Income Tax Appellate Tribunal - Patna
Income-Tax Officer vs Gayatri Coal Supply Co. on 12 June, 1997
Equivalent citations: [1997]63ITD237(PAT), [1999]238ITR16(PAT)
ORDER
Shri V.K. Sinha, A.M.
1. These two appeals filed by the Department are being disposed of by a common order for the sake of convenience.
2. The appeals have been filed against the orders of the CIT(A) cancelling penalties of Rs. 56,072 and Rs. 74,951 for assessment years 1987-88 and 1988-89 respectively, levied under section 271B of the Act.
3. According to the provisions of section 44AB of the Act, the audit report under that section was due to be prepared by 31-7-87 for assessment year 1987-88. However, it was actually signed on 2-8-88 and was, thus, delayed. Similarly, the audit report for assessment year 1988-89 was due to be prepared by 31-7-88 but the report was actually signed on 20-10-89. It was thus again delayed. Penalty proceedings were commenced by the Assessing Officer for both the years, in response to which replies were filed stating that the accounts could not be audited in due time due to illness of the assessee's Authorised Representative, who was also employed as auditor, and because the Accountant of the firm left for a long time. The explanation was not considered satisfactory and the above-mentioned penalties were levied.
4. It was submitted before the CIT(A) that accounts were not kept in proper shape by the Accountant and in support of this submission, submitted the following chart showing delays in filing of returns of income from A.Ys. 1983-84 to 1991-92 :
Asst.yr. Due date Date of filing Delay
of return
1983-84 30-6-83 12-7-85 24 months
1984-85 30-6-84 12-7-85 12 months
1985-86 30-6-85 6-9-86 14 months
1986-87 30-7-86 11-9-87 13 months
1987-88 31-7-87 16-8-88 12 months
1988-89 31-7-88 20-2-90 18 months
1989-90 31-10-90 14-5-91 18 months
1990-91 31-10-90 13-8-91 10 months
1991-92 31-10-91 4-10-91 No delay
5. It was pointed out that the returns for all these years except assessment year 1991-92, had been delayed.
6. Similarly, a chart regarding the details of audit reports was also filed for A.Ys. 1986-87 to 1991-92 which shows that the finalisation of the reports was delayed in all the years except assessment year 1991-92. It is reproduced below :-
"Details of Audit report :
Asst. year Due date Date of report 1986-87 31-7-86 11-9-87 1987-88 31-7-87 2-8-88 1988-89 31-7-88 20-10-89 1989-90 31-10-89 8-5-91 1990-91 31-10-90 22-7-91 1991-92 31-10-91 25-9-91"
7. Photostat copies of letters of Late Shri H.P. Lala, who was the Chartered Accountant of the Company, were also filed before the CIT(A). It was admitted in these letters that the compliance could not be made in time due to his illness. Subsequently, Shri H.P. Lala expired.
8. It was further submitted that the main partner expired on 16-11-84 and due to his death, the whole management was upset and the statutory formalities had been delayed.
9. The CIT(A) found merit in the contention and held that there was a reasonable cause for the delay in completion of the Audit Reports and, accordingly, cancelled the penalties for both the years. The Department is now in appeal before us.
10. The ld. D.R. relied on the assessment order and emphasised that if the Auditor was unwell, the assessee could have employed any other auditor or Accountant.
11. On the other hand, the ld. counsel for the assessee reiterated the submissions made before the CIT(A) and emphasised that it was not easy to change the auditor and, therefore, he was retained. Ultimately he died in 1990-91. Further, the main partner, Shri Mahesh Chandra had died on 16-11-84 and the troubles of the Company had started during his illness and after his death.
12. It was further submitted by the ld. counsel that for assessment year 1986-87, the Audit Report had been signed on 11-9-89 but no penalty proceedings had been initiated under section 271B. Thus, even, according to the Department, there was reasonable cause for the delay up to 11-9-87 for finalisation of accounts for the A.Y. 1986-87. The due date for finalisation of accounts for assessment year 1987-88 was 31-7-87 but on that date, the closing balance of the previous year was not available. Similarly, the audit report for assessment year, 1987-88 was signed on 2-8-88 whereas the due date for the next year, i.e., A.Y. 1988-89 was 31-7-88, when the balances for the previous year were not available. It was submitted that after assessment year gradually things were brought under control as the chart shows and there was no delay either in filing the return or in Audit Report in assessment year 1991-92.
13. It was further submitted by the ld. counsel for the assessee that the Department had dropped penalty proceedings under section 271B for A.Ys. 1989-90 and 1990-91. This also showed the genuineness of the assessee's explanation.
14. We have considered the rival submissions carefully. It is evident from the facts available on record that the assessee's struggle started during the illness of the main partner, Shri Mahesh Chandra, who ultimately died on 16-11-84. The troubles were compounded by the illness of the assessee's auditor, Shri H.P. Lala, Chartered Accountant, who also died subsequently in 1990-91. A person is helpless in the face of death, the Ultimate Reality. It takes time for those left behind to restore the normal balance, and the duration depends on the circumstances and the capacity of the persons concerned. We find that normalcy was restored in assessment year 1991-92. The duration cannot be called excessive. Accordingly, we hold that there was reasonable cause for the delay in finalisation of the audit report for the two years under consideration.
15. The orders of the CIT(A) are, therefore, confirmed. The Departmental appeals are dismissed.
Shri Abdul Razack, Judicial Member
1. I have studied the order passed by my ld. Brother (AM) taking a view that the assessee was prevented by a reasonable cause in getting the accounts audited in time in accordance with the provisions of section 44AB of the IT Act, 1961 for both the years under appeal and, therefore, upholding the cancellation of penalties by the Appellate Commissioner (A/C) which were levied by the Assessing Officer under section 271B of the Act. I have also personally discussed in this regard with my ld. Brother. According to me, the penalties levied under section 271B of the Act for both the years require to be confirmed and the appeals of the revenue to be allowed. With respect to my ld. Brother, I am unable to agree with the view taken by him. I am, therefore, passing this separate dissenting order.
2. The provisions of section 271B are absolute and in clear terms lay down that no sooner a default or contravention occurs in complying with the mandate contained in section 44AB of the Act then the defaulter or the offender has to be penalised in the manner laid down therein.
3. When the provisions of section 271B were first enacted and brought on the statute book through Finance Act, 1984 w.e.f. 1-4-1985 the Legislature laid down that if there existed "reasonable cause" for contravention of the provisions of section 44AB, then a person need not be penalised. Thus, the existence of "reasonable cause" exonerated the assessee from the clutches of the penal provisions of section 271B of the Act. But these words "without reasonable cause" occurring in section 271B and several other penal provisions of the IT Act, 1961 and which came for interpretation before several Courts holding that when causes are shown as being "reasonable" by an alleged offender of violations of certain obligatory provisions contained in IT Act, 1961 then it is for the Revenue/Department to prove that the causes shown or advanced by an assessee or a person are not reasonable, and it is then and only then a that person/assessee could be penalised under a particular penal provisions. Thus, the Courts placed the burden of proof regarding non-existence of a reasonable cause, once shown by an assessee, on the revenue and not on the assessee. In order to overcome this situation, the Legislature omitted and removed the word "without reasonable cause" not only from section 271B but also from different penal provisions contained in IT Act by virtue of Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 10-9-1986 and new provision section 273B was inserted in the IT Act, 1961. This new provision (section 273B) in clear terms lays down that a person who is to be penalised under section 271B (and many other penal provisions specified therein) shall have to prove the existence of reasonable cause for the failure or contravention. Thus, after 10-9-86 that is to say upon the insertion of section 273B in the IT Act shifted the burden of proof from the Revenue to the person charged for the alleged offence or contravention in respect of various obligations and mandates contained in different provisions of the IT Act, 1961. Therefore, mere making a submission or tendering an explanation about a reasonable cause by a person/assessee will not be adequate discharge of onus or burden of proof after the placement of section 273B on the statute book, and he, therefore, cannot get exoneration or immunity from the clutches of different penal provisions contained in the IT Act, 1961 including the penal provisions contained in the IT Act, 1961. The person/assessee charged for non-compliance of the mandate contained in section 44B "has to prove" after 10-9-1986 the existence of a reasonable cause which prevented him from discharging the statutory obligations or the mandate contained in that particular provision of IT Act, 1961.
4. When I examined the material brought on record I notice that this assessee (which is a partnership firm consisting of several partners) has not discharged the onus or the burden of proof which lay upon it under section 273B of the IT Act. It had only submitted the causes but has miserably failed to prove the existence of the same by rendering or placing cogent and reliable legal evidence on the strength of which any prudent or reasonable person could get satisfied and conclude that yes, there were reasonable causes supported by firm legal evidence which prevented the assessee-firm from complying with the statutory obligations cast upon it under section 44AB of the Act and it should, therefore, not be penalised under section 271B of the Act. During the course of hearing of this appeal on 4-8-1995, the assessee's counsel Shri S.K. Poddar, advocate filed before us a xerox copy of an undated letter stated to have been filed before the Assessing Officer by one Shri H.P. Lala under his signature and who is stated to be the Chartered Accountant cum-authorised representative of the assessee-firm. In the said undated letter which is for the assessment year 1987-88, the said Chartered Accountant had submitted the reasons for the contravention of section 44AB alleged to have been committed by the assessee-firm. The assessee's counsel assured us that for both the years under appeal same reasons were given though he had filed xerox copy of the undated letter signed by Shri H.P. Lala, Chartered Accountant in relating to penalty proceedings under section 271B for the assessment year 1987-88. The xerox copy of the undated letter is placed on record. I deem it useful to reproduce the contents of the said letter written and signed by Shri H.P. Lala, Chartered Accountant. The contents are like this :-
"Sub : M/s Gayatri Coal Supply Co. - Assessment Year 87-88 proceeding under section 271(1)(B) That your honour has issued notice dated 14-12-1988 to show cause why penalty could not be imposed under the above section. The compliance were sought on 17-1-1989. The compliance could not be made in time due to my illness and for which delay may kindly be condoned and obliged.
That the assessee was liable to obtain Audit Report by 31st July, 1987 which has been obtained in the firm on 2nd August, 1988. That there was a death of a partner in the firm on 16-11-1984 and due to the death, the whole management was upset and thereafter all the statutory formalities were delayed and this year also the delay was due to the same reason because the accounting was delayed and, hence, the Audit Report could not be obtained in law.
It is, therefore, requested to your honour to kindly condone the delay for obtaining the report and the proceeding may kindly be dropped and obliged."
5. A careful reading of that letter of the said Chartered Accountant reveals that the cause shown is death of a partner (name not mentioned) of the assessee-firm on 16-11-1984 owing to which the whole management was upset causing delay in compliance of the statutory requirements and for the same reason accounting was delayed and, therefore, audit report could not be obtained. In my view the cause shown to the Assessing Officer in the said letter is very vague, extremely remote and too far fetched having no direct nexus whatsoever with the offence and contravention of section 44AB which admittedly took place. Same reason prevailed even for the assessment year 1988-89. In the said letter, the signatory Shri H.P. Lala, Chartered Accountant who is stated to have died in the year 1990-91 (precise date of death also not given by Shri S.K. Poddar at the time of hearing) did not take the blame upon him that owing to his illness audit under section 44AB could not be carried out by him and report given to the assessee-firm. What the said Chartered Accountant stated in the said letter, which I have extracted above, is that he could not make compliance on 17-1-1989 to the show-cause notice dated 14-12-1988 of the Assessing Officer in connection with the imposition of penalty under section 271B of the Act. This mention of illness was taken by the Assessing Officer mistakenly as one of the causes for non-compliance of the mandatory provisions of section 44AB of the Act. This cause of the illness of the said Chartered Accountant, Shri H.P. Lala was even misunderstood by the A/C and taking this as one of the reasonable cause penalties for both the years in appeal were cancelled by him (A/C).
6. As is evident from the contents of the letter of Shri H.P. Lala, Chartered Accountant as extracted by me above the cause shown was a solitary one, and that was the death of one of the partners of the assessee-firm on 16-11-1984 on account of which the whole management was upset and accounting got delayed.
7. In law by no standard, this cause or explanation can be considered as a reasonable one or even a plausible one or even come nearer to reasonableness. Such an abnormal and enormous delay for two years consecutively cannot be explained away by making a statement or submission that death of a partner occurred somewhere in the middle of November 1984. I repeat the cause shown and explained is very vague and general and has no nexus, reasonableness or rationale connection with the offence admittedly committed by the assessee-firm. It is extremely remote and remains unsubstantiated and uncorroborated by acceptable, reliable, cogent legal evidence. The assessee-firm has merely made submissions and not proved the existence of such cause not seriously attempted to prove that such cause was solely responsible for the contravention of section 44AB. The provisions of section 273B have not been complied with by the assessee-firm for both the years under appeal and, therefore, the penalties cannot be cancelled.
8. On query from the Bench assessee's counsel Shri S.K. Poddar fairly conceded that after the death of one of the partners of the assessee-firm on 16-11-1984 the remaining partners continued the business of the partnership firm uninterruptedly under a new partnership deed drawn up and executed by the remaining continuing partners. The assessee's counsel Shri S.K. Poddar also admitted that after the death of one of the partners on 16-11-1984 periodic returns as required by the Bihar Sales-tax Act were being filed by the assessee-firm regularly and promptly and there was no default/contraventions whatsoever committed by the assessee-firm under the Bihar Sales-tax Act. He also answered the query that the assessee-firm was attending to other formalities required to be complied under the allied laws effecting the business of the assessee-firm and even the banking transactions also were attended to without any let or hindrance. Now when all other business and normal activities were attended to and carried uninterruptedly by the continuing/surviving partners of the assessee-firm after the death of one of the partners on 16-11-1984, it does not stand to reason and convince any prudent person as to why the assessee-firm could not care to complete the accounts, if true, get them bundled and send to any Chartered Accountant to carry out the audit and obtain report as required by section 44AB of the Act. After all it is not the partners who were to conduct the audit under section 44AB of the Act but it is Chartered accountant who has to do the entrusted job and give audit report Form 3CD with the assistance and guidance of an Accountant of the assessee-firm. This is not an onerous, laborious or burdensome task incapable of compliance by the assessee-firm within the time prescribed by law, viz., 44AB of the Act.
9. My ld. Brother and I as per order in the case of ITO v. G.S. Relan [IT Appeal No. 492 (Pat.) of 1992 dated 3-5-1995] relating to assessment year 1987-88 have confirmed the imposition of penalty under section 271B of the Act where the cause shown was that the managing partner of the assessee-firm had to face lot of trouble owing to distance arising out of assassination of the then Prime Minister, Smt. Indira Gandhi and the house of the said partner was attacked by miscreants and, therefore, the Managing Partner had to take shelter in the Gurunanak School with his family and after this incident, the Managing Partner was mentally disturbed and left Ranchi along with his family to Punjab for security reasons and, therefore, on account of these reasons, the work relating to preparation of accounts and submissions of the returns was delayed and, therefore, accounts of the firm could only be finalised in February 1990 - and sent for auditing. We have in that case considered those causes as being not reasonable and unproved and, therefore, as stated above confirmed the penalty under section 271B of the Act. This case is no better than the case of G.S. Relan (supra). I, therefore, see on justifiable reason to depart or deviate from the reasoning, finding and conclusion of that case and accept more or less similar causes as reasonable in this case and cancel the penalties levied under section 271B of the Act for two years.
10. While still on the subject, of confirmation of penalty I would also like to mention here that my ld. Brother and I have confirmed levy of penalty under section 271B as per order in the case of Bihar State Electricity Board v. ITO [IT Appeal No. 588 (Pat.) of 1992 dated 14-9-1995] relating to assessment year 1988-89 wherein causes shown were that the audit report was given late by the Accountant General, Bihar. We have taken a view in that case that onus lies under section 273B squarely on the assessee to lead evidence and prove that there was reasonable cause for the violation as laid down in section 44AB of the Act. We have further held in the case of Bihar State Electricity Board (supra), an instrumentality of State that mere repetition that the audit report was given late by the Accountant General is not sufficient and adequate cause for cancellation of penalty levied under section 271B of the Act for failure to get the audit done and completed within time as per section 44AB of the Act. Having taken a view, in the two cases mentioned above, that non-finalisation of accounts could not be considered as a reasonable cause and confirming imposition of penalty under section 271B of the Act, I do not wish to deviate and depart from that view and take a different and opposite view in this case, that non-finalisation of accounts is a reasonable cause and thereby exonerate this assessee from imposition of penalty under section 271B of the Act.
11. I would also like to add that the Jaipur Bench of Rajasthan High Court in the case of S. Zoraster & Co. (Supplies) (P.) Ltd. v. CIT [1995] 201 ITR 558 have held that mere submission that the accounts were not completed by the Accountant cannot be a reasonable cause in not submitting the return particularly "when the assessee failed to prove" as to why the Accountant could not complete the accounts in time. It was further laid down by their Lordships in that case that if the law casts a duty on the assessee for submission of the return in time then the assessee cannot escape the liability by merely saying that employee of the assessee did not complete the accounts in time because it was for the assessee to manage the affairs as he likes. The Rajasthan High Court has further emphasised that the burden is ultimately on the assessee to plead and prove reasonable cause. The Judgment of the Rajasthan High Court, Jaipur Bench supports my view that non-finalisation of accounts in time cannot be considered as a reasonable cause on the strength of which the assessee can be exonerated from the penal action under section 271B of the Act.
12. The Gujarat High Court while dealing with the case of R.J. Goenka v. CIT [1994] 207 ITR 824 have accepted as correct the decision of the Tribunal in confirming the levy of penalty under section 271(1)(a) holding that the assessee failed to tender any material to substantiate the assessee's explanation that his Munim had fallen ill and, therefore, could not finalise the accounts in time. I am quoting and relying on this judgment to support my view that mere making submission or repetitive submission that the finalisation of accounts got delayed on account of death of one of the partners on 16-11-1984 without leading any evidence or material to support such an explanation cannot be a ground for cancelling the penalties levied for both years under section 271B of the Act.
13. The Hon'ble Patna High Court in the case of CIT v. Nathulal Agarwala and Sons [1985] 153 ITR 292/22 Taxman 199(FB) have laid down that it is not the law and perhaps hardly can be said that any and every explanation of the assessee for the purpose of avoidance of tax/penalty must be accepted (page 310).
14. The Hon'ble Supreme Court in the well-known case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14/30 Taxman 546H approved and affirmed the above view of the Hon'ble Patna High Court by observing at page 22 of the said report as under :-
"We agree. We further agree that it is not the law that any and every explanation by the assessee must be accepted. It must be an acceptable explanation, acceptable to a fact-finding body."
15. I do admit that death which is sure, certain and an ultimate reality as stated by my ld. Brother, does give severe blow to the surviving ones. But as is known to all only for a limited period and, thereafter the survivors realise the ultimate truth of death which is inevitable for every human being and Further being helpless with the will of God Almighty control themselves and carry on and contribute with all activities, personal and business but at the same time performing periodical religious rituals for the departed soul. But to say or admit that death of a person brings every sphere of human activity to a grinding halt for several years is neither plausible, nor believable nor acceptable. The submission of the assessee-firm through its Chartered Accountant, Shri H.P. Lala that the death of one of its partners on 16-11-1984 was the sole and only cause for the admitted offence has, therefore, to be rejected outright, as untenable, baseless, unacceptable and unproved. I am of the opinion that true reasons for the admitted default under section 44AB have not been brought on record for reasons only known to the assessee-firm and its partners.
16. The chart given by the ld. counsel, Shri Poddar which has been extracted by my ld. Brother at page 2 instead of helping the assessee goes to prove that the firm is a habitual and chronic defaulter and offender. This conduct demonstrates further how callous, careless and irresponsible is the assessee-firm towards its statutory obligations under the IT Act, 1961.
17. The return for the assessment year 1983-84 though due on 30th June 1983 (which is the date before the death of the said partner on 16-11-1984) was filed on 12th July, 1985 causing a long delay of 24 months. What excuse could the assessee-firm give for this long and inordinate delay particularly when the said partner was alive at that time ? This goes to establish the contumacious conduct on the part of the assessee-firm.
18. Again the audit report for the assessment year 1988-89 was obtained on 20-10-1989, but the return was filed belatedly on 20-2-1990. I have brought these true facts in order to establish that the assessee-firm and its partners are not serious to obey and abide by the commands and mandate contained in the IT Law which other similarly placed assessees do. It also further shows that scant respect by the assessee-firm for the law. Deliberateness and contumacious conduct according to me is writ large on the face of this case on the basis of facts as contained on record. The A/C in my view has not judicially considered that too in a right, proper and legal perspective the uncorroborated submission in not obtaining audit report under section 44AB within the prescribed time for both the fears under appeal.
19. I have also to meet another argument of the assessee's counsel, Shri S.K. Poddar that the same explanation for the assessment years 1989-90 and 1990-91 was accepted by the Assessing Officer and penalties under section 271B were not levied and, therefore, on that basis the penalties for the years under appeal should also be cancelled.
20. I am not impressed with this argument. It is not known how the Assessing Officer processed that explanation and what reasons prevailed upon him for not imposing penalties under section 271B of the Act on the assessee for those two subsequent years. This Tribunal is not bound to follow and obey the orders passed by the Assessing Officer who is a subordinate authority.
21. It is no good argument in defence that since the lower tax authorities have decided a particular issue in favour of the assessee in later or earlier years, therefore, the highest appellate authority like this Tribunal should blindly accept such decisions of subordinates and decide the issue in favour of assessees. The essence of maintenance of hierarchial judicial discipline is that the lower Courts/Tribunals should obey and follow the orders, decisions and judgments of Higher Courts and Tribunals. If it is otherwise, as pleaded by assessee's AR, then it will not only amount to lowering the supremacy, authority and dignity of the Higher Courts or Tribunals but also amount to making a mockery of the entire system of delivery and administration of justice and the Rule of law. I, therefore, reject this untenable argument of the assessee's counsel.
22. In my considered opinion, therefore, the burden of proof regarding the existence of reasonable cause as cast upon the assessee-firm under section 273B has not all been discharged. Apart from the ipse dixit not a grain worth of evidence is led even at the stage of second appeal before this Tribunal which could go to convincingly establish the prevalence of a reasonable cause for the admitted defaults for both the assessment years committed under section 44AB of the Act. Submissions how strong they may be cannot in law, take the place of proof.
23. I, therefore, upheld the levy of penalties for both the years under appeal and reverse the impugned order of the Appellate Commissioner.
24. Revenue's appeals for both the assessment years are allowed.
REFERENCE FOR THIRD MEMBER CASE UNDER SECTION 255(4) OF THE IT ACT, 1961, IN THE ABOVE MATTER As we have differed in our views in the above-mentioned IT Appeal Nos., we request the Hon'ble President to kindly refer the matter to the 3rd Member on the following point :
"Whether, on the facts and circumstances of the case, the assessee has proved under section 273B existence of reasonable cause for failure to get the accounts audited for the two years under appeal as required by the provisions of section 44AB of the Act and, therefore, not liable for penalties for both the years under section 271B of the Act ?"
THIRD MEMBER ORDER
1. The point of difference referred to the Third Member in this case involving two appeals is the following :-
"Whether, on the facts and circumstances of the case, the assessee has proved under section 273B existence of reasonable cause for failure to get the accounts audited for the two years under appeal as required by the provisions of section 44AB of the Act and, therefore, not liable for penalties for both the years under section 271B of the Act ?"
2. The difference arose while disposing of two penalty appeals filed by the department under section 271B of the I.T. Act, 1961, for assessment years 1987-88 and 1988-89. The assessee is a registered firm doing business in purchase and sale of coal. The assessment years involved are 1987-88 and 1988-89, for which the previous years ended by 1-11-86 and 31-3-88 respectively. For assessment year 1987 88, the assessment was completed under section 143(1) on a total income of Rs. 1,39,140 under intimation dated 14-12-88.
3. For assessment year 1988-89, the assessment was completed on a total income of Rs. 1,90,770 by the assessment order dated 17-4-90 intimated under section 143(1)(a). While thus completing the assessment for assessment years 1987-88 and 1988-89, inter alia, penalties under section 271B were initiated. For assessment year 1987-88, the gross turnover of the assessee-firm was found to be Rs. 1,12,14,492. Similarly, for assessment year 1988-89, its turnover was found out to be Rs. 1,49,90,186. Admittedly, the assessee is a person whose turnover is more than Rs. 40 lakhs and who is obliged to obtain before, respective concerned specified dates, audit reports under section 44AB.
4. The assessee was required to get the accounts audited on or before 31-7-87 for assessment year 1987-88 and on or before 31-7-88 for assessment year 1988-89. However, as against those specified dates, the assessee obtained the audit reports on 2-8-88 for assessment year 1987-88 and on 20-10-89 for assessment year 1988-89. Thus, there was a delay of 12 completed months for assessment year 1987-88 and 18 completed months for assessment year 1988-89 while obtaining the audit reports. Show-cause notices were issued to the assessee and explanations were submitted by the assessee. For assessment year 1987-88, the show-cause notice was dated 14-12-88. However, similar date of show cause for assessment year 1988-89 is not there found in the record. In the explanation offered for assessment year 1987-88, the following is what is mentioned :
"That your honour has issued notice dated 14-12-88 to show cause why penalty could not be imposed under the above section. The compliance were sought on 17-1-89. The compliance could not be made in time due to my illness and for which delay may kindly be condoned and obliged.
That the assessee was liable to obtain audit report by 31st July, 1987 which has been obtained in the firm on 2nd August, 1988. That there was a death of partner in the firm on 16-11-84 and due to the death the whole management was upset and thereafter all the statutory formalities were delayed and this year also the delay was due to the same reason because the accounting was delayed and, hence, the audit report could not be obtained in time."
I presume that in the absence of any specific reply being available on record for assessment year 1988-89, a reply on similar lines as was submitted for assessment year 1987-88 was also submitted for assessment year 1988-89. In the penalty proceedings, explanations offered are not felt satisfactory and, therefore, the ITO levied a penalty of Rs. 56,072 for assessment year 1987-88 and Rs. 74,951 for assessment year 1988-89 under section 271B of the IT Act.
5. The assessee appealed against the penalty imposed for each of these two assessment years before the CIT (Appeals), Jamshedpur. The ld. CIT(A), Jamshedpur, by his impugned order dated 22-4-91, which is common for assessment years 1987-88 and 1988-89, cancelled the penalties and allowed the appeal filed by the assessee. The revenue, having been aggrieved, filed second appeals before the Tribunal. Thus, the matter came up before the Tribunal.
6. The ld. Accountant Member, Shri V.K. Sinha, proposed the order dismissing the departmental appeals. He was of the view that there was no reasonable cause for delay in finalisation of the audit reports for the two years under consideration. After hearing both the sides, he held that for assessment year 1986-87, the audit report had been signed on 11-9-87 but no penalty proceedings had been initiated under section 271B thereby he deduced that even, according to the department, there was reasonable cause for delay up 11-9-87 for finalisation of accounts for assessment year 1986-87. He held that the due date for finalisation of accounts for assessment year 1987-88 was 31-7-87 but on that date the closing balance of the previous year was not available, Similarly, the audit report for assessment year 1988-89, as against the due date of 31-7-88, was signed on 2-8-88, since on 31-7-88 the balances for the previous year were not available. He agreed with the submission that after the assessment year 1991-92, things were brought under control since there was no delay either in filing the return or in filing the audit report in assessment year 1991-92. He also gave importance to the fact that for assessment years 1989-90 and 1990-91, though the department in the first instance initiated proceedings under section 271B, later dropped them. From this, he deduced that the department must have been satisfied with the explanations offered and it must have been satisfied with the genuineness of the explanations thus offered. Later, he stated that the assessee firm's struggle started with the illness of the main partner, Shri Mahesh Chandra, who died on 16-11-84 and those troubles were compounded by the illness of the assessee's Chartered Accountant, Shri H.P. Lala, who also subsequently died in assessment year 1990-91. After the death of the main partner as well as the death of the Chartered Accountant, it took time for those left behind to restore the normal balance and the duration depended on the circumstances and the capacity of the persons concerned. He found that normalcy was restored in asst. year 1991-92 and he felt that the duration cannot be called excessive and ultimately he held that there was reasonable cause for the delay in finalization of the audit report for the two years under consideration. The learned Judicial Member, Shri Abdul Razack, did not agree with this finding of the ld. Accountant Member. According to him, the penalties levied under section 271B for both the years require to be confirmed and the appeals of the revenue are to be allowed. Firstly, he held that the provisions of section 271B are absolute and no sooner a default or contravention occurs in complying with the provisions of section 44AB, then the defaulter has to be penalised in the manner laid down therein. Then he went on tracing the development of section 271B and the amendments which occurred in that section. He came to the conclusion that after 10-9-86, it is for the assessee to prove the existence of reasonable cause which is said to have prevented him from discharging the statutory obligations cast on him under section 44AB. The ld. Judicial Member held that the assessee-firm did not discharge the onus or burden of proof which lay upon it under section 273B of the I.T. Act. Commenting upon the letter filed by Shri H.P. Lala, the late Chartered Accountant of the assessee-firm, after extracting the same in extenso the ld. Judicial Member held that the only cause put forward in that letter for causing delay in compliance of obtaining audit reports under section 44AB was the death of a partner on 16-11-84. According to the ld. Judicial Member, Shri H.P. Lala, the later C.A., did not take the blame upon him that owing to his illness audit under section 44AB could not be carried out by him. What the ld. C.A stated in the said letter was that he could not make compliance on 17-1-89 to the show-cause notice dated 14-12-88 of the Assessing Officer. The mention of illness, according to the ld. Judicial member, was taken by the Assessing Officer mistakenly as one of the causes for non-compliance of the mandatory provisions of section 44AB of the Act and the cause of illness of Shri H.P. Lala was even misunderstood by the first appellate authority, and taking this as one of the reasonable causes, penalties for both the years in appeal were cancelled by the first appellate authority. The notice of the Assessing Officer dated 14-12-88 was not produced by the revenue or by the assessee. It is not known whether the Assessing Officer had prescribed a definite date of compliance as 17-1-89. Assuming without admitting, I am unable to know as to what is the significance of prescribing a definite date for compliance. Is it because on 17-1-89 the penalty proceedings would be barred by time ? Further, the letter addressed by Shri H.P. Lala, the Chartered Accountant, does not bear a date. This assumes significance inasmuch as it is not possible to verify whether the reply was filed either before 17-1-89 or after considerable delay much later to 17-1-89. If it was filed before 17-1-89 or soon after 17-1-89, excuse of delay prayed in the letter will have no meaning. The prayer to excuse the delay would have meaning only when there was a great delay caused in submitting a reply to the show-cause notice. Even though it does not bear any date, it would be easier for the revenue to produce the original record whereby it can prove the date on which this letter was received into the record. However, that was not produced and the date when it was received in the record was also not known. Thus, when it is not known whether the reply to the show-cause notice was submitted belatedly or within time or just after 17-1-89, I am not able to find any justification for the ld. Judicial Member to infer that the request to excuse delay pertains only to the late submission of the explanation to the show-cause notice and it does not pertain to obtaining the audit report itself under section 44AB. Further, even according to the Assessing Officer, in the penalty proceedings, Shri H.P. Lala through his letter put forward his own illness as constituting reasonable cause for the delay in obtaining the audit rapport. In the penalty order for assessment year 1987-88, the following is stated :
"In response to the show-cause notice the assessee submitted written explanation stating that the Accountant of the assessee could not be audited in due time due to illness of the assessee's AR who was also employed as auditor and the Accountant of the firm also left for a long time."
Therefore, the fact that the auditor of the assessee was also his Authorised Representative who was laid up with illness, and it was the main cause for not getting the accounts audited in due time, was put forward even in the explanation submitted by the assessee. When that was the understanding of the Assessing Officer himself about the explanation of the assessee, I do not know also what is the reason for the ld. Judicial Member to conclude that the understanding of the Assessing Officer himself is a mistaken understanding. Therefore, this is a case where the ld. Judicial Member wanted to go back on the version of the Assessing Officer himself and hold that the illness of the Chartered Accountant was confined only to the delay caused in replying to the show cause notice but not to the delay in obtaining the audit report itself under section 44AB. I venture to hold that there is no authority in the Tribunal itself to find an error in the order of the Assessing Officer which is prejudicial to the interests of the revenue. That sort of revisionary power is conferred only on the CIT while exercising powers under section 263 and it does not vest with the Tribunal while disposing of the appeal under section 254(1). The notice dated 14-12-88 was a penalty notice calling upon the assessee to explain why penalty should not be imposed under section 271/273B for non-compliance of the provisions under section 44AB, In answer to this penalty notice, Shri H.P. Lala, C. A. of the assessee, filed a reply which is already extracted in the ld. Judicial Member's order. The reply must reasonably be presumed to be in answer to penalty notice in general and it is quite unlikely that the delay, if any, caused in filing the reply itself would be given importance to and answered in preference to the main charge of delay in obtaining the audit report under section 44AB. Thus, in my opinion, there is no adequate material to conclude that the understanding of the Assessing Officer, the first appellate authority as well as the ld. Accountant Member about the contents of the letter of Shri H.P. Lala was an incorrect understanding or a mistaken understanding. I cannot agree with the finding of the ld. Judicial Member that the provisions of section 271B were absolute and that no sooner a default or contravention occurs in complying with the mandate contained in section 44AB of the Act, then the defaulter or the offender has to be penalised in the manner laid down therein. In the case of Asstt. CIT v. Gayatri Traders [1996] 222 ITR 1 (AT) (SB), on the basis of the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, the Tribunal (to which I was one of the Members) held as part of the headnote as follows :
"Levy of penalty under section 271B is not mandatory. The plain language of section 271B provides that if any person fails to get his accounts audited or obtain a report as required under section 44AB, 'the Assessing Officer may direct that such person shall pay by way of penalty'.... The use of the words 'may direct' clearly indicates that the Assessing Officer is vested with the discretion either to impose or not to impose penalty depending upon the facts and circumstances of the case. The words 'without reasonable cause' that existed in section 271B as applicable to the assessment years under consideration are important. If the assessee is able to show a reasonable cause for his failure to comply with the requirements of section 44AB before the due date, no penalty is leviable under section 271B."
Therefore, penalty under section 271B is not automatic but would depend upon the assessee's failure to furnish any reasonable cause for not obtaining the audit report within the specified date under section 44AB. Now, the question would be what is the reasonable cause in not securing the audit report within the specified dates. In this connection, I feel I can safely rely upon the explanation submitted by the assessee even before the CIT(A) as one which can validly be based upon while projecting the case of the assessee before the Tribunal. I feel that all the pleas and arguments advanced before the CIT(A) could as well be advanced before the Tribunal including the Third Member, one of the important pleas raised before the ld. CIT(A) was that the accounts could not be audited because the Accountant of the firm left the firm resulting in delay in finalisation of the accounts, On behalf of the assessee, the details of the dates of return filed right from assessment years 1983-84 to 1991-92 were given as under :
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Asst. Due date Date of filing Delay year of return
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1983-84 30-6-83 12-7-85 24 months 1984-85 30-6-84 12-7-85 12 months 1985-86 30-6-85 6-9-86 14 months 1986-87 30-7-86 11-9-87 13 months 1987-88 31-7-87 16-8-88 12 months 1988-89 31-7-88 20-2-90 18 months 1989-90 31-10-90 14-5-91 18 months 1990-91 31-10-90 13-8-91 10 months 1991-92 31-10-91 4-10-91 Nod delay
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From the above table, it can be seen that the date of filing the income-tax return of assessment year 1987-88 was 16-8-88 and for assessment year 1988-89 it was 20-2-90. Another table is also furnished before the CIT(A) on behalf of the assessee stating the due dates as well as the actual dates of obtaining the audit reports for asst. years 1986-87 to 1991-92 and it is as follows :
Details of Audit report :
Asst. year Due date Date of report 1986-87 31-7-86 11-9-87 1987-88 31-7-87 2-8-88 1988-89 31-7-88 20-10-89 1989-90 31-10-89 8-5-91 1990-91 31-10-90 22-7-91 1991-92 31-10-91 25-9-91
From the two tables furnished above, it can clearly be seen that the income-tax return for asst. year 1987-88 was finalized and filed on 16-8-88 and the audit report for that year was itself prepared on 2-8-88, but for assessment year 1986-87 the income-tax return was filed on 11-7-87; so also the audit report was obtained on 11-7-87. For the assessment year 1987-88, the plea of the assessee was that the accounts were not finalized till 16-8-88 or 2-8-88. Similarly, for assessment year 1988-89, the accounts were not finalized till 20-10-89 on which date the audit report was obtained. Soon after the audit reports for asst. years 1987-88 and 1988-89 were obtained, without any delay, the returns were filed. It is the plea of the assessee strongly urged before me that the accounts for the earlier year have to be completed before the accounts for the subsequent year could be taken. If we again refer to the tables mentioned above, we will notice that for assessment year 1986-87 the income-tax return was filed only on 11-9-87 and for assessment year 1987-88 the return was filed on 16-8-88 and for asst. year 1988-89 it was filed on 20-2-1990. The learned counsel for the assessee relied upon the Allahabad High Court decision in CIT v. S.R. Parmanand Chichar [1995] 212 ITR 536 at page 538/78 Taxman 361 where the Hon'ble High Court held the following :
"We find that for the assessment year 1978-79, the return was filed on March 2, 1981, that is to say, within two days of filing of the return for the previous year, namely, 1977-78. The Tribunal found that the accounts for the earlier year have to be completed before the accounts for the subsequent year could be taken up. It is on these facts that the Tribunal further found that the delay in completing the accounts for this year shows reasonable cause. Hence, the penalty imposed by the assessing authority was cancelled. We find no error in the order."
After going through the decision and after applying the same to the facts of the present case, I am unable to find how the ratio of this decision comes to the rescue of the assessee. In my understanding, the decision would come to the rescue of the assessee only when the accounts of the earlier assessment year are finalised, and soon thereafter if the accounts of the impugned assessment year are also finalized, then it may perhaps come to the rescue of the assessee. But, in the facts of this case, the return for assessment year 1986-87 was filed on 11-9-87, long before the return for assessment year 1987-88 was filed. Similarly; for asst. year 1987-88, the return was filed on 16-8-88, whereas the return for assessment year 1988-89 was filed on 20-2-90, long after the return for assessment year 1987-88 was filed. So, there is no question of the accounts of assessment year 1987-88 being closed on the heels of the accounts being closed for the assessment year 1987-88 or 1988-89. Therefore, the Allahabad High Court decision cited by the learned counsel for the assessee does not come to the help of the assessee. The learned CIT(A) in his impugned order stated that late Shri H.P. Lala, who was the Chartered Accountant of the assessee-company, addressed letters to the ITO and photostat copies of the letters were filed before him. Commenting upon those letters, the learned CIT(A) held as follows :
"In these letters, the C.A. Shri H.P. Lala has admitted that the compliance could not be made in time due to his illness."
Therefore, perhaps, the late Chartered Accountant must have addressed several letters to the ITO and also all of them pointed out that audit was not completed within the specified dates relevant to assessment years 1987-88 and 1988-89 mainly due to his illness. I agree with the contention that it would not be easy to take away the work from the auditor and entrust it to another auditor so easily. Therefore, from the facts of this case, I am unable to find any deliberate or intentional inaction on the part of the assessee to comply with the requirements of section 44AB before the specified dates. The delay caused was only due to the illness of the auditor and it constitutes reasonable cause. The auditor unfortunately died in assessment year 1990-91. The illness of the auditor and his ultimate death constitutes reasonable cause for the assessee not being able to comply with the requirements of section 44AB within the specified dates. I don't agree with the learned Judicial Member when he states that the burden of proof regarding the existence of reasonable cause as cast upon the assessee-firm was not at all discharged. I also do not agree that except the ipse dixit of the assessee no more evidence is led even at the second appellate stage to establish reasonable cause. I hold that in view of the admission of both the Assessing Officer as well as by the CIT(A) that the C. A. of the assessee-firm was ill and that was put forward as reasonable cause by the assessee from the very beginning, it constitutes reasonable cause. A fact admitted need not be proved. Therefore, I hold that sufficient facts were already on record to prove the reasonable cause put forward by the assessee from the beginning.
In the result, I entirely agree with the learned Accountant Member that this is a case where the penalties should be deleted. In answer to the point of reference, I hold that the assessee has proved under section 271B existence of reasonable cause for failure to get the accounts audited for the two years under appeal and, therefore, the assessee is not liable for penalties for both the years, i.e., asst. years 1987-88 and 1988-89 under section 271B of the Act.
Now, the matter should go back to the Division Bench who should decide the issue according to the majority view on the subject of reasonable cause.