Income Tax Appellate Tribunal - Kolkata
Indian Handloom Textiles vs Income Tax Officer on 30 June, 1998
Equivalent citations: [1999]68ITD560(KOL)
ORDER
D. Manmohan, J.M.
1. In these two appeals filed by the assessee, penalty levied under s. 271B of the IT Act, 1961, was challenged on several grounds : (a) that the penalty proceedings having not been initiated during the course of assessment proceedings, the proceedings initiated at a subsequent date are bad in law; (b) that in the assessment order for the asst. yr. 1987-88, the AO having mentioned about the initiation of penalty proceedings under s. 271(1)(a) and 273 of the Act, the non-mention of the initiation of proceedings under s. 271B indicates exercise of mind of the AO in that regard and thus at a subsequent date, AO cannot change his opinion; (c) that the assessee explained before the AO as well as the CIT(A) that the delay in obtaining the audit report was due to sickness of the auditor though the books were presented to the auditor in time and neither the AO nor the CIT(A) has called for any evidence with regard to the sickness of the auditor; and (b) that the failure to obtain the audit report in time is, at best, venial or technical default.
2. After hearing the matter at length on 30th April, 1998, the case was adjourned at the request of the assessee's counsel as he wanted to file certain documents. The case was listed for hearing on 13th May, 1998, on which date, one of us (learned Accountant Member) was otherwise engaged and hence a fresh date was given. Thus, the matter was listed for hearing, subject to part-heard, on 26th June, 1988.
3. At the time of hearing, learned senior Departmental Representative Sri T. B. C. Rozara, submitted that Sri J. L. Basumatari, senior Departmental Representative had appeared in this matter and because of his transfer from this charge, he is unable to continue the hearing in the part-heard matter. The present incumbent therefore, requested the Bench to release the matter from part-heard list. It may be observed here that the Bench has invested sufficient time in this matter on the earlier occasion and, therefore, it is not advisable to release the same from part-heard list. The wastage of time in hearing the same matter by another Bench puts heavy burden on the Government Exchequer. It is for the Revenue administration to arrange the affairs in such a way that the Departmental Representatives are posted on long-term basis and whenever they are transferred, they should be directed to appear before the Tribunal at least in the part-heard matters so as not to waste the time of the Court by rehearing the appeals. Our experience in the Calcutta Benches shows that most of the Departmental Representatives are posted on temporary basis and before they are acclimatised, they are shifted from the charge. It is well known that the nature of duties to be rendered by Departmental Representatives are different from routine nature of duties of a Revenue official. It requires specialised skill and training, inasmuch as, the Departmental Representative should be acquainted with the functioning of the Court before making representation before the Tribunal. The frequent transfer would affect the Revenue administration for want of effective representation before the Tribunal, and also the Tribunal. The Revenue administration, for their own reasons, transfers the officials which, in turn, adversely affect the normal functioning of the Tribunal. Keeping all the aforesaid aspects in mind, we have directed the learned senior Departmental Representative to seek proper instructions and appear in this matter instead of asking for release of the case from part-heard list. However, learned senior Departmental Representative submitted that their office is going to follow the same pattern of seeking release of the part-heard matters in future also. Under these circumstances, we are unable to accede to the request of the learned senior Departmental Representative and therefore, rejected the application dt. 25th June, 1998 filed before us on 26th June, 1998. However, interests of justice being paramount, we requested the learned counsel for the assessee to recapitulate all the submissions made before us on 30th April, 1998, and he accordingly reargued the matter.
4. Learned counsel for the assessee submitted that in respect of asst. yr. 1986-87, the previous year ended on 14th April, 1986, and hence the specified date to furnish audit report ended on 14th August, 1986. However, the audit report was obtained by the assessee on 27th September, 1986, resulting in a delay of about one month. The return was processed on 7th December, 1987. The show-cause notice under s. 271B of the Act was issued by the AO only on 10th October 1990 i.e., after 34 months from the date of intimation. As the assessee did not comply with the terms of the notice, penalty was levied at 1/2% of the turnover. Similarly, in respect of asst. r. 1987-88, the previous year ended on 14th April, 1987, and the specified date for obtaining the audit report was 14th August, 1987, whereas, the tax audit report was obtained on 30th October 1987, resulting in a delay of about 2 months. On the basis of the return filed on 2nd March, 1988, assessment was made under s. 143(3) on 27th March, 1990, whereas, penalty proceedings under s. 271B were initiated by notice dt. 10th October 1990 i.e., after 7 months and the penalty was levied on 24th January, 1991. It may be observed here that in the assessment order, AO mentioned about the initiation of penalty proceedings under ss. 271(1)(a) and 273 of the Act but as regards the initiation of proceedings under s. 271B, the assessment order is silent. In view of the non-compliance to the notice issued, penalty was levied under s. 271B of the Act.
5. Before the CIT(A) it was contended that the proceedings were initiated long after the completion of the assessment and, therefore, the proceedings are ab initio void. It was further submitted that the delay in obtaining the audit report was on account of the sickness of the auditor. CIT(A) observed that the AO could initiate penalty proceedings even after the assessment proceedings are completed. He further observed that no evidence was produced regarding the sickness of the auditor. He thus confirmed the action of the AO in this regard.
6. Further aggrieved, assessee is in appeal before us. Learned counsel submitted that the AO is not correct in stating that the assessee has not complied with the show-cause notice. An affidavit of Sri Priyonath Saha, partner of the assessee-firm, was furnished before us to affirm that in response to the show-cause notice under s. 271B of the Act, Sri K. B. Roy, authorised representative of the assessee, appeared before the ITO, Ward 14(6), Calcutta and gave oral explanation. It was further deposed that the books of account and supporting documents for the relevant assessment years were examined by the auditors viz., S. Samanta & Co., Chartered Accountants, prior to the specified date as prescribed under s. 44AB of the Act but the audit reports and the Form No. 3CD for those years were not signed and delivered to the assessee within the specified time due to illness of the said auditor and such other impediment. The affidavit also states that the CIT(A) did not request the assessee to furnish any evidence in support of the sickness of the auditor at the material time. Upon perusal of the affidavit, we have called upon the authorised representative of the assessee to furnish a confirmation letter from the Chartered Accountant to corroborate the deposition of the partner of the firm. To facilitate the assessee to furnish the material papers, learned authorised representative was granted time. By covering letter dt. 12th May, 1998, learned counsel for the assessee furnished before us the confirmation letter from S. Samanta & Co., Chartered Accountant which reads as under :
"1. that the audit of M/s Indian Handloom Textiles of 203/1, Mahatma Gandhi Road, Calcutta-700 007 was conducted by me in pursuance of the provisions of s. 44AB of the IT Act, 1961, for the accounting years relevant to the asst. yrs. 1986-87 and 1987-88 and I certified the prescribed Form No. 3CD accordingly.
2. that due to my illness (severe type of influenza) I was unable to conduct my professional activities during the months of August, 1986 and September, 1986 and I prepared finally the said statement and signed the audited accounts and the prescribed form relating to the asst. yr. 1986-87 on 27th September, 1986.
3. that as I remained outside Calcutta for conducting audit jobs during the period from 1st week of August, 1987 to last week of October, 1987, I could not sign the audited accounts and the prescribed Form No. 3CD for the asst. yr. 1987-88 prior to 30th October 1987."
It is the case of the learned counsel that neither the AO nor the CIT(A) has called for any further evidence in this regard and thus the assessee was prevented from furnishing the certificate before the tax authorities. Learned counsel, therefore, requested us to admit the additional evidence in the substantial interests of justice. Learned counsel further submitted that the delay is supported by reasonable cause and completely beyond the control of the assessee and thus no case is made for levy of penalty. He further submitted that the period of delay is so negligible that even otherwise, the default of the assessee can be treated as technical or venial breach of law for which penalty should not be imposed merely because AO is empowered to do so. He further submitted that the very fact that the AO has mentioned about initiation of proceedings under ss. 271(1)(a) and 273 of the Act implies that he did not intend to impose penalty under s. 271B of the Act and thus initiation of penalty proceedings at the later stage would clearly amount to change of opinion, which the AO is not empowered to. Learned counsel further submitted that the penalty proceedings should be initiated during the course of assessment proceedings or, in the alternative, within a reasonable point of time and failure would vitiate the proceedings. Learned counsel also pointed out that under s. 274(2) of the Act, AO has no jurisdiction to impose penalty as the penalty imposable is more than Rs. 10,000 whereas, in the instant case, penalty of more than Rs. 10,000 was imposed by the ITO who has no jurisdiction. It was, therefore, submitted that the penalty orders are void ab initio for want of jurisdiction. He relied upon the following decisions in support of his submission :
(a) Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC);
(b) Commr. of Agrl. IT vs. M. K. Harihara Iyer (1966) 62 ITR 225 (Mad);
(c) Asst. CIT vs. Gayatri Traders (1996) 56 TTJ (Hyd) (SB) 303 : (1996) 222 ITR 1 (AT) (Hyd);
(d) Kerala State Drugs & Pharmaceuticals Ltd. vs. CIT (1994) 210 ITR 1042 (Ker); and
(e) Ahmed Hassan & Co. vs. ITO (1993) 44 ITD 669 (Cal).
7. On the other hand, learned Departmental Representative submitted that w.e.f. 10th September, 1986, the words "reasonable cause' were omitted from s. 271B of the Act and, therefore, the burden of proof that the delay in obtaining the audit report was supported by reasonable cause, is on the assessee. He further submitted that no evidence was produced either before the AO or before the CIT(A) and in this regard relied upon the orders of the tax authorities and also submitted that the case law cited by the learned authorised representative are distinguishable. He further submitted that unlike s. 271 of the Act, there is no clause under s. 271B of the Act to initiate penalty proceedings at the time of assessment, which implies that there is no time-limit to initiate penalty proceedings at the time of assessment, which implies that there is no time-limit to initiate penalty proceedings.
8. At the time of hearing the appeal, we have pointed out to the learned Departmental Representative that this Bench, under similar circumstances, held that the penalty proceedings should be initiated during the course of assessment proceedings (see Sibonarayan Patro & Bros vs. ITO (1996) 87 Taxman 111 (Cukt) - Case digest/ITAT). However, learned Departmental Representative submitted that under ss. 271B/275 of the Act, there is no time-limit for initiation of penalty proceedings.
9. We have heard the rival submissions and carefully perused the record. It is the case of the learned counsel for the assessee that the CIT(A) has not called for any evidence with regard to the sickness of the Chartered Accountant. In this regard he has filed an affidavit of one of the partners of the assessee-firm. In the absence of any evidence to contradict the contents of the affidavit and in the interests of substantial justice, we admit the additional evidence filed in the form of confirmation letter of S. Samanta & Co., Chartered Accountants, The case of the assessee is that the books were presented before the auditor well in time, but audit could not be completed before the specified date and, at any rate, period of delay is very nominal which does not warrant initiation of penalty proceedings in the circumstances of the case. Sec. 271B has come up for consideration before the Special Bench of the Tribunal in the case of Asst. CIT vs. Gayatri Traders (supra).
In para 25 of the order, the Tribunal observed that the use of the words 'may direct' in s. 271B clearly indicate that the AO is vested with the discretion either to impose or not to impose penalty depending upon the facts and circumstances of the case and thus the levy of penalty is not mandatory. The Special Bench further observed that the discretion of the AO should be exercised judicially and not either arbitrarily or capriciously and when the re is a technical or venial breach of the law, the ends of justice require that the discretion should not be exercised in favour of punishing a venial default. It further observed that 'reasonable cause' means a cause which a reasonable man accepts it as a reasonable one and this expression should be interpreted liberally and in a fair and reasonable manner so as to advance the cause of justice, since harsh legalistic approach should be mitigated by soft practical approach in applying penal provisions. Similarly, in the case of Hindustan Steel Ltd. (supra), the Hon'ble Supreme Court observed that penalty should not be imposed merely because the statute empowers. Their Lordships further observed that for mere technical or venial breach of law, penalty should not be imposed. In this backdrop, let us consider the explanation of the assessee. In both the assessment years, the delay in obtaining the audit report was only about 1/2 months. The Chartered Accountant, who made the tax audit of the assessee, confirmed that there was reason for the delay in signing the audit report. It is common knowledge that in the last month there will be heavy rush in the office of a Chartered Accountant and it is very difficult to cope up with the work. Personal and other factors such as, illness etc., may also contribute to the delay in the office of a Chartered Accountant. In our opinion, the explanation given by the assessee can be considered as reasonable cause for the delay in obtaining the audit report, apart from the fact that the default, if any, is trivial as the audit reports obtained within a short span after the specified date, were furnished before the AO and the assessments were completed accordingly on the basis of the audit reports and thus the purpose for which s. 44AB was enacted was fulfilled. In our opinion, the tax audit report was essentially to facilitate the AO to make the assessment on the basis of the report of the auditor that he could avoid making investigation into the facts and thus can save lot of time. The Revenue has achieved this purpose in the instant case in view of the returns having been filed along with the audit reports. We, therefore, do not find justification in the AO levying penalty under s. 271B of the Act.
10. We may further observe that in respect of the asst. yr. 1986-87, assessment was made on 7th December, 1987 whereas, penalty proceedings were initiated 34 months after the completion of the assessment proceedings. The assessment having been completed before 1st April, 1989, s. 275, as it was existing before 1st April, 1989, applies. In the case of Sibonarayan Patro & Bros. vs. ITO (supra), the Tribunal observed that penalty proceedings cannot be initiated separately, if not initiated during the course of assessment proceedings. The Tribunal further observed therein - meeting the alternative submission of the authorised representative in that case - that even if the AO is empowered to initiate penalty proceedings separately, the same should be within a reasonable period of time. However, in the instant case, as the delay in initiating the proceeding is being much larger, we are unable to uphold the penalty proceedings even on that score. In respect of asst. yr. 1987-88, the assessment proceedings having indicated the initiation of penalty proceedings under s. 271(1)(a) and 273 the conspicuous absence of mention of s. 271B in the assessment order indicates that the AO has exercised his mind over the issue and decided not to initiate the penalty proceedings and thus he cannot initiate penalty proceedings at a later stage. This issue is also considered by the decision of the Cuttack Bench of the Tribunal in the case in (1996) 87 Taxman 111 (supra). For all these reasons, we cancel the levy of penalty under s. 271B of the Act for both the assessment years under consideration.