Income Tax Appellate Tribunal - Pune
Kripa Industries (I) Ltd. vs Jt. Cit on 30 October, 2001
Equivalent citations: (2002)76TTJ(PUNE)502
ORDER
B.L. Chhibber, A.M. The only grievance projected in this appeal by the assessee is that the learned Commissioner (Appeals) is not justified in confirming the levy of penalty of Rs. 1,00,000 levied by the assessing officer under section 271B of the Income Tax Act, 1961.
2. The assessee is a public limited company. For the assessment year 1997-98, the assessee-company furnished the return of income on 29-11-1997. Along with the return of income, the assessee did not file the tax audit report as required under section 44AB of the Act. The assessing officer accordingly initiated penalty proceedings under section 271B. In response to the show-cause notice, the assessee-company submitted before the assessing officer as follows :
"that there was difference of opinion between the company and the statutory auditors. The matter was referred to Registrar of Companies. As per the decision of the ROC auditors of the company finalised their statutory audit on 29-5-1998. The company could not undertake their tax audit as the statutory audit of the company was not finalised. The tax audit was, therefore, finalised on 3-8-1998."
The assessing officer was not satisfied with the explanation furnished and levied the impugned penalty observing as under :
"As per the provisions of section 44AB of the Income Tax Act, 1961, the assessee- company was required to file the tax audit report with the assessing officer on or before 30-11-1997. The explanation given by the assessee for non-filing of the same is not convincing. The assessee should have taken proper steps to get the tax audit done within the time stipulated."
3. On appeal, the learned Commissioner (Appeals) confirmed the impugned penalty observing as under :
"I do not agree with the authorised representative that non-completion of statutory report is a reasonable cause for delay in filing the tax audit report. The appellant could easily have finalised the tax audit report or at least filed a provisional tax audit report in the absence of statutory report. Thus, there is no sufficient reason for the appellant not having filed the tax audit report within the statutory time-limit. The facts of the case clearly reveal that the appellant is not serious about complying with the statutory provisions. I, therefore, find the appellant's case to be a fit case for levy of penalty. In view of the above, there is no reason for me to interfere with the assessing officer's action for levy of penalty which is hereby confirmed."
4. Shri M.K. Kulkarni, the learned counsel for the assessee, submitted that the assessee-company had appointed M/s G.S. Dugal & Co., chartered accountants, 520 Maker Chamber V, Nariman Point, Mumbai, as its statutory auditors to do statutory audit for the year ending 31-3-1997. The auditors did conduct the audit till 9-9-1997, after which they suddenly discontinued the audit without any information to the company. The company wrote to the auditors on 12-9-1997, and requested for completion of the remaining audit. In reply, the auditors informed that they had raised certain points for which there was no reply. They also asked for increase in the fees. The company replied to the auditors refuting the charges, offered to pay Rs. 25,000 as audit fee (as against Rs. 5,000 for financial year 1995-96) and once again requested to resume the audit. The company also wrote to the Regional Director, Company Law Board, Bombay (pages 11 to 14 of the paper book), asking for permission to remove the statutory auditors. On this, the CLB asked the auditors to complete the audit. It was only after these happenings that the statutory auditors finalised the audit and gave a report on 28-5-1998. The learned counsel submitted that the above facts are full proof of the reasonable cause for the delay in filing tax audit report and the assessing officer has no cheeks to say that, the reasonable cause shown by the assessee is not convincing. The assessee could not change the auditors in the middle of the stream without following proper procedures. The learned counsel concluded that there was a reasonable cause and the authorities below are not justified in imposing the impugned penalty for technical defaultlvenial default and in support of his contentions, he relied upon the decision of the Calcutta Bench in the case of Dy. CIT v. Machino Techno Sales (P) Ltd (1998) 62 ITD 225 (Cal-Trib) (TM) and the decision of the Bombay Bench in Dy. CIT v. Rediffusion Advertising Ltd. (1998) 65 ITD 29 (Mum-Trib).
5. Shri Shishir Agarwal, the learned Departmental Representative, strongly supported the orders of the authorities below. He submitted that it was for the assessee to manage its affairs and the assessee should have taken proper steps to get the tax audit within the time stipulated and the assessee failed to do so and accordingly, the assessee committed a default under section 271B of the Act.
6. I have considered the rival submissions and perused the facts on record. The whole purpose of giving an opportunity under section 274 before levying penalty under section 271B is to see whether the default committed by the assessee was for good and sufficient reasons. For levying penalty under section 271B of the Act, default must be wilful and not merely accidental. The imposition of penalty under section 271B is within the discretion of the assessing officer as the language of the section states : "...... the assessing officer may direct that such person shall pay by way of penalty..." However, the exercise of discretion is not to be arbitrary but is dependent on the facts and circumstances of the case. It is also clear from the provisions of section 271B that penalty is not automatically attracted in case of default in not getting the audit report within the statutory time-limit and the same is to be imposed if the facts and circumstances on which discretion is to be exercised justify imposition of penalty. In the case before me, there was certainly the reasonable cause. The delay in non-completion of the statutory audit was not on account of any non-compliance by the assessee or any conscious neglect on its part. The delay was on account of the fact that the statutory auditors had left the assessee in lurch in the middle. From the facts of the case, it is evident that the auditors started the work on 9-9-1997, i.e., well before the due date, but they stopped work in between. The assessee-company enquired from the statutory auditors M/s G.S. Dugal & Co. the reasons for not continuing the audit and on knowing the reasons proper clarification was given and the demand for increased fees was also accepted. As a matter of abundant caution, reference was also made to the Company Law Board for the removal of the auditors and it was on the intervention of the Company Law Board that the auditors finalised the audit on 24-5-1998. Thus, there was reasonable cause for the delay and I do not find any merit in the observations of the authorities below that the reasonable cause shown by the assessee is not convincing. The Hon'ble Supreme Court has observed in the case of Food Corpn. of India v. Kamdhenu Cattle Feed Industries JT 1992 (6) SC 259 as under :
"There is no unfettered discretion in public law. A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is 'fairplay in action'. Due observance of this obligation as part of good administration raises a reasonable or legitimate expectation in every citizen to be treated fairly in his interaction with the state and its instrumentalities with this element forming a necessary component of the decision-making process in all state actions. To satisfy this requirement of non-arbitrariness is a state action, it is therefore, necessary to consider and given due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision or else that unfairness in the exercise of the power may amount to an abuse or excess of power apart from affecting the bona fides of the decision in a given case. The decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion in the exercise of power, as it is unrealistic, but provides for control of its exercise by judicial review."
It is obvious that in the light of doctrine of "legitimate expectation" as propounded by the Hon'ble Apex Court above, the orders of the authorities below are arbitrary and deserve to be cancelled. I accordingly cancel the impugned penalty.
7. In the result, the appeal is allowed.