was admittedly signed only on 29th September, 1986;
(b) Second proviso to s. 44AB recognises the fact that in the case of limited companies, where audit under the Companies Act is compulsory, that audit has to be completed first before the assessee is able to obtain the audit report under s. 44AB and, therefore, the delay in getting the statutory audit finalised has to be necessarily considered as reasonable cause for the delay in obtaining the audit report;
(c) The expression reasonable cause must receive liberal interpretation so as to advance substantial justice and if so interpreted, it would require consideration of all attendant circumstances, including the period of default, the conduct or the intention of the assessee, etc. In the instant case, the intention is apparent from the fact that the assessee filed a provisional audit report under s. 44AB on 30th July, 1986 notwithstanding the fact that the accounts were not finalised by them. The above act shows the bona fide of the assessee and it cannot be said that the company acted contumaciously or in conscious disregard of the statutory duties;
(d) The period of default is also to be considered as one of the criteria for testing the validity of the levy having regard to the purpose of introducing s. 44AB of the Act as explained in Circular No. 387 dt. 6th July, 1984 issued by the CBDT;
(e) When the delay in filing the return has not been penalised under s. 271(1)(a) of the Act, the short delay of two months in furnishing the tax audit report should not have been viewed seriously, especially when the delay has not hampered the assessment proceedings; and
(f) There is no provision in the IT Act enabling the assessee to file a provisional audit report and so the conclusion arrived at by the CIT(A) is not in accordance with law.
6. In view of the aforesaid difference of opinion, the point of difference of opinion was placed before me as per the direction of the Honble President.
7. The learned Senior Departmental Representative contended that the Provisional report cannot be taken cognizance of the delay in obtaining the final audit report was not properly explained by the assessee-company. He further contended that it is the duty of the assessee to manage its affairs in such a way so as to comply with the statutory requirements within the time-frame allowed under law. He further explained that the statute provided sufficient time after the end of the accounting year for obtaining the tax audit report as the specified date for obtaining the report under s. 44AB is 31st July, 1986, and so the assessee cannot contend that the delay was on account of non-availability of bank statements and also because the work involved is voluminous. He further relied upon the order passed by the learned Accountant Member.
8. On the other hand, learned counsel for the assessee submitted that under the Companies Act, vide ss. 166, 210 and 216, assessee has to obtain statutory audit report within 6 months from the end of the accounting year i.e., on or before 30th September, 1986, and hence the report obtained on 29th September, 1986, is well within the specified date. He has adverted our attention to para. 6 of the order of the learned Accountant Member and pointed out that the observation of the learned Member that even under the Companies Act, the assessee has not got its accounts audited before the specified date, is factually incorrect, inasmuch as, the specified date under the Companies Act is 30th September, 1986. He further submitted that Form No. 6 was filed before the AO seeking extension of time on the ground that the audit of accounts could not be completed in time and time was accordingly granted by the AO. He pointed out to us that the AO is not correct in observing that the assessee has not filed Form No. 6 seeking extension of time. Learned counsel for the assessee placed before us xerox copies of Form No. 6 and also the letter by the AO in support of the above submission. We may state herein that the two papers were not filed before the Division Bench at the time of hearing of the appeal and so I cannot take cognizance of the same at this juncture. I, therefore, refuse to admit the additional evidence and the papers are returned.
9. The learned counsel for the assessee submitted that the return for the asst. yr. 1986-87 was filed by the assessee-company on 23rd September, 1986, after a delay of more than two years but the AO has not initiated penalty proceedings under s. 271(1)(a) of the Act. On the strength of the same, he submitted that the short delay of two months in obtaining the audit report cannot be visited with penalty as the Revenue has not proved that the reasonable cause shown by the assessee is not bona fide. He also submitted that as per second proviso to s. 44AB of the Act, a person who is required to get his accounts audited under any other law, a further report in the prescribed form shall be sufficient compliance with the provisions of s. 44AB, and this pre-supposes that a statutory report under the Companies Act is necessary for compliance of the above requirement. He further explained that unless the statutory audit report under the Companies Act is not ready, the delay in obtaining the further report cannot or visited with penalty, as the same is supported by a reasonable cause i.e., delay in obtaining the statutory audit report. He further contended that under the Companies Act, the assessee is entitled to obtain the report on or before 30th September, 1986 and so there is no delay in obtaining the report under the Companies Act. Consequently, further report obtained within 9 days from the date of statutory report cannot be held to be delayed and penalty under s. 271B is not attracted. The learned counsel for the assessee relied upon the following decisions in support of his contention that; it is for the Department to prima facie show that the delay in obtaining the audit report was caused with a mala fide intention or without any bona fide reason; the words reasonable cause should receive a liberal interpretation and in the instant case, the Revenue has not repelled the reasons given by the assessee; and the delay in obtaining compulsory audit report under the Company law or condonation of delay vis-a-vis the levy of penalty under s. 271(1)(a) of the Act can be considered as reasonable cause for the delay in obtaining the audit report under s. 271B of the Act :
(a) Kerala State Drugs & Pharmaceuticals Ltd. vs. CIT : [1994]210ITR1042(Ker)
(b) Rajkot Engineering Association & Ors. vs. Union of India : [1986]162ITR28(Guj) ;
(c) Prabhulal Sahu vs. ITO 83 Taxman 177 (JP);
(d) H. Ajitbhai & Co. vs. Asstt. CIT 47 TTJ (Ahd) 22;
(e) CIT vs. Sulekha Works (P) Ltd. : [1985]156ITR190(Cal) ; and
(f) Kumar Bros. vs. Asstt. CIT 47 ITD 552 (Cal).
The learned counsel thus supported the order of the learned Judicial Member.
10. Joining the issue, learned Senior Departmental Representative submitted that further report mentioned in s. 44AB of the Act should be obtained by the assessee before the specified date i.e., 31st July, 1986, and the time available under the Companies Act has no relevance while interpreting the provisions of s. 44AB of the Act. In his opinion the assessee who is required to obtain a tax audit report under s. 44AB of the Act, should make it convenient to obtain the statutory report before the specified date provided under this section so as to avoid the levy of penalty under s. 271B of the Act. He further submitted that the decision of the Honble Calcutta High Court in the case of Sulekha Works (P) Ltd. (supra) is distinguishable on facts.
11. I have carefully considered the rival submissions and perused the record. Before I proceed to deal with the merits it may be useful to refer to the gist of the relevant case law for better appreciation of facts.
(a) In the case of Rajkot Engineering Association vs. Union of India & Ors. (supra) the Honble Gujarat High Court observed that the Revenue has to prima facie show that there was want of reasonable cause on the part of the assessee for committing the default under ss. 271B/44AB of the Act. Their Lordships further observed that the expression reasonable cause should be interpreted in a liberal manner so as to advance the cause of justice and in that process, the AO should consider all the attending circumstances including the period of default, conduct or intention of the assessee, etc.;
(b) The decision of the Jaipur Bench reported in 83 Taxman 177 (supra), as per the short note, states that mere delay in getting the accounts audited or filing the audit report along with the return should not result in levy of penalty without the further proof of mala fide intention or contumacious or fraudulent conduct of the assessee. The note further states that if the default committed by the assessee was purely technical, the same should not be visited with penalty as the taxpayer should not be punished for unintended technical violations of the provisions of the Act;
(c) In the case of H. Ajitbhai & Co. vs. Asstt. CIT (supra), the Ahmedabad Bench of the Tribunal held that penalty is not automatic as the words may direct in s. 271B clearly reveals that the AO is vested with the discretion to impose or not to impose penalty keeping in mind the facts and circumstances of each case and such a discretion has to be exercised judicially and on consideration of relevant facts and circumstances. It was further held that when there is technical or minor breach of law and when having regard to the facts, ends of justice require that the assessee should not be penalised, AO has the power to exercise such a discretion in a reasonable and judicious manner;
(d) In the case of Ahmed Hassan & Co. vs. ITO (1993) 44 ITD 669 (Cal) it was held by the Calcutta (SMC) Bench of the Tribunal that it is not obligatory that penalty should be levied in each and every case of default; that an assessee should be visited with penalty only when his conduct is contumacious or there is a wilful disregard of legal obligations; and the AO may in a given set of facts, condone the delay by not penalising the assessee and such discretion, with the AO, can be exercised by the appellate authorities also;
(e) In the case of Asstt. CIT vs. Gayatri Traders , the Tribunal observed vide para. 25 of its order that levy of penalty under s. 271B is neither mandatory nor a must. The Bench further referred to the provisions of s. 271B and held that the words may direct in s. 271B of the Act, clearly indicates that the AO is vested with the discretion either to impose or not to impose penalty and the said discretion should be exercised judicially and not either arbitrarily or capriciously. This Special Bench further observed that when there is technical or minor breach of law, the ends of justice require that the discretion should not be exercised in favour of punishing a venial default. As regards the interpretation of the words reasonable cause, the Special Bench observed as follows :
'What is a reasonable cause, in a given set of facts depends upon the peculiar facts of that case. A cause which a reasonable can accepts it as a reasonable one can be taken as a reasonable cause. The expression reasonable cause requires to be interpreted liberally in a fair and reasonable manner so as to advance the cause of justice, since harsh legalistic approach should be mitigated by soft practical approach in applying penal provisions.'
The Special Bench also approved the decision of the Calcutta Bench of the Tribunal in the case of Kumar Bros. (supra) and observed vide para. 29 of its order that the reason that constituted reasonable cause for the delay in filing the return could also constitute a reasonable cause for the delay in getting the audit report under s. 44AB of the Act. The Special Bench followed the decision of the Honble Supreme Court in the case of Hindustan Steels Ltd. vs. State of Orissa : [1972]83ITR26(SC) and held that penalty cannot be imposed unless the party obliged, acts in defiance of law or in utter disregard of the statutory obligations cast on him;
(f) In the case of ITO vs. Arun Kumar Bhuwalka 40 ITD 373 (Cal), Calcutta Bench of the Tribunal held that if the ITO disbelieved the causes or explanation advanced by the assessee or if the ITO required further evidence he should fix another hearing in the matter for further investigation before levying the penalty as otherwise, in the absence of the same, the reasonable cause tendered by the assessee is liable to be accepted and penalty is not leviable under s. 271B of the Act;
(g) In the case of Kerala State Drugs & Pharmaceuticals Ltd. (supra), the Honble Kerala High Court held that delay of public sector undertaking in furnishing the return due to delay of statutory audit under the Companies Act can be condoned in the absence of any suggestion that the assessee lacked in bona fides; and
(h) In the case of Sulekha Works (P) Ltd. (supra), the Honble Calcutta High Court held that delay in obtaining the audit report can be considered as reasonable cause for the delay in filing the return.
12. The propositions that emerge out of the above case law are : (i) that the words reasonable cause in s. 273B/271B means a cause which appeals to a reasonable man and it should be interpreted liberally so as to advance substantial justice and mere technical or venial breach need not be visited with penalty; (ii) the words may direct/that such person shall pay by way of penalty in s. 271B clearly indicates that AO is vested with the discretion which has to be exercised judicially and an appellate authority can consider whether the AO has properly exercised his discretion; (iii) after introduction of s. 273B of the Act the initial burden to prove reasonable cause is on the assessee but if he tenders an explanation, it is for the AO to consider whether the explanation is acceptable or not. An explanation given by assessee cannot be brushed aside as unsatisfactory without calling upon the assessee to adduce further evidence, if necessary. Failure to call for further explanation would relieve the assessee of proving further and the reasonable cause for the delay in obtaining audit report under such circumstances, cannot be visited with penalty under s. 271B of the Act; (iv) delay in completion of statutory audit under the Company law and non-initiation/dropping of penalty under s. 271(1)(a) of the Act, is a favourable circumstance in support of the reasonable cause advanced by assessee for delay in obtaining audit report; (v) period of delay and other surrounding circumstances should be taken into consideration in order to appreciate the reasonable cause tendered by assessee; and (vi) mere delay in getting the accounts audited should not result in levy of penalty without further proof of mala fide intention or contumacious or fraudulent conduct on the part of the assessee.
13. In the instant case, admittedly the books were presented to the auditors before the specified date but only a provisional audit report was issued under s. 44AB of the Act on 30th July, 1986, wherein it was stated that the same is based on provisional accounts and it is subject to change on the basis of finalisation of statutory audit report.
In the explanation before the AO, the assessee-company stated that the delay in obtaining audit report is due to delay in obtaining bank statements apart from the fact that voluminous work is involved. It may be recorded here that the turnover of the assessee-company is Rs. 18.55 crores. On a perusal of the penalty order passed by AO under s. 271B of the Act, it appears that the penalty was levied on the only ground that provisional tax audit report is not acceptable under s. 44AB of the Act as there is no provision for such a report. However, the further explanation of the assessee that audit could not be completed in time due to voluminous work and non-receipt of bank statements in time, missed consideration of the AO. At this juncture, it may be relevant to notice the second proviso to s. 44AB of the Act which reads as under :
'Provided further that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and obtains before that date the report of the audit as required under such other law and a further report in the form prescribed under this section.'
14. The following points, relevant for the present purpose, emerge on a reading of s. 44AB of the Act :
(a) Sec. 44AB(a) is applicable where the turnover of an assessee exceeds forty lakhs in any previous year;
(b) For the asst. yr. 1986-87, the audit report has to be obtained before the expiry of 4 months from the end of the previous year (w.e.f. 1st April, 1989 upto 1st April, 1994. Specified date for the company-assessee, means 31st day of December of the assessment year, w.e.f. 1st April, 1994 it is 30th day of November of the assessment year); and
(c) where an assessee is required under any law to get his accounts audited, the audit under such law is required to be completed before the specified date and a further report in the prescribed form need be furnished, which will be sufficient compliance with the provisions of s. 44AB.
15. Admittedly, the assessee herein is required, under the Company law, to obtain an audit report and so, second proviso to s. 44AB is attracted. It is the contention of the learned counsel for the assessee that the words specified date in second proviso to s. 44AB to be understood as referring to the date specified for obtaining the statutory report as per the Companies Act. I am unable to appreciate the point sought to be made out by the learned counsel in this regard. The words specified date is defined in Expln. to s. 44AB wherein it is stated that the words specified date, for the purpose of this section, means the date of expiry of 4 months from the end of previous year (i.e., 31st July, 1986, in the present context). In view of the Explanation, the words specified date in second proviso cannot be read as contended by the learned counsel. It was argued by the learned counsel for the assessee that under IT Act, whenever the legislature wanted to exclude application of provisions of other enactments, it was specifically provided for in those sections such as ss. 179, 230A, etc. and in the absence of any specific exclusion in s. 44AB, the words specified date in second proviso therein should be understood as specified date under other applicable laws but not the specified date under IT Act. Suffice it to state that in view of the Expln. to s. 44AB of the Act, the aforesaid argument of the learned counsel is not acceptable.
16. I may quickly add that the statutory audit in the instant case, though required to be obtained before 31st July, 1986, as per s. 44AB of the Act, it could not be obtained till 20th September, 1986, and the further report could be obtained only on 29th September, 1986, as the books are voluminous and the bank statements could not be obtained in time. This explanation of the assessee was not proved to be wrong by the AO. On the other hand, while holding that provisional report has not reflected the correct state of affairs of the company, it was observed by the AO that in the absence of important documents like bank statements, it is not possible to make proper audit. In my opinion, the AO has impliedly accepted the explanation of the assessee vis-a-vis the non-availability of bank statements. It is not the case of the Revenue that the explanation of the assessee is factually incorrect or lacks bona fide. The filing of a provisional report by the assessee, in my opinion, reflects the anxiety of the assessee to comply with the statutory dictates and discrepancies between the provisional and final reports cannot be viewed seriously in the context of appreciating reasonable cause for the delay in obtaining the audit report. The auditors have made it clear in the provisional report that it is based on provisional accounts and it is subject to change, if any, on the basis of finalised statutory report unless the statutory report, under the Companies Act, is obtained, the further report, as prescribed under second proviso to s. 44AB, cannot be filed as both are inter-linked. At any rate, the delay in obtaining the statutory audit report can be considered as a reasonable cause for the delay in obtaining the further report under s. 44AB of the Act, inasmuch as, the reasons for the delay in obtaining the audit report as required under the Companies Act were neither proved to be wrong nor the bona fides of the assessee doubted by AO.
17. Let me consider the issue from another angle. For the purpose of obtaining audit report, either under Company law or (Tax audit) under IT Act, the bank statements should be made available to the auditors failing which, it may not be possible to complete the audit. Admittedly, audit commenced before the specified date and the delay is attributed to the non-receipt of bank statements in time apart from the fact that voluminous work is involved. Though there is considerable delay in filing the return of income, the AO has not initiated penalty proceedings under s. 271(1)(a) of the Act. The contention of the learned counsel for the assessee that the audit, as per the time available under the Companies Act, has to be completed by 30th September, 1986, and so the assessee was under the bona fide impression that the further report can be filed only after obtaining the statutory audit report before 30th September, 1986, (audit was complete on 20th September, 1986, and further report ready by 29th September, 1986), cannot be brushed aside. The factors that delay in obtaining report under s. 44AB is less than two months and the final report was available before completion of assessment also deserve consideration. On an overall conspectus of the matter, and by keeping in mind the propositions culled out from various judicial decisions, I am firmly of the opinion that the assessee has proved existence of reasonable cause under s. 271B r/w s. 273B of the Act. Thus, the question referred to me by this reference under s. 255(4) of the Act is answered in the negative and I hold that the penalty is not leviable under s. 271B of the Act, in the instant case.
18. Let the records be placed before the Division Bench for further orders in accordance with law.
R. ACHARYA, A.M. :
In this appeal filed by the Department since we have differed in opinion, the matter was sent to the Third Member under s. 255(4) of the IT Act, 1961 for decision. The Third Member, by order dt. 31st December, 1996 agreed to the view taken by the Judicial Member who was against restoration of penalty imposed on the assessee.
2. Consequently, after hearing both the parties we hold that the CIT(A) was right in vacating the order imposing the penalty of Rs. 1,00,000 by the AO, in accordance with the majority decision.
3. In the result, the appeal is dismissed.