Income Tax Appellate Tribunal - Lucknow
Dy. Cit vs U.P. State Agro Industrial Corporation ... on 14 March, 2001
Equivalent citations: (2001)71TTJ(LUCK)835
ORDER
P.N. Parashar, J.M. This appeal and cross-objection arise out of the order of Commissioner (Appeals)-II, Lucknow, dated 7-10-1992, for the assessment year 1989-90.
2. In ITA No. 2759/All/92, the department has challenged the cancellation of penalty of Rs. 1 lakh imposed by the assessing officer under section 271B of the Income Tax Act, 1961. In the cross-objection, the assessee has taken as many as five grounds supporting the order of the Commissioner (Appeals). An additional ground was also taken in the cross objection by the assessee, which reads as under :
"The learned Commissioner (Appeals) has erred on facts and in law in not cancelling the penalty as the same was barred by limitation on the basis of provisions contained in section 275 of the Income Tax Act, 1961."ITA No. 2759/All/1992
3. The facts concerning the matter are as follows.
4. The assessee, a Government Corporation filed return of income on the basis of provisional account. The assessee-corporation was also required to get its account audited in view of the provisions contained under section 44AB of the Act and to file the audit report as its turnover was in excess of Rs. 40 lakhs. As the assessee failed to get the accounts audited under the Companies Act and under the provisions of section 44AB of the Act, the assessing officer initiated penalty proceedings under section 271B of the Act at the time of completing the assessment vide order dated 31-3-1992. A show-cause notice was issued by the assessing officer in response to which reply dated 2-7-1990 (sic) was submitted. It was explained that the auditors were to be appointed by the Company Law Board, Government of India under consultation with the Comptroller and Auditor General of India (hereinafter referred to as the "C.&.A.G.") as provided under section 619 under the Companies Act, 1956, and since the auditors were not appointed despite all efforts by the assessee, the audit report could not be submitted within time. In this regard, reference was also made to the letter written by the assessee to the C&AG, dated 19-2-1990. The assessing officer, however, was not convinced by the reply of the assessee. He also found that the letter dated 6-2-1990, was regarding appointment of auditor for the year 1985-86. The assessing officer also held that there was no reasonable cause except the gross negligence and neglect of duty on the part of the assessee-company in maintaining the accounts due to which delay occurred in getting the accounts audited. The assessing officer on that basis imposed penalty of Rs. 1 lakh under section 271B of the Act.
5. In appeal, it was submitted on behalf of the assessee that the appellant had furnished its return for the assessment year in question on 29-12-1989, and also made efforts to get the auditors appointed, but as the payment was delayed, the accounts could not be audited in time specified under section 139 of the Act.
6. The Commissioner (Appeals) after considering the plea of the assessee as convincing and reasonable held that the auditors could not be appointed by the office of the C.& A. G., because the audit work of earlier year was pending and, therefore, the assessee-appellant was prevented by a reasonable cause for obtaining the tax audit report required in terms of section 44AB of the Act. Thus, the Commissioner (Appeals) cancelled the penalty.
7. Before us, Shri D.K. Shrivastava, learned senior Departmental Representative submitted that the delay was attributable on the part of the assessee as the assessee itself could not complete its books of account. The learned senior Departmental Representative also contended that the Commissioner (Appeals) has not properly appreciated the fact that the return of income for assessment year 1989-90 was filed by the assessee on provisional basis and its books of account would not be ready till that time. Regarding letter dated 30-11-1989, addressed to C & A. G. again it was pointed out that in that letter also, the assessee had admitted the fact that the books of account for the assessment year 1988-89 were still being prepared and completed. The learned senior Departmental Representative relied upon the order of assessing officer.
8. Shri Kanchan Kaushal, the learned F.C.A. made detailed submissions explaining the delay on the part of the assessee. According to him, the assessee had made sincere efforts to get the auditors appointed, but the C & A.G. could not appoint the auditors. According to him, the audit for the assessment year under consideration, i.e. assessment year 1989-90 was possible only when the audit of earlier years was complete and as audit of earlier years was pending, the C & A. G. did not appoint auditors for this year. According to Shri Kanchan Kaushal, learned F.C.A., the auditors were appointed on 27-3-1991, for earlier years and, therefore, the auditors for this year were appointed thereafter. The other arguments of Shri Kanchan Kaushal was that in view of the provisions contained in section 275, there was a reasonable cause on the part of the assessee and, therefore the penalty could not be imposed. In support of this argument, he placed reliance on the order of Commissioner (Appeals) also.
9. So far as the cross-objection is concerned, the contention of Shri Kaushal was that since audit in pursuance of the provisions contained in section 619 of Companies Act were to be made, it was not possible for the assessee to get the audit complete under Income Tax Act by appointing its own auditors.
10. With regard to additional ground reproduced above, Shri Kanchan Kaushal made specific submissions. According to him, the return for assessment year 1989-90 was filed by the assessee on 26-12-1989, in response to notice under section 142(1) and assessment was completed under section 144 on 31-12-1992 and thereafter Commissioner (Appeals) vide his order dated 12-9-1996, set aside the assessment for making fresh assessment de novo on the basis of audited accounts, which assessment was completed on 27-2-1997 finally. In this background, the contention of the learned counsel for the assessee was that since the original assessment order dated 31-3-1992, did not survive, the penalty order had no legal legs to stand.
11. We have considered the facts and circumstances relating to this matter and the rival submissions. So far as the objection of the department against the cancellation of the penalty is concerned, the main challenge is that the Commissioner (Appeals) was not justified in considering the conduct of the assessee for exoneration of the guilty conduct or in holding the cause, which prevented the assessee as a reasonable cause. The claim of the assessee- corporation was that it was prevented in getting the accounts audited on account of delay in appointment of auditors by C. & A.G. The assessing officer had examined the entire matter from this point of view also. He found that the letter dated 6-2-1990, was regarding appointment of auditors for the year 1985-86. He also found that the assessee-company itself did not complete the books of account on day-to-day basis, and, therefore, there was no reasonable cause on its part for justifying the delay. Against the imposition of penalty, the plea of reasonable cause to justify the failure on the part of the assessee in not getting the accounts audited within the specified time, can be taken but to avail of the benefit of this ground, the assessee has to prove that there was no negligence or neglect on its part in ensuring the compliance of the relevant statutory provisions. The facts of each case are to be examined in order to ascertain bona fide, promptitude, sincerity and of reasonable care on the part of the assessee. Every cause cannot qualify the definition of "reasonable cause". It is only that cause, which is beyond the control of the assessee, which can be a basis for exoneration of liability. If the assessee himself or itself was not vigilant or did not take appropriate steps for ensuring compliance of statutory provisions, then he cannot advance the pleas of reasonable cause. So far as the instant case is concerned, the assessee has failed to prove that it took all the steps to get the accounts audited within the stipulated or prescribed time by the auditors. The assessee has not come forward with the plea that its account books were complete and it approached the C & A. G. for appointment for auditors before the specified time. No letter of the assessee has been produced before us, which was written before the specified date for appointment of auditors for this assessment year. In our considered view, therefore, Commissioner (Appeals) was not justified in granting the benefit of section 273B to the assessee. On the other hand, we agree with the assessing officer that there was gross negligence and neglect on the part of the assessee-company in maintaining the accounts. Thus, the grounds taken by the department deserve to be allowed. The order of the Commissioner (Appeals) is, therefore, reversed on the basis of this ground.
S.O. No. 74/All/199812. So far as the grounds No. 1 to 5 taken in the cross-objection are concerned, in view of our findings recorded while deciding the grounds of departmental appeal, we decide these grounds against the assessee.
13. Coming to the additional ground, which is reproduced above, we find that there is lot of force in the plea taken by the assessee. In view of the provisions contained under section 275 of the Act, the order imposing penalty is to be passed before the expiry of the financial year in which the proceeding in the course of which action for imposition of penalty has been initiated are completed or six months from the end of the month from which the order of the appellate authority was received by the Chief Commissioner. The contention of the learned counsel for the assessee was that the proceedings started on the date of filing of the return and the notice issued on 29-3-1990 initiated the penalty proceedings. After going through the records, we find the following facts as undisputed facts.
14. The notice under section 139(9) was issued on 27-3-1990; another notice on the same date was issued by the assessing officer. Even in the penalty order it is mentioned that the show-cause notice under section 271B was issued on 27-3-1990. In the assessment order also, the same fact has been mentioned. Thus, it remains undisputed that penalty proceedings were initiated by the show-cause notice dated 27-3-1990. In view of the provisions contained in section 275, the penalty order should have, therefore, been passed within the time limit prescribed under that section. The penalty order has been passed on 31-3-1992, i.e., after more than 2 years and certainly after the expiry of the financial year in which the proceedings were initiated. In the case of ITO v. Rama Medical Stores (1996) 59 ITD 110 (All-Trib), it has been observed by the Allahabad Bench of Tribunal (SMC) that the period of limitation, laid down in section 275 is applicable for passing of penalty order and not for initiation of penalty proceedings. In the case of Ahuja Rice & General Mills v. Dy. CIT (1999) 12 DTC 671 (Asr-Trib) : (1999) 69 lTD 329 (Asr-Trib), the Tribunal, Amritsar Bench also examined the issue. In that case, the assessee filed the return on 31-10-1989. A letter of deficiency was also issued by the assessing officer and thereafter notice under section 274 read with section 271B was issued on 7-12-1989, asking the assessee to show cause as to why the penalty may not be levied for failure to enclose the audit report along with the return. The assessee filed report on 20-2-1990. The assessment was made on 27-6-1990. Along with assessment order, the assessee was also served with another penalty notice under section 271B read with section 274. After examining these facts, the Bench observed that the assessing officer was under a legal obligation to complete the penalty within the time allowed under section 275. According to the Bench, the first notice was to culminate by passing an order under section 271B within the time allowed under section 275(1)(c). In the case before us also, the penalty order was not completed within the time allowed under section 275. The period of limitation, which started from the notice dated 27-3-1990 was, therefore, to end within the financial year or within six months from the end of March, 1990. Thus, this ground taken by the assessee in the cross- objection deserves to be allowed.
15. In the result, the appeal of the department is allowed. Additional ground taken in the cross-objection of the assessee is allowed. Since the penalty order cannot be sustained on the grounds mentioned in para 14 of this order. The penalty imposed under that orders shall stand cancelled.