Income Tax Appellate Tribunal - Hyderabad
Assistant Commissioner Of Income-Tax vs Gayatri Traders on 30 April, 1996
ORDER
A. Venku Reddy, Judicial Member
1. These appeals by the Revenue are directed against the consolidated order dated January 30, 1990, of the Commissioner of Income-tax (Appeals), Hyderabad, cancelling the penalty levied under Section 271B of the Income-tax Act, 1961, for the assessment years 1985-85 and 1986-87.
2. When these appeals first came up for hearing before the Division Bench (Income-tax Appellate Tribunal, Hyderabad, Bench-B), learned counsel for the assessee sought to support the impugned order of the first appellate authority, placing reliance on the decision of the Income-tax Appellate Tribunal, Bangalore Bench, in the case of Bangalore Steel Distributors v. ITO [1994] 49 ITD 668, wherein it was held that penalty under Section 27 1B 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 Section 44AB and that no penalty can be levied under Section 271B for the mere delay in complying with the provisions of Section 44AB of the Income-tax Act. On the other hand, the learned Departmental Representative tried to counter this argument by placing reliance on the decision of the Income-tax Appellate Tribunal, Bombay Bench-D (SMC) in the case of Krithumar M. Muchhala v. ITO [1993] 46 ITD 363, wherein it was held that penalty under Section 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 Section 44AB, provided said failure was not for any reasonable cause. Noticing this conflict in the interpretation placed on Section 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 Section 255(3) of the Income-tax Act, the honourable President of the Income-tax Appellate Tribunal has been pleased to constitute this Special Bench for resolving the following issue and disposing of these appeals :
"Whether the provisions of Section 271B of the Income-tax 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 Section 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 assessment years 1985-86 and 1986-87, for which the previous years ended on October 24, 1984, and November 1, 1985, respectively, the assessee-firm was obliged to get its accounts audited as required under Section 44AB and obtain reports of such audit within the specified dates prescribed in Section 44AB as its sales exceeded Rs. 40 lakhs for each of the two assessment years under consideration. The "specified date" for the assessment year 1985-86 as extended by the Central Board of Direct Taxes was September 30, 1985, while the "specified date" for the assessment year 1986-87 was June 30, 1986. The 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 year. It obtained the audit report in Form No. 3CB on January 31, 1986, for the assessment year 1985-86 and on October 30, 1986, for the assessment year 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 Section 44AB for each of the two assessment years under consideration. After completing the assessments, the Assessing Officer initiated penalty proceedings by serving notices on the assessee to show cause as to why penalty should not be levied under Section 271B for obtaining audit reports belatedly for the assessment years 1985-86 and 1986-87.
5. For the assessment year 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 Section 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 part of the assessee in getting its accounts audited and that the penalty proceedings may be dropped. A similar explanation was filed for the assessment year 1986-87 also stating that its auditors were pre-occupied 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 Assessing Officer rejected those explanations and levied penalty of Rs. 34,280 and Rs. 1,00,000 for the assessment years 1985-86 and 1986-87, respectively, under Section 271B by his separate orders both dated March 23, 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 Assessing Officer 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 Section 271(l)(a) also and, therefore, there was no justification for imposition of penalty under Section 271B. The learned Commissioner of Income-tax (Appeals) accepted the aforementioned submissions of the assessee and cancelled the penalties levied under Section 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 Section 44AB constitutes only a technical or venial breach of the law, which cannot be penalised under Section 271B of the Income-tax 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 Section 44AB of the Income-tax 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 Section 44AB shall be completed before the "specified date". What is "specified date" has been mentioned in Clause (ii) of the Explanation to Section 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 Section 44AB, though the assessee got its accounts audited and also obtained a report of such audit subsequent to the "specified date". Section 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 Section 44AB. The requirements of Section 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 Section 44AB is implicit and in-built in the words, "as required under Section 44AB," appearing in Section 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 Section 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 Section 27 1B 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 Income-tax Appellate Tribunal, Bombay Bench-D (SMC) in the case of Kritkumar M. Muchhala v. ITO [1993] 46 ITD 363 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 Section 44AB is conspicuously absent in Section 271B. Section 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 Section 271B for a belated action on the 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 Section 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 Assessing Officer 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 Section 271B, the interpretation which is more favourable to the taxpayer, should be adopted as has been held by the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. Section 271B does not contain any specific provision for levying penalty for failure to comply with the requirements of Section 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 Section 44AB. The learned Authorised Representative of the assessee placed strong reliance on the decision of the Income-tax Appellate Tribunal, Bangalore Bench, in the case of Bangalore Steel Distributors v. ITO [1994] 49 ITD 668, 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 Pvt. Ltd. v. ITO [1971] 80 ITR 627 and the decision of the Allahabad High Court in the case of CIT v. Anchor Pressing (P.) Ltd. [1982] 136 ITR 505 also support the construction placed by the Income-tax Appellate Tribunal, Bangalore Bench, in the case of Bangalore Steel Distributors v. ITO [1994] 49 ITD 668 on Section 271B.
10. In reply, Shri Indrakumar, the learned Departmental Representative, submitted that in case the interpretation given by the Bangalore Bench to Section 271B is accepted, the very object of introduction of Section 44AB into the statute book gets defeated, that the language of Section 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 Section 271 B.
11. We have duly considered the rival submissions. Section 44AB was introduced into the statute book by the Finance Act, 1984, with effect from April 1, 1985. The relevant portion of Section 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 the first day of April, 1985, or any subsequent assessment year ; or ....
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 ;"
12. Clause (ii) of the Explanation to Section 44AB defines and explains "specified date" as follows (prior to April 1, 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. . . ."
13. From a plain reading of Section 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 Section 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.
14. Both these obligations should be completed and complied with before the specified date mentioned in Section 44AB. Thus, the mandatory twin requirements of Section 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 signed by an accountant. A plain reading of Section 44AB clearly indicates that the time-frame mentioned therein is mandatory. The Act does not even give any discretion to the Assessing Officer to extend the time-limit, viz., the "specified date" for getting the accounts audited under Section 44AB. It only indicates the importance of "specified date", i.e., the time-frame, in the scheme of the provisions contained in Section 44AB. It is an essential ingredient of Section 44AB.
15. 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 with Section 44AB. What Section 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 obtained before the "specified date" that can be said to be one obtained as required under Section 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 as required under Section 44AB.
16. Non-compliance with the provisions of Section 44AB renders an assessee liable for penalty under Section 271B. Section 271B was introduced into the statute book along with Section 44AB by the Finance Act, 1984, with effect from April 1, 1985. Section 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 Section 44AB, the Income-tax Officer 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."
17. Section 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 Section 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 the 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 Section 44AB" appearing in Section 271B governs both the limbs. As we have already held, the requirement under Section 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 Section 44AB within the "specified date" clearly attracts the penalty under Section 271B unless the assessee is able to show a reasonable cause for his failure to comply with the provisions of Section 44AB before the "specified date".
18. The quantum of penalty under Section 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 of sales or gross receipts, as the case may be. Since the violation contemplated under Section 271B is the non-compliance with Section 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 Section 271B. What is relevant and material for the purposes of Section 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 Section 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 Section 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 Section 271B.
19. The contention that in the absence of any specific reference to time-frame or "specified date" in Section 271B, it is not permissible to levy penalty under Section 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 Section 271B. However, Section 271B mentions in clear terms the nature of the violation punishable under it. The violations envisaged under Section 271B are, failure to get the accounts audited or to obtain a report of such audit "as required under Section 44AB". We have already held that the words "as required under Section 44AB" govern both the limbs, viz., getting the accounts audited and obtaining a report. The requirements under Section 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, in-built and implicit in the words "as required under Section 44AB" appearing in Section 271B. The expression "as required under Section 44AB" appearing in Section 271B clearly means that what is penalised under Section 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 Section 44AB should have been incorporated in detail into Section 271B. Section 271B should be read along with Section 44AB and not in isolation. When so done, there can be no doubt, whatsoever that the time-frame is in-built in the language of Section 271B.
20. The plain language of Section 271B does not admit of 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 Section 44AB or Section 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 [CITv. 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 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. v. Union Of India [1991] 189 ITR 81 (Delhi)). 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 external aids such as the aims and objects of the provision, the mischief it sought to remedy, etc. As has been held by the Income-tax Appellate Tribunal, Special Bench, in the case of Chemosyn Pvt. Ltd. v. Second ITO [1992] 198 ITR (AT) 209 (Born), where the text is clear, the text is conclusive.
21. 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 Section 44AB and Section 271 B into the statute book stands fully achieved even by placing the limited construction which the Bangalore Bench had placed on the provisions of Section 271B. The scope and effect of Section 44AB was explained by the Central Board of Direct Taxes in its Circular No. 387 (see [1985] 152 ITR (St.) 1), dated July 6, 1984. Paragraph 17.2 of the said circular, which is a contemporaneous exposition of the newly introduced provisions of Section 44AB, runs as follows (at page 12) :
" 17.2. A proper audit for tax purposes would ensure that the books of account 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 Assessing Officers in carrying out routine verifications. . . ."
22. Section 44AB has been specifically made to cover the cases of large turnover assessees. One of the main objects of introducing Section 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 Section 44AB. Even the Assessing Officer is not given any discretion to extend or enlarge the time-limit mentioned in Section 44AB. The contention that the object of introducing Section 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., Section 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 to make it accord with such assumed intention. It is only when there is an ambiguity in the meaning of a provision that 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 v. Indian Bank Ltd, [1965] 56 ITR 77 (SC)).
23. Absence of a specific reference to "specified date" in Section 271B is not a casus omissus. The words "as required under Section 44AB" appearing in Section 271B clearly cover the time-frame mentioned in Section 44AB. By giving that meaning we are not supplying a casus omissus or adding any word or words which are not there in Section 271B. We are only giving effect to the plain language of Section 271B which, in our opinion, does not reasonably admit of 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. Section 271B when read in conjunction with Section 44AB, there can be no scope for any second interpretation to Section 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. [1973] 88 ITR 192. 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 v. Vegetable Products Ltd. [1973] 88 ITR 192 can have no application at all to the case on hand since, in our view, the plain language of Section 271B does not reasonably admit of more than one interpretation.
24. The learned Authorised Representative of the assessee placed reliance on the decision of the Calcutta High Court in the case of Calcutta Chromotype Pvt. Ltd. v. ITO [1971] 80 ITR 627, in support of his contention that in the absence of any specific reference to time-frame in Section 271B, it is not legal to levy penalty for the mere non-compliance with the provisions of Section 44AB before the "specified date", i.e., within the time-frame mentioned in Section 44AB. In that case, the Calcutta High Court was concerned with the interpretation of the provisions contained in Section s 6 and 10 of the Super Profits Tax Act, 1963. Sub-section (1) of Section 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 Income-tax Officer might in his discretion extend the date for the furnishing of the return. Sub-section (2) of Section 6 provided that where the Income-tax Officer 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-section (3) of Section 6 of that Act states that any assessee who has not furnished during the time allowed by the Income-tax Officer under Sub-section (1) or Sub-section (2), or having furnished a return under Sub-section (1) or Sub-section (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. Section 10 of the Act provided for penalties for non-filing of the returns. The relevant portion of the same ran as follows (at page 628 of 80 ITR) :
" If the Income-tax Officer, 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 Section 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. ..."
25. The petitioner--Calcutta Chromotype Pvt. Ltd., furnished its return under Section 6 of the Super Profits Tax Act before the Income-tax Officer on August 30, 1967, in respect of the assessment year 1963-64 and assessment was made on November 21, 1967, on the basis of the return filed.
Subsequently, the Income-tax Officer issued a penalty notice under Section 10 of the Super Profits Tax Act requiring the petitioner-company to show cause as to why an order imposing a penalty under Section 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 Section 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 (at page 630 of 80 ITR) :
" In my opinion, under the relevant provisions of the Super Profits Tax Act, 1963, the Income-tax Officer 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 Income-tax Officer completes the assessment on the basis of such a return."
26. Even a return filed under Section 6(3) of the Super Profits Tax Act, 1963, before the assessment is made, is also a valid return under Section 6, Section 10 merely states that an assessee who fails to furnish the return required under Section 6, is liable for penalty. In that case, the return filed by the assessee therein under Sub-section (3) of Section 6 was also a valid return contemplated under Section 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 with Section 6 on the part of the assessee and, therefore, the penalty notice issued under Section 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 Section 271 B which provisions are not at all in pari materia with the provisions contained in Section s 6 and 10 of the Super Profits Tax Act.
27. The next case relied on by the assessee is CIT v. Anchor Pressing (P.) Ltd. [1982] 136 ITR 505 (All). In that case, the Allahabad High Court was concerned with the interpretation of the provisions contained in Section s 5 and 9 of the Companies (Profits) Surtax Act, 1964, which are similar to Section s 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 Pvt, Ltd. [1971] 80 ITR 627 and held that Section 9 of the Surtax Act envisages the levy of penalty for the failure to file a return under Section 5 without reasonable cause and not for the failure to file a return within the time prescribed under Sub-section (1) or Sub-section (2) thereof and that even a return filed under Section 5(3) at any time before the assessment is made is also a valid return, contemplated under Section 5. In that case the return was filed under Section 5(3). The Allahabad High Court held that when the return was filed under Section 5(3) no penalty is leviable under Section 9 for not filing the return under Section 5(1). The ratio of that decision has no application at all to the facts on hand. The provisions of Sections 5 and 9 of the Surtax Act are not in pari materia with Section 44AB and Section 271B of the Income-tax Act.
28. On a thorough consideration of the rival submissions and on a plain reading of the clear provisions contained in Sections 44AB and 271B, we are unable to agree with the construction placed by the Income-tax Appellate Tribunal, Bangalore Bench, on Section 271B. In our considered opinion, the Income-tax Appellate Tribunal, Bombay Bench-D (SMC), in the case of Kritkumar M. Mudihala v. ITO [1993] 46 ITD 363, had correctly construed the, provisions of Section 271B when it held as follows (at page 370) :
" 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 Section 271B/44AB of the Income-tax 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 Section 271B of the Act, subject, however, to an exception of reasonableness as provided in Section 273B of the Act."
29. The contention of the assessee that Section 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 Section 271B is complete and the assessee renders himself liable for penalty under Section 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 Section 271B.
30. 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 Section 44AB before the "specified date". The learned Departmental Representative contended that admittedly the assessee failed to comply with the requirements of Section 44AB within the "specified date" and thereby rendered himself liable for penalty under Section 271B unless he shows a reasonable cause for his failure to comply with the requirements of Section 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 Section 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 Section 44AB, the learned Commissioner of Income-tax (Appeals) has very rightly cancelled the penalty levied under Section 271B for both the assessment years under consideration.
31. Levy of penalty under Section 271B is neither mandatory nor a must. 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 indicates that the Assessing Officer 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 Section 44AB is committed, the levy of penalty under Section 271B is automatic. The words "without reasonable cause" that existed in Section 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 Section 44AB before the due date, no penalty is leviable under Section 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 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 a harsh legalistic approach should be mitigated by a soft practical approach in applying penal provisions.
32. Now let us take up the appeal relating to the assessment year 1985-86 and find out whether the appellant had shown a reasonable cause or not for its failure to comply with the requirements of Section 44AB within the specified date. It was the very first year of assessment to which the provisions of Section 44AB came to be applied. The specified date as extended by the Central Board of Direct Taxes for the assessment year 1985-86 was September 30, 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 September 10, 1985, itself for audit under Section 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 Assessing Officer requesting the latter to extend time for filing the return of income till September 30, 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 the 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 Section 44AB before the specified date. There appears to be some substance in the aforementioned submissions of the assessee.
33. As we have already stated, the specified date as extended for the assessment year 1985-86 was September 30, 1985. On June 23, 1985, the assessee filed Form No. 6 before the Assessing Officer requesting for extension of time for filing the return of income for the assessment year 1985-86 till September 30, 1985, on the ground that the books of account 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 Assessing Officer issued a notice under Section 139(2) dated August 16, 1985, to file the, return. The assessee sent a reply dated August 17, 1985, stating as follows :
" As our turnover exceeds Rs. 40 lakhs, as per provisions of Section 44AB, the accounts of the firm are to be audited by a chartered accountant. We have appointed G. S. Madhavarao and 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."
34. 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.
35. The chartered accountant to whom the assessee entrusted the audit work on September 10, 1985, sent the following reply dated September 26, 1985, to the assessee :
" With reference to your letter dated September 10, 1985, we hereby convey our acceptance to conduct audit under Section 44AB of the Income-tax 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."
36. 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 September 30, 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 in trial balance took some time for reconciliation. Ultimately, the audit was completed and the report of audit was issued on January 30, 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 dated March 2, 1987, sent by the assessee to the show-cause notice issued under Section 271B for the assessment year 1985-86 is also important. The relevant portion of the said reply dated March 2, 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 January 30, 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, date-wise 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."
37. 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 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 could it 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.
38. It would appear that the Assessing Officer though initiated penalty proceedings under Section 271(l)(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 January 30, 1986. At this stage, it would be useful to refer to the decision of the Income-tax Appellate Tribunal, Calcutta Bench-A, in the case of Kumar Brothers v. Asst. CIT [1993] 47 ITD 552. In that case relating to the assessment year 1986-87, the assessee therein handed over its books of account to its auditors on April 25, 1986, itself for getting the accounts audited under Section 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 September 30, 1986, and filed the return of income on October 21, 1986. Though the return was filed after the expiry of the due date, the Assessing Officer did not choose to impose penalty under Section 271(l)(a). However, he chose to levy penalty under Section 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 Section 44AB. The Tribunal answered the said question in the affirmative and held that it constituted a reasonable cause for not levying penalty under Section 271B. In the case on hand also, penalty proceedings under Section 271(l)(a) were dropped by the Assessing Officer obviously having been satisfied that there was genuine delay in getting the accounts audited under Section 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 constitute a reasonable cause for the failure of the assessee to obtain the audit report as required under Section 44AB within the specified date.
39. As has been held by the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, 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 Section 44AB within the specified date but it could not do so for reasons beyond its control. The assessee had shown a reasonable cause for its failure to comply with the provisions of Section 44AB before the specified date for the assessment year 1985-86. Therefore, cancellation of penalty under Section 271B for the assessment year 1985-86 is quite in order.
40. NOW, let us consider whether cancellation of penalty for the assessment year 1986-87 is correct on merits. The Authorised Representative of the assessee contended that even for the assessment year 1986-87 also, the assessee had shown a reasonable cause for its failure to comply with the requirements of Section 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 assessment year 1986-87 was June 30, 1986. The due date for the filing of the return of income was also. June 30, 1986. Since the books of account could not be closed as there was a difference in trial balance the assessee filed an application in Form No. 6 on June 26, 1986, for extension of time for filing the return of income till September 30, 1986. The Assessing Officer having been satisfied with the genuineness of the said request chose to grant time up to July 31, 1986, for filing the return of income. Again on July 26, 1986, the assessee filed another application in Form No. 6 requesting for extension of time till September 30, 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 Assessing Officer extended time till August 31, 1986, for filing the return of income. Thus, the Assessing Officer himself having been satisfied with the reason given by the assessee for its inability to close the accounts before June 30, 1986, and file the return of income, chose to extend time till August 31, 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 Section 44AB. Thus, there was a genuine difficulty for the assessee to finalise its accounts before June 30, 1986, and get its accounts audited under Section 44AB before June 30, 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 October 30, 1986. As we have already stated, the Assessing Officer extended time till August 31, 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 Section 271B is the failure on the part of the assessee to comply with the requirements of Section 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 the 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 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 Section 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 June 30, 1986, the "specified date". Soon after the reconciliation of the trial balance difference and finalising of accounts it got the accounts audited under Section 44AB with the 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 Section 44AB before the "specified date". In that view of the matter, the learned Commissioner of Income-tax (Appeals) has very rightly cancelled the penalty levied under Section 271B for the assessment year 1986-87 also.
41. Since we have held on merits that the assessee had shown a reasonable cause for its failure to comply with the requirements of Section 44AB before the specified date and, therefore, no penalty is leviable under Section 271B for the assessment years under consideration, both the appeals filed by the Revenue deserve to be dismissed.
42. In the result, both the appeals are dismissed.