Income Tax Appellate Tribunal - Kolkata
Ahmed Hassan And Co. vs Income-Tax Officer on 29 October, 1992
Equivalent citations: [1993]44ITD669(KOL)
ORDER
D.S. Meenakshisundaram, Vice President
1. This is an appeal against the order of the DC (Appeals) sustaining a penalty of Rs. 20,373 under Section 271B of the Income-tax Act, 1961.
2. The appellant is a partnership firm carrying on business in lungies. Its head office is at Calcutta which is the selling centre, whereas it has a branch at Madras which is essentially a purchasing centre. The assessee also manufactures lungies to some extent but most of its transactions are in direct purchases and sales. The assessment year involved is 1988-89 for which the previous year ended on 31-3-1988. For this year the appellant-firm filed its return of income on 28-7-1988 declaring a taxable income of Rs. 82,910. After examining the books of account which were produced in support of its return, the 1TO completed the assessment under Section 143(3) of the IT Act on 24-5-1989 determining the appellant's total income at Rs. 89,830. Along with this order, on the same date the ITO also passed an order under Section 27 1B of the Act imposing a penalty of Rs. 75,545 which he subsequently rectified under Section 154 of the Act and reduced the penalty to Rs. 25,182. According to the ITO as the appellant's sales turnover amounted to Rs. 50,36,345 it ought to have got its accounts audited as required by Sections 44AB of the Act and that the reasons stated by the appellant in reply to the show-cause notice were untenable and that there was clear contravention of the provisions of Section 44AB of the Act which called for a penalty under Section 271B.
3. When the matter went before the DC (Appeals), he upheld the levy of penalty under Section 271B of the Act agreeing with the decision of the ITO. However, he was of the view that the total sales turnover of the appellant amounted to Rs. 40,74,706 and that, therefore, the penalty leviable could only be Rs. 20,373 and not Rs. 25,182 imposed by the ITO thus resulting a relief of Rs. 4,809 to the appellant. The appellant feels aggrieved by this order of the DC (Appeals) and has come up in further appeal to the Tribunal.
4. Shri N. Subramanian, the learned authorised representative of the appellant, submitted that the computation of the sales turnover of the appellant at Rs. 40,74,706 by the DC (Appeals) was incorrect as the amount of total sales as per the accounts of the appellant-firm was Rs. 39,07,709 only which was less than the limit of Rs. 40 lakhs specified in Section 44AB of the Act and that, therefore, the revisions of Section 44AB would not be applicable on the facts of the present case. In support of the submissions the learned authorised representative pointed out that as per the Trading and Profit & Loss Account of the Calcutta head office, the total sales at Calcutta amounted to Rs. 37,45,700. Similarly the sales of lungies at Madras branch of the appellant amounted to Rs. 1,62,008. Together, these two figures represented the total sales of Rs. 39,07,708 and that the DC (Appeals) was not justified in taking a higher figure of Rs. 40,74,706 by including the two sums of trade discounts allowed to customers at the Calcutta head office amounting to Rs. 86,016 as well as the cost of the raw materials supplied to Master Weavers at the Madras branch in yarn account, amounting to Rs. 86,981 as part of the sales turnover. Shri Subramanian argued that the first amount of Rs. 86,016 represented Trade discount allowed at various rates ranging from 2% to 6% on sales to customers at the Calcutta office, that these amounts were deducted from the sale bills and were separately recorded in the discount account in the ledger of the appellant as could be seen from the ledger folios Nos. 517 to 526. He submitted that such trade discounts were allowed at rates of 2% to 6% as per the trade custom depending upon the sales made to particular customers and that the same could not be treated as part of the sales of the assessee. The learned authorised representative submitted that the DC (Appeals) had not correctly appreciated the entries in the books of account regularly kept in the ordinary course of its business and erred in his conclusion that this claim of the appellant was not supported by any entry in the record such as cash memos or bill memos. Sri Subramanian contended that the DC (Appeals) was not right in assuming that this debit of Rs. 86,016 was made with the sole object of reducing the turnover below the sum of Rs. 40 lakhs with the intention to evade tax audit and that this was a deliberate act on the part of the appellant to contravene the provisions of Section 44AB of the Act. Regarding the sum of Rs. 80,981 shown under the head sales to Master Weavers in the Madras branch, the learned authorised representative explained that this amount represented the cost of yarn and other raw materials supplied by the appellant firm to Master Weavers for manufacture of lungies, that it was a misnomer to describe this amount as sales to Master Weavers, that there was no question of any sales to Master Weavers of these materials who took them from the assessee and brought back finished material viz., lungies after weaving them on their handlooms in their houses. The learned authorised representative submitted that if these two amounts are excluded or even if one of these two amounts viz., Rs. 86,016 or Rs. 80,981 were deducted from the sales figure of Rs. 40,74,706 the total sales of the assessee would be less than Rs. 40 lakhs and the assessee would not be hit by the provisions of Section 44AB of the Act.
5. Sri Subramanian next submitted that the appellant-firm is a regular assessee whose income-tax affairs were being looked after by a reputed firm of Chartered Accountants at Madras for the past eight years and in fact even in this year the assessee firm had submitted its statements on Trading and Profit & Loss Account as certified by the said firm of Chartered Accountants, as could be seen from the statements filed in the assessee's compilation and that if really the assessee's total sales exceeded the limit of Rs. 40 lakhs, the said firm of Chartered Accountants would have certainly advised the assessee to comply with the provisions of Section 44AB of the Act and that since the assessee's sales turnover did not exceed Rs. 40 lakhs, the appellant's Chartered Accountants advised him that the provisions of Section 44AB would be inapplicable to its case and there was no need for it to submit a tax audit report in the form prescribed under Section 44AB of the Act. The learned authorised representative argued that since the appellant-firm had acted on bona fide professional advice, the appellant could not be held to have committed a default in complying with the provisions of Section 44AB. He argued that all these facts and circumstances would constitute reasonable cause for the failure of the appellant-firm to comply with the provisions of Section 44AB within the meaning of Section 271B read with Section 273B of the Act and that, therefore, the appellant was not liable to any penalty under Section 271B of the Act. Sri Subramanian, therefore, argued that the departmental authorities erred in imposing the penalty in question and that the same should be cancelled.
6. Sri S.C. Chatterjee, the learned departmental representative opposed these contentions and argued on behalf of the Revenue by relying on the findings of the DC (Appeals) and pointed out that the facts pleaded by the appellant would not constitute reasonable cause for the default committed by the appellant and that, therefore, the penalty was rightly levied He further argued that the sum of Rs. 86,016 which was described as trade discount was not trade discount but really a cash discount and hence it had to be included in the sales turnover of the appellant. He further, argued that the amount of Rs. 80,981 shown as sales to Master Weavers at Madras appearing in the yarn account was rightly included in the sales turnover of the appellant and that there was no justification for excluding the same. He, therefore, contended that the penalty as retained by the DC (Appeals) should be upheld.
7. I have carefully considered the submissions urged on both the sides in the light of the materials placed before me as well as the case law relied on by the assessee's learned counsel in his written submissions.
8. It is seen from the statements of Trading and Profit & Loss Account dated 31-3-1988 for the assessee's head office and Madras branch, copies of which are available in the assessee's compilation, that the assessee's accounts were examined and certified by a firm of Chartered Accountants at Bangalore and that the said statements were also filed along with the return of income by the appellant. A perusal of the assessment order dated 24-5-1989 shows that the assessing officer had practically accepted the assessee's books of account as well as the statements prepared therefrom as certified by its auditors, as correct, as the only adjustment made by the assessing officer was the disallowance of a further sum of Rs. 5,000 out of miscellaneous and general expenses over and above the sum of Rs. 4,500 disallowed by the assessee in the computation sheet. The explanation of the appellant-firm that it has acted bona fide on professional advice of its Chartered Accountants in regard to submission of the tax audit report as required under Section 44AB for the year under appeal, seems to be true and probable because if the learned Chartered Accountants felt that the assessee's case would fall within the mischief of Section 44AB, they would have certainly advised it to submit such report in the prescribed form and also would have prepared such tax audit report as required under Section 44AB of the Act for submission along with the return, as the assessee is their client for a period of more than eight years.
9. In the case of Lachman Chaturbhuj Java v. R.G. Nitsure [1981] 132 ITR 631 the Bombay High Court held that it would not be unreasonable to expect an assessee who engages a chartered accountant to assist him in tax matters to be advised and guided by him and if the assessee acts under the advice and guidance of the chartered accountant and does not file a return, it cannot be said that the failure to furnish his return within the prescribed time is without reasonable cause. In the case of CWT v. Chiranjilal Agarwala [1983] 140 ITR 687, the Orissa High Court held, where the assessee for the first time is assessed to wealth tax and acts on the advice of his lawyer in the matter of filing of his return, the explanation of delay based upon such advice is acceptable. Their Lordships followed their earlier decision in CWT v. Ramniklal D. Mehta [1982] 136 ITR 729 (Ori.).
10. In my view these decisions of the Bombay and Orissa High Courts fully support the assessee's case in the present appeal.
11. Regarding the other contention of the learned authorised representative that the "sales" or "turnover" of the appellant did not exceed the limit of Rs. 40 lakhs but amounted to Rs. 39,07,708 only. I am inclined to accept the same as correct. There is no dispute before me that the sales at Calcutta head office as shown in the Trading and Profit & Loss Account amounted to Rs. 37,45,700 only. Similarly, the sales at the branch office at Madras also amounted to Rs. 1,62,008 only. Together these two figures amount to Rs. 39,07,708 which is below the limit of Rs. 40 lakhs as specified in Section 44AB of the Act for the purpose of tax audit.
12. It is, however, argued on behalf of the Revenue that the discount amount of Rs. 86,016 should not be excluded from the sales as it was only cash discount and not trade discount that was allowed by the assessee. I am unable to agree with these contentions of the Revenue. I have looked into the assessee's ledger in which discount account is maintained at L.F. 517 to 526. The entries in this account are supported by discounts allowed from the bills as could be seen from the counterfoils of the bills at rates ranging from 2% to 6%. Such discounts are allowed in certain cases in the sales bills themselves or at the time when payment were made by the parties to the assessee. This discount amounts are properly recorded in the accounts of the assessee and no discrepancy has been found by the Assessing Officer in this account at the time of completing the assessment. As stated already the only adjustment made in the assessment by the AO was only in respect of the mess expenses wherein he disallowed a further amount of Rs. 5,000 and nothing more. Therefore, the observations of the DC (Appeals) regarding this discount amount of Rs. 86,016 as a deliberate attempt made by the assessee to reduce its turnover are totally unjustified and uncalled for.
13. Similar is the position in regard to the sum of Rs. 80,981 representing the cost of yarn and other materials supplied by the assessee-firm to Master Weavers for manufacture of lungies. It is a misnomer to call them as sales to Master Weavers. It is a well-known fact that Master Weavers collect yarn and weave them into cloth and bring them back to suppliers and receive their wages for weaving after delivering their final products to the suppliers of such yarn. This is a well-known trade practice prevailing in the hand-loom textile industry which is carried on as a cottage industry throughout our country. Therefore, the sum of Rs. 80,981 does not represent any sales made by the assessee to Master Weavers but represents the value or cost of yarn supplied by the assessee to the Master Weavers for manufacturing of lungies which it receives back from them. I therefore, agree with the assessee's learned authorised representative that this sum of Rs. 80,981 should not be included in the "sales" or "turnover" for the purpose of Section 44AB of the Act.
14. As rightly contended by Sri Subramanian, even if one of these two amounts viz., the discount of Rs. 86,016 or the cost of yarn supplied to Master Weavers of Rs. 80,981 was to be deducted from the total sales figure of Rs. 40,74,706, it would be below Rs. 40 lakhs and that the provisions of Section 44AB of the Act would be inapplicable to the facts of the present case.
15. In the case of B.P. Bajoria v. CIT[1982] 135 ITR 734 the Calcutta High Court has held that, whether in a particular case there is sufficient cause for the failure to file a return in time and as such penalty should be imposed or not, is primarily a question of fact.
16. When I examine the facts of the present case, in the light of this decision of the Calcutta High Court and the decisions of the Bombay and Orissa High Courts referred to above, it would be seen that there was reasonable cause for the assessee within the meaning of Section 271B of the Act for not filing the tax audit report as required under Section 44AB of the Act. At the worst, it would only be a technical or venial breach of the provisions of Section 44AB as the assessee's accounts have been accepted by the AO in the assessment order as discussed above on the basis of the statements prepared from the accounts regularly maintained by the assessee and as certified by its Chartered Accountants. In the case of Ramniklal D. Mehta (supra) the Orissa High Court has held that it is not obligatory that penalty should be levied in each and every case of default; that an assessee is visited with penalty when his conduct is contumacious, or there is a wilful disregard of legal obligations; that the WTO could on a given set of facts, condone the delay by not penalising the assessee and that such discretion with the ITO can be exercised by the appellate authorities also. Their Lordships of the Orissa High Court have followed the ratio of the decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [ 1972] 83 ITR 26. In my view the ratio of this decision would be applicable in this case also. Respectfully following this decision, I hold that there is no default committed by the appellant within the meaning of Section 271B of the Act, as there was reasonable cause for the assessee for not complying with the provisions of Section 44AB of the Act within the meaning of Section 271B of the Act. Accordingly I cancel the penalty of Rs. 20,373 retained by the DC (Appeals), which shall be refunded to the appellant if already collected from them.
17. In the result, the appeal is allowed.