Income Tax Appellate Tribunal - Hyderabad
Assistant Commissioner Of Income Tax vs Gayatri Traders on 30 April, 1996
Equivalent citations: [1996]58ITD121(HYD)
ORDER
A. Venku Reddy, J. M.
1. These appeals by the Revenue are directed against the consolidated order dt. 30th Jan., 1990, of the CIT (A), Hyderabad, cancelling the penalty levied under s. 271B of the IT Act, 1961, for the asst. yrs. 1985-86 and 1986-87.
2. When these appeals first came up for hearing before the Division Bench (ITAT, Hyderabad Bench-B), the learned counsel for the assessee sought to support the impugned order of the first appellate authority, placing reliance on the decision of the Tribunal, Bangalore Bench, in the case of Bangalore Steel Distributors vs. ITO (1994) 50 TTJ (Bang) 1 : (1994) 49 ITD 668 (Bang), wherein it was held that penalty under s. 271B can be levied only for the absolute or total failure on the part of the assessee to get his accounts audited or to obtain a report of such audit as required under s. 44AB and that no penalty can be levied under s. 271B for the mere delay in complying with the provisions of s. 44AB of the IT Act. On the other hand, the learned Departmental Representative tried to counter this argument by placing reliance on the decision of the Tribunal, Bombay Bench-D (SMC), in the case of Kritkumar M. Muchhala vs. ITO (1993) 46 ITD 363 (Bom), wherein it was held that penalty under s. 271B is leviable if the assessee fails to get his accounts audited and obtain a report of such audit within the 'specified date' prescribed under s. 44AB, provided the said failure was not for any reasonable cause. Noticing this conflict in the interpretation placed on s. 271B by various Benches of the Tribunal, the Division Bench felt that it is a fit case to be heard and decided by a Special Bench.
3. Accordingly on a reference made by the Division Bench, under s. 255(3) of the IT Act, the Honourable President of the Tribunal has been pleased to constitute this Special Bench for resolving the following issue and disposing of these appeals :
"Whether the provisions of s. 271B of the IT Act, 1961, provide for penalty only for the absolute failure of the assessee to get the accounts audited or obtain the report thereon or they provide also for penalty for delay in getting the accounts audited and obtaining the report thereon beyond the specified date under s. 44AB."
4. Briefly, the facts that led to the filing of these appeals are as follows : The assessee is a registered firm. It followed 'Dipavali Year' as its accounting year. For the asst. yrs. 1985-86 and 1986-87, for which the previous year ended on 24th Oct., 1984, and 1st Nov., 1985, respectively, the assessee-firm was obliged to get its accounts audited as required under s. 44AB and obtain reports of such audit within the specified dates prescribed in s. 44AB as its sales exceeded Rs. 40 lakhs for each of the two assessment years under consideration. The 'specified date' for the asst. yr. 1985-86 as extended by the CBDT was 30th Sept., 1985, while the specified date for the asst. yr. 1986-87 was 30th June, 1986. Assessee got its accounts audited and obtained reports of such audit in Form No. 3CB after the expiry of the 'specified date' applicable to each assessment years. It obtained the audit report in Form No. 3CB on 31st Jan., 1986, for the asst. yr. 1985-86 and on 30th Oct., 1986 for the asst. yr. 1986-87 and filed the returns of income accompanied by the said reports. Thus, there was a delay of four months in obtaining the audit report required under s. 44AB for each of the two assessment years under consideration. After completing the assessments, the AO initiated penalty proceedings by serving notices on the assessee to show cause as to why penalty should not be levied under s. 271B for obtaining audit reports belatedly for the asst. yrs. 1985-86 and 1986-87.
5. For the asst. yr. 1985-86, the assessee submitted an explanation stating that its auditors were busy in tax audit work from July, 1985, onwards till the end of November, 1985, that it being the first year of audit under s. 44AB, it took time for the assessee to collect and furnish the required details to the auditors, that added to it, there was some difference in trial balance, requiring reconciliation which took a long time, that the auditors could take up the work of the assessee in December, 1985, only and complete it in January, 1986, that there was no intentional or deliberate delay on the pat of the assessee in getting its accounts audited and that the penalty proceedings may be dropped. A similar explanation was filed for the asst. yr. 1986-87 also stating that its auditors were preoccupied with other professional commitments and as such they could not take up the audit work of the assessee in time, that the delay, if any, was in the auditor's office and that the penalty proceedings may be dropped.
6. The AO rejected those explanations and levied penalty of Rs. 34,280 and Rs. 1,00,000 for the asst. yrs. 1985-86 and 1986-87, respectively under s. 271B by his separate orders both dt. 23rd March, 1989. Aggrieved by it, the assessee filed appeals.
7. The assessee contended before the first appellate authority stating that it was prevented by a reasonable cause from obtaining the audit reports in time, that the AO having been satisfied with the explanations of the assessee for the delay in filing the return of income chose to drop the penalty proceedings initiated under s. 271(1)(a) also and, therefore, there was no justification for imposition of penalty under s. 271B. The learned CIT (A) accepted the aforementioned submissions of the assessee and cancelled the penalties levied under s. 271B for both the assessment years on two grounds. The first ground is, that the assessee was prevented by a reasonable cause from obtaining the audit report within the specified date. The second ground is that the delay in obtaining the audit report as per the provisions of s. 44AB constitutes only a technical or venial breach of the law, which cannot be penalised under s. 271B of the IT Act. Aggrieved by it, the Revenue came up with these appeals before the Tribunal.
8. We shall first confine ourselves to the crucial legal issue that has been referred to the Special Bench for its decision. Briefly, the submissions of Shri Indrakumar, the learned Departmental Representative on this issue are as follows. The provisions contained in s. 44AB of the IT Act, 1961, are mandatory. Its requirements are that an assessee whose total sales, turnover or gross receipts as the case may be, exceed Rs. 40 lakhs in the previous year, shall get his accounts of such previous year audited by an accountant before the 'specified date' and obtain before that date the report of such audit in the prescribed form. Thus, both the duties contemplated under s. 44AB shall be completed before the 'specified date'. What is 'specified date' has been mentioned in cl. (ii) of the Explanation to s. 44AB. Admittedly, the assessee failed to get its accounts audited before the 'specified date' and obtain before that date the report of such audit. Thus, the assessee has failed to comply with the requirements of s. 44AB, though the assessee got its accounts audited and also obtained a report of such audit subsequent to the 'specified date'. Sec. 271B imposes penalty, if any person fails without reasonable cause to get his accounts audited or obtain a report of such audit as required under s. 44AB. The requirements of s. 44AB are that the assessee should not only get his accounts audited before the 'specified date' but also obtain a report of such audit in the prescribed form before the 'specified date'. Thus, the time frame specifically mentioned in s. 44AB is implicit and inbuilt in the words, "as required under s. 44AB," appearing in s. 271B. In that view of the matter, if an assessee fails to get his accounts audited before the 'specified date' and obtain the report of such audit before the specified date, he is clearly liable for penalty under s. 271B, even though he got his accounts audited and obtained a report of such audit subsequent to the 'specified date' and before the filing of the return of income. Thus, the learned Departmental Representative submits that the view that s. 271B punishes only a total or absolute abstinence or failure on the part of the assessee to get his accounts audited at all and obtain a report of such audit at all, is not correct. He placed strong reliance on the decision of the Tribunal Bombay Bench-D (SMC) in the case of Kritkumar M. Muchhala vs. ITO (supra) which fully supports the aforementioned submissions of the learned Departmental Representative.
9. On the other hand, Shri G. S. Madhavarao, the learned authorised representative of the assessee, contended as follows : The time frame ('specified date') mentioned in s. 44AB is conspicuously absent in s. 271B. Sec. 271B as it stood during the relevant time, envisaged penalty only for a total failure on the part of an assessee in getting his accounts audited and obtaining a report of audit. No penalty is exigible under s. 271B for belated action the on part of the assessee to get his accounts audited and obtain a report of such audit. In the case on hand, the assessee got its accounts audited and obtained a report of such audit, though after the 'specified date', but before the filing of the return of income. The purpose of introducing s. 44AB into the statute book is to facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and to save the time of the AO in carrying out the routine verification. That object is fully achieved when the assessee got its accounts audited and obtained a report of such audit in the prescribed form and filed the said report along with its return of income. In any view of the matter, when two interpretations are reasonably possible on the construction of s. 271B, the interpretation which is more favourable to the tax-payer, should be adopted as has been held by the Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). Sec. 271B does not contain any specific provision for levying penalty for failure to comply with the requirements of s. 44AB within the 'specified date' and, therefore, no penalty can be levied for the mere failure on the part of the assessee to get his accounts audited and to obtain the report within the time-limit mentioned in s. 44AB. The learned authorised representative of the assessee placed strong reliance on the decision of the Tribunal, Bangalore Bench, in the case of Bangalore Steel Distributors vs. ITO (supra), which appears to support fully the aforesaid submissions made by the learned authorised representative. He also submitted that the ratio of the Calcutta High Court's decision in the case of Calcutta Chromotype (P) Ltd. vs. ITO (1971) 80 ITR 627 (Cal) and the decision of the Allahabad High Court in the case of CIT vs. Anchor Pressing (P) Ltd. (1982) 136 ITR 505 (All) also support the construction placed by the Tribunal, Bangalore Bench, in the case of Bangalore Steel Distributors vs. ITO, on s. 271B.
10. In reply, Shri Indrakumar, the learned Departmental Representative, submitted that in case the interpretation given by the Bangalore Bench to s. 271B is accepted, the very object of introduction of s. 44AB into the statute book gets defeated, that the language of s. 271B is plain and clear and it does not admit more than one interpretation and that the ratio of the decisions of the Calcutta and Allahabad High Courts relied on by the assessee can have no application to the facts on hand since the provisions considered in the said cases are not in pari materia with the provisions of s. 271B.
11. We have duly considered the rival submissions. Sec. 44AB was introduced into the statute book by the Finance Act, 1984, w.e.f. 1st April, 1985. Relevant portion of s. 44AB as it stood during the relevant period reads as follows :
"44AB. Every person -
(a) carrying on business shall, if his total sales turnover or gross receipts as the case may be, in business exceed or exceeds forty lakh rupees in any previous year or years relevant to the assessment year commencing on or first day of April, 1985, or any subsequent assessment year;
(b).........
get his accounts of such previous year or years audited by an accountant before the specified date and obtain before that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed;"
Clause (ii) of the Explanation to s. 44AB defines and explains 'specified date' as follows (prior to 1st April, 1989) :
"'Specified date', in relation to the accounts of the previous year or years relevant to an assessment year, means, the date of the expiry of four months from the end of the previous year or, where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or the 30th day of June of the assessment year, whichever is later..."
12. From a plain reading of s. 44AB, it is clear that its provisions are mandatory. It casts certain obligations on an assessee whose total sales turnover or gross receipts, as the case may be, exceeded Rs. 40 lakhs in the relevant previous year. The mandatory obligations prescribed by s. 44AB are :
(1) The assessee shall get his accounts audited by an Accountant before the specified date, and (2) obtain before that date the report of such audit in the prescribed form duly signed and verified by such Accountant.
Both these obligations should be completed and complied with before the specified date mentioned in s. 44AB. Thus, the mandatory twin requirements of s. 44AB are that the assessee shall get his accounts audited before the 'specified date' and shall also obtain before that 'specified date', the report of such audit in the prescribed form duly singed by an accountant. A plain reading of s. 44AB clearly indicates that the time frame mentioned therein is mandatory. The Act does not even give any discretion to the AO to extend the time limit viz., the 'specified date' for getting the accounts audited under s. 44AB. It only indicates the importance of 'specified date' i.e., the time frame, in the scheme of the provisions contained in s. 44AB. It is an essential ingredient of s. 44AB.
13. If an assessee fails to get his accounts audited and obtain a report of such audit before the 'specified date' it amounts to non-compliance of s. 44AB. What s. 44AB requires is, getting the accounts audited and obtaining of the audit report both before the 'specified date'. It requires that both these obligations must be fulfilled and completed before the expiry of the 'specified date'. It is only that audit report which is obtaining before the 'specified date' that can be said to be one obtained as required under s. 44AB. Therefore, an audit report obtained after the 'specified date' on the basis of an audit conducted after the 'specified date' cannot be strictly said to be one obtained under s. 44AB.
14. Non-compliance of the provisions of s. 44AB renders an assessee liable for penalty under s. 271B. Sec. 271B was introduced into the statute book along with s. 44AB by the Finance Act, 1984, w.e.f. 1st April, 1985. Sec. 271B as it stood during the relevant years read as follows :
"271B. If any person fails, without reasonable cause, to get his accounts audited in respect of any previous year or years relevant to an assessment year or obtain a report of such audit as required under s. 44AB, the ITO may direct that such person shall pay by way of penalty, a sum equal to one half per cent of the total sales, turnover or gross receipts, as the case may be, in business or of the gross receipts in profession in such previous year or years or a sum of one hundred thousand rupees, whichever is less."
15. Sec. 271B consists of two limbs and failure on the part of the assessee to comply with either of those two limbs renders him liable for penalty under s. 271B unless he is able to show a reasonable cause for his failure to comply with them. The first limb speaks of the failure of assessee to get his accounts audited and the second limb speaks of the failure on his part to obtain a report of such audit. The expression 'as required under s. 44AB' appearing in s. 271B governs both the limbs. As we have already held, the requirement under s. 44AB is to get the accounts audited by an accountant before the 'specified date' and obtain before that date the report of such audit in the prescribed form duly signed and verified by such accountant. Any default on the part of the assessee to comply with the provisions of s. 44AB within the 'specified date' clearly attracts the penalty under s. 271B unless the assessee is able to show a reasonable cause for his failure to comply with the provisions of s. 44AB before the 'specified date.'
16. The quantum of penalty under s. 271B does not depend on the length of the delay beyond the 'specified date' in getting the accounts audited and obtaining a report of such audit. It does not vary depending on the quantum of delay. The base for computation of penalty is the turnover or sales or gross receipts, as the case may be. Since the violation contemplated under s. 271B being the non-compliance of s. 44AB viz., the failure to get the accounts audited and obtain a report of such audit before the 'specified date', the subsequent delay after the expiry of the 'specified date' in getting the accounts audited and obtaining report, is of no consequence.
The delay subsequent to 'specified date' is not strictly material for the purposes of s. 271B. What is relevant and material for the purposes of s. 271B is the failure on the part of the assessee to get his accounts audited within the 'specified date' and obtain before that date the report of such audit which are the requirements under s. 44AB. No doubt, if the assessee is able to show a reasonable cause for his failure to obtain the audit report before the 'specified date', no penalty is exigible under s. 271B. However, the mere fact of his getting his accounts audited and obtaining a report of such audit after the 'specified date' does not automatically absolve him of his liability for penalty under s. 271B.
17. The contention that in the absence of any specific reference to time frame or 'specified date' in s. 271B, it is not permissible to levy penalty under s. 271B for the failure on the part of the assessee to get its accounts audited and obtain a report of such audit within the 'specified date', is not correct. It is true that there is no specific reference to 'specified date' made in s. 271B. However, s. 271B mentions in clear terms the nature of the violation punishable under it. The violations envisaged under s. 271B are, failure of get the accounts audited or to obtain a report of such audit 'as required under s. 44AB.' We have already held that the words 'as required under s. 44AB' govern both the limbs viz., getting the accounts audited and obtaining a report. The requirements under s. 44AB are to get the accounts audited within the 'specified date' and to obtain a report of such audit in the prescribed form within the 'specified date.' Thus, the time frame is inherent, inbuilt and implicit in the words 'as required under s. 44AB' appearing in s. 271B. The expression 'as required under s. 44AB' appearing in s. 271B clearly means that what is penalised under s. 271B is the failure on the part of the assessee to get his accounts audited before the 'specified date' and obtain the report of such audit. It does not require any interpretation. It is not necessary that all the ingredients of s. 44AB should have been incorporated in detail into s. 271B. Sec. 271B should be read along with s. 44AB and not in isolation. When so done, there can be no doubt, whatsoever that the time frame is inbuilt in the language of s. 271B.
18. The plain language of s. 271B does not admit more than one reasonable interpretation. Therefore, there is no need or necessity to look into any external aids as sources of information for ascertaining the intention of the legislature in introducing s. 44AB or s. 271B. When the language is plain and unambiguous and admits of only one meaning, no question of construction of statute arises since the Act speaks for itself. [CIT vs. Sodra Devi (1957) 32 ITR 615 (SC)]. Hardship or inconvenience cannot alter the meaning of the language employed by the legislature, if such meaning is manifest on the face of the statute. It is well settled that every word in the statute should be construed in the context in which it occurs in order to discover its proper meaning. The words should be given a sensible meaning to make them effective. It is only where the meaning of the statute is doubtful, then only one should take resort to external aids such as Minister's speech, objects and aims of the enactment, notes on clauses, etc. as sources of information for ascertaining the intention of the legislature in making a particular provision. However, when the meaning of the words is clear and unambiguous, the Court has to give effect to it whatever may be the consequences as the Court cannot amend or alter the statute [vide Escorts Ltd. vs. Union of India (1991) 189 ITR 81 (Del)]. The duty of the Court is to read the section, understand its language and give effect to the same. When the text is clear, it alone prevails. Only when there is obscurity or lack of harmony with other provisions, it is legitimate for the Court to take the help of the external aids such as the aims and objects of the provision, the mischief it sought to remedy etc. As has been held by the Tribunal Special Bench, in the case of Chemosyn (P) Ltd. vs. Second ITO (1992) 42 TTJ (Bom) (SB) 403 : (1992) 198 ITR (AT) 209 (Bom) (SB). Where text is clear, text is conclusive.
19. Primarily the intention of the legislature must be gathered from the very words in the statute itself. A construction which will defeat the plain intention of the legislature, even though there may be some inexactitude in the language used, should be rejected. It cannot be said that the object of introducing s. 44AB and s. 271B into the Statute Book stands fully achieved even by placing the limited construction which the Bangalore Bench had placed on the provisions of s. 271B. The scope and effect of s. 44AB was explained by the CBDT in its Circular No. 387, dt. 6th July, 1984. Para 17.2 of the said Circular, which is a contemporaneous exposition of the newly introduced provisions of s. 44AB, runs as follows :
"17.2. A proper audit for tax purposes would ensure that the books of accounts and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably saving the time of AO in carrying out routine verifications......"
Sec. 44AB has been specifically made to cover the cases of large turnover assessees. One of the main objects of introducing s. 44AB into the statute Book is to check and curb certain fraudulent practices on the part of the assessees, such as fabrication of accounts after the end of the previous year to suit their needs. Another object is to facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities. The mischief it sought to remedy is "certain fraudulent practices" adopted by certain large turnover assessees in the matter of maintenance of their accounts. It is to curb that mischief, the time frame was specifically introduced into s. 44AB. Even the AO is not given any discretion to extend or enlarge the time limit mentioned in s. 44AB. The contention that the object of introducing s. 44AB can sufficiently be achieved even when an assessee gets his accounts audited and obtains report after the 'specified date' and before filing of the return of income, has no substance. When the language of the statute viz., s. 271B is crystal clear, the question of interpreting it or placing a particular construction on it does not arise. As we have already observed, the intention of the legislature must primarily be gathered from the words used in the statute itself. When there is no ambiguity, we cannot presume a certain intention on the part of the legislature and then bend the language of the section with a view of make it accord with such assumed intention. It is only when there is an ambiguity in the meaning of a provision, recourse must be had to the well established principles of construction. But it is not permissible to first create some artificial ambiguity and then try to resolve it by resorting to general principles of construction so as to negate the very purpose of the section itself [CIT vs. Indian Bank Ltd. (1965) 56 ITR 77 (SC)].
20. Absence of a specific reference to 'specified date' in s. 271B is not a causus omissus. The words 'as required under s. 44AB' appearing in s. 271B clearly covers the time frame mentioned in s. 44AB. By giving that meaning we are not supplying a causus omissus or adding any word or words which are not there to s. 271B. We are only giving effect to the plain language of s. 271B which in our opinion does not reasonably admit more than one interpretation. The section which casts the legal obligation and the section which punishes the violation of that legal obligation both should be read together as a whole and a sensible meaning should be given to them in a comprehensive and logical manner. Sec. 271B when read in conjunction with s. 44AB, there can be no scope for any second interpretation to s. 271B. A provision should not be looked in isolation but should be considered in the light of the relevant provisions and the context and setting in which it is placed. It is true, a penal provision in a fiscal statute shall be strictly construed and when two views are reasonably possible on the construction of that provision, the one which is more favourable to the assessee should be adopted as has been held by the Supreme Court in the case of Vegetable Products Ltd. (supra). That rule does not apply when the text of the statute is clear. The ratio of the Supreme Court ruling in the case of CIT vs. Vegetable Products Ltd. (supra) can have no application at all to the case on hand since, in our view, the plain language of s. 271B does not reasonably admit more than one interpretation.
21. The learned authorised representative of the assessee placed reliance on the decision of the Calcutta High Court in the case of Calcutta Chromotype (P) Ltd. vs. ITO (supra), in support of his contention that in the absence of any specific reference to time frame in s. 271B, it is not legal to levy penalty for the mere non-compliance of the provisions of s. 44AB before the 'specified date' i, e., within the time frame mentioned in s. 44AB. In that case, the Calcutta High Court was concerned with the interpretation of the provisions contained in ss. 6 and 10 of the Super Profits Tax Act, 1963. Sub-s. (1) of s. 6 of the Super Profits Tax Act states that every company whose chargeable profits assessable under that Act exceeded during the previous year the amount of standard deduction should furnish a return of its chargeable profits on or before the 30th day of September of the assessment year. It was further provided that on an application made by the assessee, the ITO might in his discretion extend the date for the furnishing of the return. Sub-s. (2) of s. 6 provided that where the ITO had reason to believe that a company was assessable under the Super Profits Tax Act, he might serve a notice upon the principal officer of the company to furnish within thirty days from the date of the service of the notice a return of the chargeable profits of the company during the previous year. Sub-s. (3) of s. 6 of that Act states that any assessee who has not furnished during the time allowed by the ITO under sub-s. (1) or sub-s. (2), or having furnished a return under sub-s. (1) or sub-s. (2), discovers any omission or, wrong statement therein, may furnish a return or a revised return, as the case may be, at any time before the assessment is made. Sec. 10 of the Act provided for penalties for non-filing of returns. Relevant portion of the same ran as follows :
"If the ITO in the course of any proceedings under this Act, is satisfied that any person has without reasonable cause, failed to furnish the return required under s. 6...... he may direct that such person shall pay, by way of penalty, in addition to the amount of super profits tax payable, a sum not exceeding....."
The petitioner-Calcutta Chromotype (P) Ltd. - furnished its return under s. 6 of the Super Profits Tax Act before the ITO on 30th Aug., 1967, in respect of the asst. yr. 1963-64 and assessment was made on 21st Nov., 1967, on the basis of the return filed. Subsequently, the ITO issued a penalty notice under s. 10 of the Super Profits Tax Act requiring the petitioner-company to show cause as to why an order imposing a penalty under s. 10 of the Super Profits Tax Act should not be made on the ground that the petitioner had without reasonable cause failed to furnish the return of chargeable profits which he was required to furnish under s. 6(1) of the Super Profits Tax Act, 1963. Aggrieved by it, the petitioner-company filed a writ petition in the Calcutta High Court to quash the said notice. The Calcutta High Court quashed the show cause notice holding as follows :
"In my opinion, under the relevant provisions of the Super Profits Tax Act, 1963, the ITO is not entitled to impose a penalty on the petitioner on the ground of failure to file a return within the time prescribed under that section when the return is filed before the assessment is made and the ITO completes the assessment on the basis of such a return."
Even a return filed under s. 6(3) of the Super Profits Tax Act, 1963, before the assessment is made, is also a valid return under s. 6. Sec. 10 merely states that an assessee who fails to furnish the return required under s. 6, is liable for penalty. In that case, the return filed by the assessee therein under sub-s. (3) of s. 6 was also a valid return contemplated under s. 6 of the Super Profits Tax Act. In that view of the matter, the Calcutta High Court rightly held that there was no non-compliance of s. 6 on the part of the assessee and, therefore, the penalty notice issued under s. 10 is illegal. It is not known as to how the ratio of the said decision of the Calcutta High Court renders any assistance for interpreting the provisions of s. 271B which provisions are not at all in pari materia with the provisions contained in ss. 6 and 10 of the Super Profits Tax Act.
22. The next case relied on by the assessee is CIT vs. Anchor Pressing (P) Ltd. (supra). In that case, the Allahabad High Court was concerned with the interpretation of the provisions contained in ss. 5 and 9 of Companies (Profits) Surtax Act, 1964, which are similar to ss. 6 and 10 of the Super Profits Tax Act, 1963. The Allahabad High Court followed the ratio of the decision of the Calcutta High Court in the case of Calcutta Chromotype (P) Ltd. (supra) and held that s. 9 of the Surtax Act envisages the levy of penalty for the failure to file a return under s. 5 without reasonable cause and not for the failure to file a return within the time prescribed under sub-s. (1) or sub-s. (2) thereof and that even a return filed under s. 5(3) at any time before the assessment is made is also a valid return, contemplated under s. 5. In that case return was filed under s. 5(3). The Allahabad High Court held that when the return was filed under s. 5(3), no penalty is leviable under s. 9 for not filing the return under s. 5(1). The ratio of that decision has no application at all to the facts on hand. The provisions of s. 5 and 9 of the Sur Tax Act are not in pari materia with s. 44AB and s. 271B of the IT Act.
23. On a thorough consideration of the rival submissions and on a plain reading of the clear provisions contained in ss. 44AB and 271B, we are unable to agree with the construction placed by the Tribunal, Bangalore Bench, on s. 271B. In our considered opinion, the Tribunal, Bombay Bench-D(SMC), in the case of Kritkumar M. Muchhala vs. ITO (supra) had correctly construed the provisions of s. 271B when it held as follows :
"On the aforesaid discussion I am of the opinion that the provisions of the Companies (Profits) Surtax Act and the Super Profits Tax Act are not in pari materia to the provisions of s. 271B/44AB of the IT Act. Here, the requirement is to obtain the audit report before a specified date and no relaxation is given to obtain it subsequently. Once it is found that the assessee has not obtained the said report within the specified date, the default is committed and the assessee can be said to have failed to obtain the report within the meaning of s. 271B of the Act subject, however, to an exception of reasonable cause as provided in s. 273B of the Act."
The contention of the assessee that s. 271B provides for penalty only for the total or absolute failure on the part of the assessee to get his accounts audited at all or obtain a report of such audit at all, is not correct. When once it is shown that the assessee without a reasonable cause has failed to get his accounts audited and obtain a report of such audit before the 'specified date', the violation envisaged by s. 271B is complete and the assessee renders himself liable for penalty under s. 271B. His act of getting his accounts audited and obtaining a report of such audit subsequent to the 'specified date' though before the filing of the return, does not automatically absolve him of his liability for penalty under s. 271B.
24. Now let us consider the next issue whether the assessee had not shown any reasonable cause for its failure to comply with the requirements of s. 44AB before the 'specified date'. The learned Departmental Representative contended that admittedly the assessee failed to comply with the requirements of s. 44AB within the "specified date" and thereby rendered himself liable for penalty under s. 271B unless he shows a reasonable cause for his failure to comply with the requirements of s. 44AB before the 'specified date' and that inasmuch as the assessee had not shown any reasonable cause for the default in question, the cancellation of penalty under s. 271B should not be sustained. On the other hand, the learned authorised representative for the assessee contended before us that the assessee had shown a reasonable cause for its failure to get the accounts audited and obtain a report of such audit before the 'specified date' and that on a due consideration of the explanation given by the assessee for the delay in complying with the requirements of s. 44AB the learned CIT (A) has very rightly cancelled the penalty levied under s. 271B for both the assessment years under consideration.
25. Levy of penalty under s. 271B is neither mandatory nor a must. The plain language of s. 271B provides that if any person fails to get his accounts audited or obtain a report as required under s. 44AB, "the AO may direct that such person shall pay by way of penalty." The use of the words 'may direct' clearly indicates 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. No doubt, it is true, the said discretion should be exercised judicially and not either arbitrarily or capriciously. When there is a technical or minor breach of the law, the ends of justice require that the discretion should not be exercised in favour of punishing a venial default. Further it is not as though the moment a default under s. 44AB is committed, the levy of penalty under s. 271B is automatic. The words' without reasonable cause' that existed in s. 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 s. 44AB before the due date, no penalty is leviable under s. 271B. What is "a reasonable cause", in a given set of facts depends upon the peculiar facts of that case. A cause which a reasonable man accepts it as a reasonable one can be taken as a reasonable cause. The expression 'reasonable cause' requires to be interpreted liberally 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.
26. Now let us take up the appeal relating to the asst. yr. 1985-86 and find out whether the appellant had shown a reasonable cause or not for its failure to comply with the requirements of s. 44AB within the specified date. It was the very first year of assessment to which the provisions of s. 44AB came to be applied. The specified date as extended by the CBDT for the asst. yr. 1985-86 was 30th Sept., 1985. From the very beginning, the case of the assessee is that it could not close its accounts within time on account of certain difference in the trial balance which took some time for reconciliation, that it entrusted its books of account to the accountant on 10th Sept., 1985, itself for audit under s. 44AB, that the auditors expressed their inability to take up the audit work of the assessee till the end of November, 1985 on account of their prior professional commitments, that on that account the assessee filed Form No. 6 before the AO requesting the latter to extend time for filing the return of income till 30th Sept., 1985, and that soon after the audit was completed and the report was issued by the auditors the assessee filed its return of income with least practicable delay and that the delay, if any, in obtaining the report of audit was on account of the delay on the part of the auditors and that there was no deliberate or intentional inaction on the part of the assessee to comply with the requirements of s. 44AB before the specified date. There appears to be some substance in the aforementioned submissions of the assessee.
27. As we have already stated, the specified date as extended for the asst. yr. 1985-86 was 30th Sept., 1985. On 23rd June, 1985, the assessee filed Form No. 6 before the AO requesting for extension of time for filing the return of income for the asst. yr. 1985-86 till 30th Sept., 1985, on the ground that the books of accounts could not be closed as there is difference in trial balance and the assessee is trying to reconcile the said difference. It is clear that there was some genuine difficulty for closing the accounts on account of some difference in trial balance requiring reconciliation. In the meanwhile, the AO issued a notice under s. 139(2), dt. 16th Aug., 1985, to file the return. The assessee sent a reply dt. 17th Aug., 1985 stating as follows :
"As our turnover exceeds Rs. 40 lakhs, as per provisions of s. 44AB, the accounts of the firm are to be audited by a Chartered Accountant. We have appointed M/s G. S. Madhavarao & Company as our auditors. They have informed us that they will commence the work in the second week of November, 1985. We therefore request you to grant time for filing the return till the date of completion of the audit."
Thus, the aforementioned reply gives us an indication that the assessee had already taken steps to get its accounts audited even before the specified date. We find a copy of the said reply of the assessee at page 5 and a copy of Form No. 6 at page 6 of the paper book compilation.
28. The Chartered Accountant to whom the assessee entrusted the audit work on 10th Sept., 1985, sent the following reply dt. 26th Sept., 1985 to the assessee.
"With reference to your letter dt. 10th Sept., 1985, we hereby convey our acceptance to conduct audit under s. 44AB of the IT Act and give the required report. As we have informed that there is difference in trial balance of more than Rs. 12,000 we submit that presently we are not in a position to reconcile the difference in trial balance as we are busy in carrying out the audit work of other firms. As we are already engaged in the audit of the other firms, we will take up the audit of your firm in the second week of November, 1985, and shall give the report as early as possible with your co-operation. We request you to kindly make arrangements to reconcile the difference and keep the records ready for audit."
The aforementioned reply of the Chartered Accountant appointed by the assessee for auditing work clearly indicates that the assessee had taken genuine steps to get its accounts audited and obtain a report of such audit even before 30th Sept., 1985. It was on account of the prior professional commitments of the accountant, he could not take up the audit work of the assessee at once and complete it. Added to it, the difference to trial balance took some time for reconciliation. Ultimately, the audit was completed and the report of audit was issued on 30th Jan., 1986, and immediately thereafter the assessee filed its return of income accompanied by the said audit report with least practicable delay. We find a copy of the letter of the Chartered Accountant at page 7 of the paper book compilation. The reply dt. 2nd March, 1987, sent by the assessee to the show-cause notice issued under s. 271B for the asst. yr. 1985-86 is also important. The relevant portion of the said reply dt. 2nd March, 1987, sent by the assessee to the show cause notice runs as follows :
"This is the first year of the tax audit. We could not obtain the tax audit report till 30th Jan., 1986 as the auditors were busy during July to the second week of November, 1985 on account of pre-occupation of their staff in the tax audits. Further we have been asked to arrange records like purchase bills, sale bill books datewise and to submit the same along with trial balance. All these matters being new to us, we have taken considerable time to furnish the same."
Thus, in spite of the best efforts of the assessee to get its accounts audited and obtain a report of audit before the specified date it could not do so due to circumstances beyond its control. The assessee did what all it could do within its hands in the circumstances. It could not have forced the Chartered Accountant to complete the audit at once and give the report before the specified date nor it could take back the books and entrust it to some other accountant since the said accountant has already been attending to the audit work of the sister concerns of the assessee also. It was on account of the prior professional commitments and the pressure of work on the auditors, the audit work of the assessee-firm could not be taken up in time by the auditors.
29. It would appear that the AO though initiated penalty proceedings under s. 271(1)(a) for the delay in filing the return of income, ultimately chose to drop the said proceedings obviously having been satisfied with the explanation of the assessee for the delay in filing the return of income as it could not obtain the audit report till 30th Jan., 1986. At this stage, it would be useful to refer to the decision of the Tribunal Calcutta Bench-A, in the case of Kumar Bros. vs. Asstt. CIT (1993) 47 ITD 552 (Cal). In that case relating to asst. yr. 1986-87, the assessee therein handed over its books of account to its auditors on 25th April, 1986, itself for getting the accounts audited under s. 44AB. Due to prior professional commitments the auditors could not complete the audit before the due date. At the instance of the auditors the assessee therein sought extension of time for filing the return along with the audit report. Finally the assessee obtained the audit report on 30th Sept., 1986, and filed the return of income on 21st Oct., 1986. Though the return was filed after the expiry of the due date, the AO did not choose to impose penalty under s. 271(1)(a). However, he chose to levy penalty under s. 271B. The question that arose before the Tribunal in that case was whether the very same reason that constituted reasonable cause for the delay in filing the return could also constitute a reasonable cause for the delay in getting the audit report under s. 44AB. The Tribunal answered the said question in the affirmative and held that it constituted a reasonable cause for not levying penalty under s. 271B. In the case on hand also, penalty proceedings under s. 271(1)(a) were dropped by the AO obviously having been satisfied that there was genuine delay in getting the accounts audited under s. 44AB and obtaining a report of the said audit. The delay on the part of the accountant in completing the audit work before the specified date on account of his prior professional commitments constitutes a reasonable cause for the failure of the assessee to obtain the audit report as required under s. 44AB within the specified date.
30. As has been held by the Supreme Court in the case of Hindustan Steels Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC), penalty cannot be imposed merely because it is lawful to do so unless the party obliged, acts in defiance of law or in utter disregard of the statutory obligations cast on him. In the case on hand, it cannot at all be said that the assessee had acted in defiance of law or in utter disregard of the statutory obligation. The assessee took reasonable care to comply with the provisions of s. 44AB within the specified date but it could not do so for reasons beyond his control. The assessee had shown a reasonable cause for its failure to comply with the provisions of s. 44AB before the specified date for the asst. yr. 1985-86. Therefore cancellation of penalty under s. 271B for the asst. yr. 1985-86 is quite in order.
31. Now let us consider whether cancellation of penalty for the asst. yr. 1986-87 is correct on merits. The authorised representative of the assessee contended that even for the asst. yr. 1986-87 also, the assessee had shown a reasonable cause for its failure to comply with the requirements of s. 44AB before the specified date and that the assessee had not acted in defiance of law or in utter disregard of the statutory obligations cast on him and that the default was due to a reasonable cause. The specified date for the asst. yr. 1986-87 was 30th June, 1986. The due date for the filing of the return of income was also 30th June, 1986. Since the books of accounts could not be closed as there was a difference in trial balance the assessee filed an application in Form No. 6 on 26th June, 1986 for extension of time for filing the return of income till 30th Sept., 1986. The AO having been satisfied with the genuineness of the said request chose to grant time upto 31st July, 1986, for filing the return of income. Again on 26th June, 1986, the assessee filed another application in Form No. 6 requesting for extension of time till 30th Sept., 1986, on the ground that the books of account could not be closed since there is a difference in trial balance requiring to be reconciled. The AO extended time till 31st Aug., 1986, for filing the return of income. Thus, the AO himself having been satisfied with the reason given by the assessee for its inability to close the accounts before 30th June, 1986, and file the return of income, chose to extend time till 31st Aug., 1986, for filing the return of income. Thus, there was a genuine difficulty for the assessee-firm to close its accounts due to the non-reconciliation of some difference in trial balance. Unless it reconciled the difference in trial balance and closed its accounts it cannot entrust its books of account to the accountant for audit work under s. 44AB. Thus, there was a genuine difficulty for the assessee to finalise its accounts before 30th June, 1986, and get its accounts audited under s. 44AB before 30th June, 1986. Soon after the reconciliation of the trial balance difference and the finalising of the accounts by the assessee, the accountant took up the work of the assessee and completed the same and issued the audit report on 30th Oct., 1986. As we have already stated, the AO extended time till 31st Aug., 1986, for filing the return of income considering the genuine difficulty of the assessee in closing the accounts and reconciling the trial balance difference. What is relevant for the purposes of s. 271B is the failure on the part of the assessee to comply with the requirements of s. 44AB before the specified date. The subsequent act of the assessee in obtaining the report of audit after the expiry of the specified date may not automatically erase or obliterate the default committed earlier. However, the subsequent conduct of the assessee in obtaining the report of audit with least practicable delay certainly lends support to his plea that his failure to obtain the audit report before the specified date was for a reasonable cause and was not due to any intentional or deliberate act on his part. Thus, the subsequent act of the assessee in obtaining the audit report becomes relevant for judging the reasonableness or otherwise of the cause shown by the assessee for not complying with the requirements of s. 44AB before the specified date. In the case on hand, the assessee had a genuine difficulty in closing its accounts as it took some time for the reconciliation of the difference in the trial balance. Hence the assessee could not get its accounts audited before 30th June, 1986, the 'specified date.' Soon after the reconciliation of the trial balance difference and finalising of accounts it got the accounts audited under s. 44AB with least practicable delay and obtained the audit report and immediately filed the return of income accompanied by the said report. On the facts and in the circumstances of the case, we are inclined to hold that the assessee had shown a reasonable cause for its failure to comply with the requirements of s. 44AB before the 'specified date'. In that view of the matter the learned CIT(A) has very rightly cancelled the penalty levied under s. 271B for the asst. yr. 1986-87 also.
32. Since we have held on merits that the assessee had shown a reasonable cause for its failure to comply with the requirements of s. 44AB before the specified date and, therefore, no penalty is leviable under s. 271B for the assessment years under consideration, both the appeals filed by the Revenue deserve to be dismissed.
33. In the result, both the appeals are dismissed.