Income Tax Appellate Tribunal - Ahmedabad
H. Ajitbhai And Co. vs Assistant Commissioner Of Income-Tax on 29 January, 1993
Equivalent citations: [1993]45ITD262(AHD)
ORDER
B.M. Kothari, Accountant Member
1. Both these appeals are directed against the consolidated order of the CIT (Appeals) confirming the levy of penalty under Section 271B for assessment years 1986-87 and 1987-88.
2. The assessee-firm was carrying on the business of dealers in cloth on wholesale basis. The returns of income for assessment years 1986-87 and 1987-88 were voluntarily filed under Section 139(1) of the IT Act, 1961 declaring loss at Rs. 2,27,944 and Rs. 2,54,240 respectively. The declared loss was accepted in assessments made under Section 143(1) vide orders dated 31-10-1988. A perusal of these assessment orders reveals that there is no mention about initiation of any penalty proceedings.
3. The assessee was required under Section 44AB to obtain a tax audit report on or before 30-6-1986 for assessment year 1986-87 and on or before 30-6-1987 for assessment year 1987-88. These reports were prepared by the Chartered Accountants on 20-10-1986 i.e., late by 4 months' time approximately for assessment year 1986-87 and on 17-7-1987 for assessment year 1987-88 i.e. late by 17 days. The Assessing Officer issued show-cause notice for penalty under Section 271B for these two years which were served on the assessee on 1-3-1990. The date on the notice for assessment year 1986-87 mentioned by the Assessing Officer is 1-3-1989 while the date on the notice for assessment year 1987-88 is 1-3-1990. The assessee submitted a consolidated reply dated 5-3-1990 in which it was, inter alia, stated that the firm being a dealer in cloth on wholesale basis, its certain customers are the up-country constituents and it always takes considerable time to settle the accounts with them. After such a process is over, the books of account are finally closed and adjusted and thereafter they are produced before the CAs for audit. Due to pressure of work in the office of the C.A., the work of obtaining the audit report may also take some time and the final report is usually delayed. The assessee recorded an assurance that such a delay will not be repeated in future. It also pointed out that in the assessments no such penalty proceedings were initiated and such penalty proceedings cannot be validly initiated at this late stage after 16 months from the date of passing of the order. The assessee, relying on certain cases referred to in the said letter, urged that the penalty proceedings should be dropped. The ITO, after considering the submissions made by the learned representative, levied penalty of Rs. 30,972 for assessment year 1986-87 and Rs. 25,842 for assessment year 1987-88.
4. The CIT (Appeals) confirmed the said penalties. He observed that the provisions of Sections 271 and 271B are different. While in the case of penalty under Section 271, it is necessary that it should be initiated during the course of "any proceedings" under the Act, there is no such requirement in respect of penalty under Section 271B. On the contrary if there is a default under Section 271B, the levy of penalty appears to be obligatory. On merits also he observed that penalty cannot be deleted.
5. The learned counsel for the assessee submitted that the provisions of Section 275 requires that such penalty should be initiated in the course of assessment proceedings. He relied on the decisions in IAC v. Hindustan Lever Ltd. [1991] 39 ITD 147 (Bom.), 164 ITR 264 (sic), Sivagaminatha MoopanarandSonsv. ITO [1955] 28 ITR 601 (Mad.), [1991] 3 SCC 609 (sic).
5.1 On merits, the learned counsel contended that the assessee furnished returns of losses which have been accepted as correct. The furnishing of delayed return of loss in no way adversely affect the interest of revenue. In fact the assessee was under no obligation to file any return of income voluntarily under Section 139(1) in view of such huge loss. He contended that in the case of an agriculturist having a turnover of more than Rs. 40 lakhs of his own crops, the provisions of Section 44AB cannot be applied as his agricultural income is not liable to tax and he is not liable to file the return. On the same reasoning a person having such huge loss is under no obligation to file the return and in turn he is not liable to get the tax audit done under Section 44AB. He also invited our attention towards the judgment of Hon"ble Gujarat High Court in the case of Rajkot Engg. Association v. Union of India [1986] 162 ITR 28 in which it was held that the ITO has to determine the penalty under Section 271B only if he is satisfied that the specified default is without reasonable cause. Reliance was also placed on the judgment of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26. Our attention was also invited towards the facts mentioned in the statement of facts annexed with the appeal. The other relevant facts mentioned in the said Statement of Facts are briefly as follows : The appellant was an exclusive dealer of Ambica Mills. The said mill gradually since 1986 or so closed its entire business. The assessee, therefore, found it more difficult to realize dues in respect of the goods given on credit to dealers in Madras and elsewhere. The assessee, therefore, had to pay interest at the rate of 18 per cent p.a. to its depositors, banks and mills on account of delayed recovery from the debtors. This resulted in substantial losses. There were three consecutive years of famine in the State of Gujarat in the recent past prior to the accounting year in question which also resulted in losses to the appellant. In view of all these facts and circumstances and the legal objection he submitted that the penalty should be cancelled.
6. The learned D.R. supported the levy of penalty and relied upon the elaborate reasons mentioned in the order of the CIT (Appeals) as well as in the penalty order passed by the Assessing Officer. It was pointed out by him that a plain reading of Section 271B clearly reveals that there is no need for the Assessing Officer to initiate the penalty proceedings under Section 271B in the course of assessment proceedings. The failure to get the accounts audited before the prescribed time would automatically result in levy of penally. The Tax Laws (Amendment and Miscellaneous Provisions) Act, 1986 omitted the words "without reasonable cause" in the said section w.e.f. 10-9-1986. Tax Audit Report for both these years were obtained in (he present case after 10-9-1986. The facts of the case in Rajkot Engg. Association's case [supra] are, therefore, clearly distinguishable as that case relates to validity of Section 44AB. He, therefore, urged that the order of the CIT (Appeals) should be confirmed.
7. We have carefully considered the rival submissions made by the learned representatives and have also gone through the orders of the departmental authorities. We have also carefully gone through the various judgments relied upon by the learned representatives.
7.1 We will first deal with the legal objection raised on behalf of the assessee. It is an undisputed and admitted fact that the penalty proceedings under Section 271B had not been initiated for both the years under consideration until completion of the assessment proceedings. The assessee's contention that penalty notices for both these years for the first time were issued after expiry of 16 months' period from the date of completion of the assessments for both these years has also not been disputed or controverted by the learned departmental authorities nor by the learned D.R. before us. It is true that the language used in Section 271B and Section 271 is different. Section 271 specifically provides that if the Assessing Officer or D.C. (Appeals) or CIT (Appeals), in the course of any proceedings under this Act is satisfied about the defaults contemplated in Section 271, he may direct that such persons shall pay penalties as provided in Section 271. However, Section 271B provides that if any person fails to get his accounts audited as required under Section 44AB within the prescribed time, the Assessing Officer may direct that such person shall pay by way of penalty a sum equal to one-half per cent of his total sales/turnover or gross profit or a sum of Rs. 1 lakh whichever is less. It is also true that the words "without reasonable cause" appearing in Section 271B have been omitted w.e.f. 10-9-1986. Simultaneously the provisions of Section 273B was inserted by the same amending Act w.e.f. 10-9-1986 saying that nothwithstanding anything contained in the various penalty provisions including Section 271B, no penalty shall be imposable on the person for any such default, if he proves that there was reasonable cause for the said default. Thus the onus of proving the existence of reasonable cause has been shifted on the assessee as a result of the aforesaid amendment.
7.2 It will also be worthwhile to reproduce the provisions of Section 275 of the IT Act, 1961 as it existed prior to its amendment by the Direct Taxes Laws (Amendment) Act, 1987 w.e.f. 1-4-1989:
275. No order imposing a penalty under this Chapter shall be passed-
(a) in a case where the relevant assessment order or other order is the subject-matter of an appeal to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) under Section 246 or an appeal to the Appellate Tribunal under Sub-section (2) of Section 253, after the expiration of a period of-
(i)two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or
(ii) six months from the end of the month in which the order of the Deputy Commissioner (Appeals) or the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later.
(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.
It is true that Section 271B or any other provisions of the IT Act nowhere expressly prescribes a period of limitation for the initiation of penalty proceedings under Section 271B. But it is clear from a plain reading of the language of Section 275 as well as it is implied in the scheme of the provisions that such penalty proceedings under Section 271B should necessarily be initiated while the Assessing Officer is in session of assessment proceedings and not afterwards. The use of expression "in the course of which action for imposition of penalty has been initiated are completed" in Section 275 implicitly contain a limitation that the penalty proceedings under Section 271B should necessarily be commenced before completion of the assessment proceedings. The said provision provides an explicit limitation, namely, that the order imposing penalty has to be passed within the period prescribed in Section 275. That period of limitation starts running with reference to the date of completion of the proceedings in the course of which action for imposition of penalty in question has been initiated. Thus by necessary implication, the statute, by use of these words in Section 275, has also provided that action for imposition of penalty must be initiated in the course of some prior proceedings, which in the present case can only mean that it should be initiated in the course of assessment proceedings. Such a view is fortified by the decisions in CIT v. Sardar Amarjit Singh [1981] 132 ITR 365 (Delhi), CIT v. Rajinder Kumar Somani [1980] 125 ITR 756 (Delhi) and DM. Manasvi v. CIT [1969] 72 ITR 17 (Guj.) which has been affirmed by the Hon'ble Supreme Court in the case of DM. Manasvi v. CIT [1972] 86 ITR 557. In view of the aforesaid discussions, we are of the considered opinion that the Assessing Officer could not have validly initiated the penalty proceedings under Section 271B after the completion of the assessment proceedings for the years under consideration. It may not be necessary for the Assessing Officer to issue show cause notice under Section 271B prior to completion of the assessment but there has to be some material on records to indicate that such penalty proceedings had been initiated before completion of the assessments in question. Nothing has been pointed out by the departmental authorities or by the learned D.R. before us showing that the penalty proceedings were initiated prior to completion of the relevant assessments. In fact the contention of the assessee that the penalty notices under Section 271B were issued for the first time after a period of 16 months from the date of completion of the assessments has not been disputed by the departmental authorities or by the learned D.R. before us. In view of these facts and the legal position, we are of the considered opinion that penalties levied on the assessee cannot be sustained for both the years under consideration.
7.3 Let us examine this matter from one more angle. The learned D.R. contended that once a default in complying with the provisions of Section 44AB is found, the levy of penalty is obligatory, mandatory and automatic. Such a contention cannot be accepted. The plain language of Section 271B provides that if any person fails to get his accounts audited or obtain a report as required under Section 44AB, the Assessing Officer "may direct that such person shall pay by way of penalty". The use of the words "may direct" clearly reveals that the Assessing Officer is vested with the discretion to impose or not to impose penalty keeping in mind the facts and circumstances of each case. Such a discretion has to be exercised by the Assessing Officer judicially and on a consideration of all the relevant facts and circumstances. When there is technical or a minor breach of law and when having regard to the facts, ends of justice require that the assessee should not be penalised, the Assessing Officer has the powers to exercise such a discretion in a reasonable and judicious manner. Similarly, the language of Section 273B, provides that no penalty shall be levied under Section 271B if the assessee proves that there was a reasonable cause for the said failure. Thus in a case where the circumstances clearly establish that there is no material at all to justify any want of bona fides and there were reasonable causes which resulted in delay in getting the audit done, the Assessing Officer in appropriate cases will have a statutory duty not to impose penalty under Section 271B. From these principles, let us examine the facts of this case. It is an undisputed fact that the assessee suffered heavy losses of Rs. 2,27,940 and Rs. 2.54,240. The assessee admittedly submitted these returns voluntarily without issue of any notice for both these years. The circumstances explained by the assessee which resulted in heavy loss coupled with the fact that finalisation of accounts was delayed due to reconciliation of accounts with the customers and others, the delay of a short period of 3 months and 20 days in assessment year 1986-87 and delay of only 7 days in assessment year 1987-88, in our opinion, would be covered by reasonable cause. The facts and circumstances explained by the assessee in the course of the penalty proceedings clearly prove that the short delay in getting the audit completed had occurred on account of such reasonable cause. The penalty, therefore, deserves to be cancelled in view of the aforestated facts and circumstances of the present case.
8. In the result, both the appeals are allowed.