Income Tax Appellate Tribunal - Allahabad
U.P. Nalkoop Nigam Ltd. vs Deputy Commissioner Of Income-Tax on 24 December, 1998
ORDER
I.S. Verma, J.M.
1. In this appeal, the assessee has objected to the order of CIT(A), dt. 30th June, 1994 by way of following grounds :
"1. That the learned CIT(A) erred on facts and in law in confirming the penalty of Rs. 1,00,000 under s. 271B of the IT Act, 1961.
2. That the learned CIT(A) erred on facts and in law in not considering auditors report, dt. 21st December, 1989, issued on Form No. 3CA and filed along with the return of income.
3. That the penalty confirmed is very excessive, contrary to facts, laws and principles of natural justice."
2. We have heard the assessee's counsel as well as learned Departmental Representative but before considering the rival submissions, we think it necessary to extract the brief facts relating to the issue which are necessary for disposal of the dispute and as revealed from the records, as under :
3. The assessee is a company registered under the Companies Act. Return based on estimate along with audit report in Form 3CA which was based on unaudited accounts for the asst. yr. 1989-90 was filed on 29th December, 1989 but audited balance sheet, trading account and P&L A/c etc. were not furnished. Original assessment under s. 143(3) was completed on 14th January, 1992 when the penalty proceedings under s. 271B were also initiated but as a result of appeal by the assessee, the said assessment was set aside for making a de novo assessment as per CIT(A) order dt. 17th May, 1993. The fresh assessment in consequence upon setting aside of the original assessment by the CIT(A) was completed on 19th December, 1995 but in the meantime the AO, as per his order dt. 22nd January, 1993, imposed the penalty under s. 271B which was confirmed by the CIT(A) also.
4. We have heard the assessee's counsel as well as the learned Departmental Representative. The various pleas advanced by the assessee's counsel are listed as under :
(a)(i) The first plea of the assessee's counsel was that since the original assessment order, dt. 14th January, 1992, in which the penalty proceedings under s. 271B were initiated, was set aside by the CIT(A) for making a de novo assessment, the penalty proceedings under s. 271B also got cancelled or set aside automatically and, therefore, on 22nd January, 1992, i.e., the date when the penalty has been imposed, no penalty proceedings could be said to have been pending before the AO and consequently the penalty order passed on 22nd January, 1993, is illegal, bad in law and non est. In support of the submission, the counsel has relied on the following decisions :
(i) Dr. Murari Mohan Mukherjee vs. Kanai Lal De & Ors. (1988) 171 ITR 482 (Cal);
(ii) P. Jayappan vs. S. K. Perumal, ITO (1984) 149 ITR 696 (SC); and
(iii) 99 (3) Taxation 175 (Del)
(ii) The other plea advanced by the assessee's counsel was that since no penalty proceedings under s. 271B were initiated during the course of fresh assessment completed on 19th December, 1995, there was no question either of levying any penalty or sustaining the penalty order passed on 22nd January, 1993.
(b) The second plea advanced by the assessee's counsel was that since the assessee is a Government company, its accounts are liable to statutory audit, as required under s. 619(2) of the Companies Act, by the auditors to be appointed by the Government. and the assessee has no right to appoint private auditors and get the accounts audited. In assessee's case, since the Government had not appointed statutory auditors before the prescribed date for the purpose of s. 44AB, the assessee had a reasonable cause for not complying with the provisions of s. 44AB. To support the bona fide of the assessee, the assessee's counsel submitted that though its account's were to be audited by the auditors, to be appointed by the Government, but still the assessee got an audit report in Form 3CA from a private auditor and filed the same along with the return furnished under s. 139(1) and, therefore, first of all there was no default in complying with the provisions of s. 44AB and, in any case, if there was any, it was due to reasonable and sufficient cause in the form of delay by the Government in appointing the Government auditors.
(c) The third plea advanced by the assessee's counsel was that under s. 44AB, r/w r. 6G, there is no requirement for furnishing the audited balance sheet or trading account or P&L a/c and, therefore, an audit report in Form 3CA can be filed even without audited accounts. Consequently, non-furnishing of audited accounts cannot be a ground for imposing the penalty.
(d) The fourth plea advanced was that the imposition of penalty is neither mandatory nor automatic and it is the Revenue which should prove the existence of mens rea or mala fide intention on the part of the assessee. Since Revenue has failed to prove it and the assessee had tried to comply with the requirement by furnishing a Form 3CA, it cannot be said that there was guilty intention or mala fide act on the part of the assessee. In view of these facts, he pleaded that levy of penalty is not proper. In support of this plea, the assessee's counsel has relied on the decision in following cases :
(i) Imran-ur Rahman Kidwai vs. ITO (1997) 58 TTJ (Del) 537 : (1997) 62 ITD 33 (Del);
(ii) Prabhu Sahu vs. ITO (1995) 83 Taxman 177 (Jp)(Mag); and
(iii) Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC).
(e) The first argument advanced by the assessee's counsel was that if the return was without audit report, then it was to be considered as defective one and the AO should have issued a notice under s. 139(9) allowing the assessee an opportunity to rectify the defect of non-furnishing of audit report or audited accounts. The Revenue has not allowed the assessee an opportunity to rectify the defect; hence the penalty is arbitrary and is liable to be cancelled. For this proposition, he relied on the Tribunal's order (1997) 58 TTJ (Del) 537 : (1997) 62 ITD 33 (Del) (supra) and Board's Circular No. 274 dt. 23rd June, 1980 reported as (1981) 131 ITR 57 (St).
(f) The sixth plea taken by the assessee's counsel was that before imposition of penalty, the Revenue must have apprised the assessee of the precise charge for which it was being penalised and since the Revenue has failed to do so, as is clear from the show-cause notice dt. 25th November, 1992, placed at p. 5 of the assessee's paper book, which is absolutely silent regarding the nature of default, it is not known whether a penalty is being imposed for not getting the accounts audited or for not procuring the audit report or for not furnishing the audit report; and, therefore, the penalty imposed on the basis of such a notice cannot be sustained in law. According to him, the show-cause notice is a vague notice. In support of this proposition, the assessee's counsel relied on the decision reported in (1996) 84 Taxman (Delhi) SMC Maganine. (supra).
(g) The seventh plea advanced by the assessee's counsel was that the penalty order is barred by time.
(h) The 8th plea advanced by the assessee's counsel was that in view of the Circular No. 387 dt. 6th July, 1984 (copy placed at p. 8 of the paper book), in which the purpose of introduction of the provisions of s. 44AB has been explained, when the assessment could be completed without the audit report, there was no justification for any penalty under s. 271B for failure to furnish the audit report.
5.(a) The learned Departmental Representative, in addition to supporting the order of the CIT(A), submitted that :
(i) the penalty order is not barred by time;
(ii) the penalty proceedings under s. 271B being independent of the assessment, setting aside of the assessment cannot culminate is setting aside or cancellation of penalty proceedings which remains quite alive and have to be disposed of independent of the completion of the de novo assessment;
(iii) since the default in non-compliance to the provisions of s. 44AB is clear, there was no necessity of issuing a notice under s. 139(9).
According to him, since the assessee had not met the requirement of s. 44AB within the specified period, he could not have rectified the defect even if an opportunity was given, because the audit report in that case would have been of a date later than the time prescribed under s. 44AB.
(b) Since the accounts were not audited either under the Companies Act or under the IT Act by the end of specified date, the default was well established and the penalty was justified.
(c) Since the assessee was not barred or prohibited from appointing a private auditor, when in fact it had done so but only for the purpose of seeking report in Form 3CA and that too based on unaudited accounts, had the assessee bona fide intention to meet his obligation towards the requirement of the income-tax, procured an audit report and furnished the same in time after engaging private auditor. Assessee's failure to meet the requirement of s. 44AB cannot be saved on the ground that there was delay on the part of the Government in appointing the Government auditors.
(d) Government failure to appoint statutory auditor cannot be reasonable ground because the assessee was not barred from engaging a private auditor.
(e) In the light of the above submissions, the learned Departmental Representative submitted that the assessee's failure to comply with the provisions of s. 44AB was without any reasonable cause. Consequently, penalty has been rightly imposed.
6. We have considered the rival submissions, facts and circumstances of the case, legal provisions as well as various decisions relied upon by the parties and after thoughtful consideration of the same are of the opinion that there is no force in any of the assessee's submissions because of the following reasons.
7. It is now settled law that assessment proceedings and the penalty proceedings are quite different and distinct type of proceedings, rest on different footing and leads to different consequences. It, therefore, cannot be pleaded or held that once the assessment was set aside for de novo purpose, every kind of penalty proceeding initiated during the course of assessment proceedings will get automatically cancelled or set aside. Under the Income-tax law, there are two types of penalty - one type of penalty, such as penalty for delayed furnishing of return as provided under s. 271(1)(a) or the penalty for concealment of income as provided under s. 271(1)(c), or penalty for non-payment or deferment of payment of advance tax, as provided under s. 273 are based on the quantum of assessed tax which, in turn, is based on the quantum of assessed income and the second type of penalty, such as, penalty imposable under ss. 271A, 271B, 271BB, 271C, 271D, 271E, 271F, 272A, 272AA and 272B; are based on independent nature of default and have nothing to do either with the assessed tax or assessed income.
8. In view of these distinct type of penalties, being based on different aspects of the case we are of the opinion that what follows from the hierarchy is that the penalties which are based on assessed income or assessed tax can only be said to be not leviable till fresh assessment order is passed-cannot be said to be automatically having been cancelled or set aside as a result of set aside of the assessment order, and it is so because so far as the assessment remains pending, there is no assessed income/tax and consequently the penalty, which is based on assessed income/tax, cannot be computed, but this is not true in case of penalties which are not based on assessed income or tax. What follows from the above is that the setting aside of assessment order for de novo purpose do not automatically result in setting aside or cancellation of any type of penalty except for the fact that penalties which are based on assessed income/tax cannot be imposed till completion of the de novo assessment. In view of this legal position, we are of the opinion that the penalty proceedings having been once properly initiated not only remain in force even after the setting aside of the assessment for de novo purpose but excepting the penalties which are based on assessed income/tax, can be finalised also.
9. As far as assessee's case is concerned, admittedly, the penalty proceedings under s. 271B, which are not based on assessed income/tax were properly initiated at the time of completion of original assessment on 19th December, 1989 and, therefore, in our opinion, the same, in view of foregoing discussions and the provisions of law, validly remained in force even after the order of CIT(A), setting aside the assessment for de novo completion and, therefore, the assessee's contention fails.
10. Without prejudice to the above, even if for the sake of argument it is assumed (not admitted) that these type of penalty proceedings also get set aside or cancelled, as soon as the assessment is set aside, then also as far as assessee's case is concerned, the contention cannot be accepted because in assessee's case, penalty proceedings initiated on 14th January, 1992, were completed on 22nd January, 1993 whereas the assessment was set aside by the CIT(A) only on 17th May, 1993, i.e., after the penalty proceedings stood finalised.
11. The decisions relied upon by the assessee's counsel are distinguishable on facts and are not applicable to the assessee's case. However, before shifting to assessee's next plea, we would like to consider the decision of Hon'ble Calcutta High Court in the case reported in (1998) 171 ITR 482 (Cal) (supra), relied upon by the assessee.
12. In the case before the Hon'ble Calcutta High Court, the issue was relating to the prosecution proceedings under s. 277 of the IT Act, which were advanced on the ground that since the assessee had not disclosed income, it had committed the offence of "false statement in verification" by verifying the return of income as true and correct. The CIT(A) as well as the Tribunal had deleted the addition of Rs. 52,300 out of addition of Rs. 65,000 and had retained only an ad hoc addition of Rs. 5,000. The Revenue's appeal against the deletion by the CIT(A) was dismissed by the Tribunal.
13. It was in view of these facts that the Hon'ble High Court held that as the complaint filed before the Chief Metropolitan Magistrate, on the basis of findings in the original assessment which was non-existent [as modified by the CIT(A)], no cognizance can be taken on the basis of such non-existent material.
14. From this decision of the Hon'ble High Court, what we have been able to understand is that the congnisance of the complaint was not allowed to be taken because after the amendment of the addition aspect of the income in the assessment order by the CIT(A), the basis for the complaint was found to be non-existent.
15. The aforesaid decision is, therefore, not applicable to the assessee's case because, as already held by us, the proceedings under s. 271B not being based on the assessed income or tax, cannot be taken as set aside or cancelled automatically.
16. Similarly the other two decisions are distinguishable on facts and are not applicable to the present case.
17. Coming to the assessee's next plea relating to the reasonable cause, we are unable to accept the same because the assessee has not been able to refer to any provisions of law - in spite of repeated queries from the Bench; which may show that the assessee was forbidden or debarred or prohibited from appointing a private auditor. On the contrary, when in actual it had appointed a private auditor but only for the purpose of securing a Form 3CA and not for getting the accounts audited, we are surprised as to how an audit report in Form 3CA was given by the private auditor without audited accounts. Why the assessee did so is best known to it as it has not spelt out any circumstances for engaging the private auditor for a limited purpose. On one hand the assessee is taking the plea that it was difficult for the assessee to engage a private auditor but, on the other hand, has secured Form 3CA from a private CA.
18. Since the assessee has failed to bring any evidence in support of its claim that it was barred from appointing a private auditor, we are unable to accept the assessee's plea that failure on the part of the Government to appoint statutory Government auditors may be taken as reasonable and sufficient cause for not complying with the provisions of s. 44AB. Contrarily, the assessee's action itself for having appointed a private auditor leads to the inevitable conclusion that the assessee was playing a hide-and-seek game and was blowing hot and cold at the same time which has no sanction of the law. The assessee's plea is, therefore, not tenable and we hold that assessee was free to engage a private auditor for meeting its obligation relating to the complying to the provisions of IT Act and having failed to do so, it is the assessee and the assessee only who can be said to be responsible and not the State Government. The assessee's plea of reasonable cause is, therefore, rejected.
19. The assessee's next plea that it was not obligatory for it to furnish the audited balance sheets as there is no provision under s. 44AB and r. 6G. We have only to say that it may not be necessary but the penalty has not been imposed for the failure to furnish the audited accounts. The penalty has been imposed on the ground that the assessee's accounts were not audited before the specified date either under the Companies Act or under the IT Act, as provided under s. 44AB and since the assessee has neither contradicted nor has produced any material to counter the findings, it stands established that accounts of the assessee was not audited under any law before the specified date and the penalty imposed on this ground cannot be said to be unjustified. The assessee's failure to furnish the audited accounts may not be relevant for imposing the penalty under s. 271B but it leads to presume that the assessee's accounts were not audited within the statutory period. Had it been not so, the assessee could have easily submitted the audited accounts. By not furnishing the audited accounts and furnishing Form 3CA which is not based on audited accounts, the assessee cannot claim that failure to furnish audited accounts is not relevant for bringing home the offence of non-compliance to provision of s. 44AB. The assessee's plea, therefore, is of no relevance.
20. Coming to the assessee's next plea relating to the existence of mens rea, first of all we are of the opinion that the doctrine relating to the mens rea is applicable where the guilty state of mind is necessary for bringing home the default and not where either the law is clear or the default/offence is clear. Even otherwise, the assessee's own action by way of appointing a private auditor only for securing a Form 3CA without audited accounts and not getting the accounts audited, itself, speaks of the assessee's mind. Had the assessee no guilty mind, then what prevented it from getting the accounts audited by the private auditor ? The assessee's action for appointing a private auditor only to procure Form 3CA and that too based on unaudited accounts clearly confirms that the assessee was well aware of its obligation under the Income-tax law and it was intentionally and knowingly that the assessee preferred to befool the Revenue Department by furnishing Form 3CA without getting the accounts audited. Had the assessee no knowledge or not aware of its obligation, then it should not have appointed the private auditor at all. As far as the case laws relied upon by the assessee are concerned, we are of the opinion that in the peculiar facts and circumstances, of the present case, those decisions do not advance the assessee's case and are not applicable.
21. As regards to the assessee's submission relating to the non-issue of a notice under s. 139(9), we are of the opinion that the assessee's failure to get the accounts audited, to obtain the audit report before the specified date and not furnishing of the audit report do not render a return of income, which otherwise is complete in accordance with the provisions of s. 139/142/147/148 and rules made thereunder, a defective one. After considering the provisions of s. 139/142/147/148, it is gathered that the only requirement for a valid return is that the return should be in the prescribed form, should have been verified in the prescribed manner and should contain such other particulars as may be prescribed under the relevant rules. Provisions of r. 12 prescribe the type of form and the manner of verification whereas provisions of r. 12A prescribe the documents to be filed if the return is prepared by the authorised representative and under this rule also, it is only the authorised representative who is under obligation to furnish the particulars of accounts, statements or documents supplied to him by the assessee for the preparation of the return and where the authorised representative has carried any examination of the accounts for the purpose of preparation of return, then a report in support of such examination. It is, therefore, clear that neither the provisions of Income-tax nor the rules made thereunder prescribe that the return not accompanied by the audit report or for failure to furnish the audited accounts or return furnished without getting the accounts audited before the specified date or procuring the audit report, shall be defective return. Even the Form 2 which is prescribed for all assessees except companies having income from business profession do not have such a requirement. We are, therefore, of the opinion that there was no question of issuing a notice under s. 139(9).
22. As regards to the Board's circular, we are of the opinion that the circular No. 274 was applicable only in those cases where the assessee had got his accounts audited and had procured the report of audit before the prescribed date but failed to file the same along with the return, which could have been proved if the audited accounts were accompanying the return. If the return was not accompanied by the audited accounts and was based on the unaudited accounts, then there was no question of omission to enclose the audit report-meaning thereby, that the circular was only to help the assessees in whose case there was omission only for furnishing the audit report and not failure to get the accounts itself audited. In assessee's case, since the return was not accompanied by the audited accounts, rather was an estimate basis, the question of omission for furnishing the audit report could not have been entertained by the AO and the return could not be considered as defective. Consequently, the circular relied upon by the assessee is also of no use to it. Even otherwise, it is now settled that a circular which is contrary to the main provisions of law is neither binding on the IT authorities nor can be taken note of by the Tribunal or the Courts and since, as stated above, there was no such provision which may entail a return based on estimate and not accompanied by the audit report as defective, the circular cannot make such a return as defective. We, therefore, are of the opinion that there was no necessity of issuing a notice under s. 139(9) of the Act.
23. Without prejudice to the above, even if for the sake of argument, we assume that there was such a requirement, then also the failure on the part of the AO to issue a notice under s. 139(9) has caused no prejudice to the assessee because the assessee, admittedly, had neither got the accounts audited nor had procured a tax audit report before the specified date and, therefore, what at the best the assessee could do after issuance of a notice under s. 139(9) was to bring a delayed audited accounts and belated audit report which was otherwise also not relevant for absolving the assessee from the default of non-compliance with the provisions of s. 44AB. In view of foregoing discussion, the assessee's plea is not tenable.
24. As regards to the assessee's plea that the show-cause notice is vague, we are of the opinion that the show-cause notice dt. 25th November, 1992, placed at p. 5 of the assessee's paper book clearly specifies the default as that under s. 271B and since the assessee was under obligation to fulfil all the 3 requirements prescribed under s. 44AB and had failed to fulfil all of them, i.e. assessee had neither got its accounts audited nor had procured a report of such audit before the prescribed date and also had not furnished a tax audit report along with the return. - Form 3CA based on unaudited accounts filed along with the return based on estimate cannot be said to be a tax audit report as required under the law, it was not necessary to specify all the three defaults individually because specific mention of s. 271B clearly took into its ambit all the three kinds of defaults and since the assessee has been held to have not complied with any of the requirements, the show-cause notice was valid under the law.
25. Even otherwise, the purpose of the show-cause notice is only to apprise the assessee of the default and give opportunity so that it can defend itself properly. As far as assessee's case is concerned, the assessee having tried to defend itself fully against all the three requirements, it is not justified on its part to plead that the show-cause notice was a vague notice. The case laws relied upon by the assessee are, therefore, distinguishable on facts.
26. Coming to the assessee's next plea that the penalty order is barred by time, or the plea that when the assessment could be completed without audit report, then there was no justification for imposing the penalty, we are of the opinion that none of these plea is sustainable in law as well as in the facts and circumstances of the case because, as far as limitation is concerned, the penalty, as provided under s. 275(1)(a), in a case where the assessment order was subject-matter of appeal before the CIT(A), could be imposed within the expiry of the financial year in which the proceedings in the course of such action for imposition of penalty had been initiated or six months from the end of the month in which the order of Dy. CIT(A) or Tribunal was received by the Chief CIT or CIT, whichever was later. As far as assessee's case is concerned, penalty proceedings were initiated in the assessment order passed on 14th January, 1992, and the assessment was a subject-matter of appeal before the CIT(A), who decided the assessee's appeal on 17th April, 1993. So the penalty could be imposed either before 31st March, 1992 or six months from the end of the month in which the order of CIT(A) dt. 17th May, 1993, was received by the Chief CIT or CIT. The order of the CIT(A) could not, in any case, be received before May, 1993 and even if it is taken to have been received in May 1993, then also the latest date, as provided under s. 275B by which the penalty could be imposed, comes to 30th November, 1993, as against which penalty has been imposed on 22nd January, 1993, itself. In view of these facts, we are unable to accept the assessee's plea that the penalty is barred by time.
27. Similarly, the plea that since the assessment could be completed without audit report, there is no justification in levying the penalty, cannot be accepted because the purpose of introducing the provisions of s. 44AB was not only the completion of assessment as canvassed by the assessee but was for saving the time of the assessee and if the assessee fails to extend the co-operation which it was required under the statute, it cannot take the plea that since the assessment has been completed without audit report, the levy of penalty is not justified or it cannot be penalised by way of penalty under s. 271B. If such an interpretation of the provisions of the Act and the Board's circular is accepted, then it will lead to absurd result because a person who has got his accounts audited, procured the audit report and filed the same but belatedly will get penalised whereas a person who has not cared to comply with any of the three requirements will go scot free. Such an interpretation is not tenable and cannot be accepted in view of the Tribunal's decision in the case of Fluid Air India Ltd. vs. Dy. CIT (1997) 63 ITD 182 (Mumbai) Tribunal Bombay Bench) wherein the Hon'ble Bench, to which Judicial Member was the party, has held that if on the basis of equitable construction of a provisions of the construction results in equity and justice rather than injustice and absurdity, then such construction should be preferred to the strict literal construction. This proposition also finds support from a decision of the Hon'ble Supreme Court in the case of K. P. Varghese vs. ITO (1981) 131 ITR 597 (SC) as well as in the case of CIT vs. J. H. Gotla (1985) 156 ITR 323 (SC) where on the following cases the Hon'ble Court has held as under :
"If a strict and literal construction of the statute leads to an absurd result, i.e. a result not intended to be subserved by the object of the legislation ascertained from the scheme of the legislation, if another construction is possible apart from the strict literal construction, then that construction should be preferred to the strict literal construction. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the Court might modify the language used by the legislature, so as to achieve the intention of the legislature and produce a rational result.
By the Court : Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction."
Similarly, the Hon'ble Supreme Court in the case of K. P. Varghese (supra) at pp. 505-606 has held as under :
"It is now a well settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result, which could never have been intended by the legislature, the Court may modify the language used by the legislature or even "do some violence" to it, so as to achieve the obvious intention of the legislature and produce a rational construction : Vide Luke vs. IRC (1963) AC 557 : (1964) 54 ITR 692 (HL). The Court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basis assumption underlying the statutory provision."
28. In view of the above facts and circumstances and the decisions of Hon'ble Supreme Court as well as of the Tribunal, we are unable to agree with the interpretation derived by the assessee's counsel which, in our opinion, leads to injustice and absurdity. Assessee's plea is dismissed.
29. In the result, we uphold the levy of penalty and dismiss the assessee's appeal.