Income Tax Appellate Tribunal - Hyderabad
Progressive Constructions (P.) Ltd. vs Income-Tax Officer on 6 November, 1986
Equivalent citations: [1987]20ITD182(HYD)
ORDER
T. Venkatappa, Judicial Member 1 The dispute in this appeal is with regard to the penalty levied under Section 271B of the Income-tax Act, 1961 ('the Act'). The assessee carries on business in the execution of the Government contract works and also construction and sale of flats. The total receipts during this year amounted to Rs. 9,95,42,000. The assessee filed its return of income on 15-4-1985. But it did not file the audit report as required under Section 44AB of the Act within the specified date. In this year the time for filing the audit report was extended up to 30-9-1985. The ITO issued notice under Section 271B in response to which the assessee filed an explanation. It was stated therein that the auditors of company Anjaneyulu & Co., Hyderabad resigned on 16-8-1985 and another auditor, namely, C. Venkata Krishna & Co. was appointed on 28-8-1985 who commenced the work of audit by the end of September 1985 and the audit report was submitted in January 1986 which was filed later. It was urged that there was reasonable cause for not filing the audit report within the specified date and so the penalty proceeding should be dropped. The ITO held that the company did not take any steps to have its accounts audited either for the purpose of the Companies Act, 1956 or under Section 44AB of the Income-tax Act. Due to the assessee's failure to get its accounts audited and obtain the report of the auditors under Section 44AB within the specified time without any reasonable cause, the provisions of Section 271B are attracted. Accordingly, he imposed a penalty of Rs. 1 lakh under Section 271B. On appeal, the Commissioner (Appeals) held that the audit under the Companies Act should have been completed by 31-3-1985. It is reasonable to expect that the assessee should have pressed the erstwhile auditors to commence the audit work in 1984 itself. Section 44AB insists on finalising and auditing of accounts before the specified date. The Act will not take into account the presence or absence of any explanation for the delay in completion of audit under any other Act. The onus of getting the accounts audited is on the assessee. The assessee's failure to explain why it had failed to obtain the audit report within the time makes it exigible for the levy of penalty. The assessee had not brought out any material to show that it had attempted to obtain the report from the earlier auditor. Thus, the penalty levied was upheld. Against the above order the assessee has preferred the present appeal.
2. The learned Counsel for the assessee strongly urged that the previous auditor resigned on 16-8-1985 and thereafter another auditor was appointed on 28-8-1985 who completed the audit in January 1986. The assessee's works were in Andhra Pradesh, Madhya Pradesh and Orissa and the books were in different places. It is on account of the delay on the part of the previous auditor in taking up the audit work in time that there was delay and after their resignation another auditor was appointed who completed the audit in January 1986. Thus, there was reasonable cause for the delay in filing the audit report. Until the statutory audit under the Companies Act is complete, the audit report under Section 44AB cannot be filed. There was delay in auditing accounts in view of the resignation of the previous auditor. He submitted that there was reasonable cause for the delay in filing the audit report and so no penalty is leviable. He submitted that the language of Section 44AB is identical with the language in Section 271(1)(a) of the Act. He relied on the decision of the Calcutta High Court in CIT v. Sulekha Works (P.) Ltd. [1985] 156 ITR 190 and also the decision of the Delhi High Court in Modern Lamba v. CIT [1983] 139 ITR 849. The learned departmental representative strongly urged that the books of account were not made available to the previous auditor and as such the previous auditor did not commence the audit work. Hence, lapses were on the part of the assessee. He pointed out that the return of income was filed on 15-4-1985 along with statements which were signed by the auditors Venkata Krishna & Co., who were appointed as auditors on 28-8-1985 after the resignation of the previous auditor. When those statements could be prepared, the assessee could have got its books audited and filed the report. Thus, he submitted that there was no reasonable cause for not filing the audit report within the specified date. He also urged that the assessee did not seek any extension of time for filing the audit report. Thus, he justified the levy of penalty. In reply the learned Counsel for the assessee submitted that the very fact that Venkata Krishna & Co. signed the statements filed along with the return would show that the books of account were available. This would clearly prove that the previous auditors' letter dated 6-1-1986 stating that the books were not made available is not correct. The assessee was anxious to get the books audited but the previous auditor did not audit the accounts. He ultimately resigned and a new auditor has been appointed who completed the audit in January 1986. He urged that there was no contumacious conduct on the part of the assessee. He submitted that unless the books are audited no auditor would furnish the audit report. He strongly urged that there was reasonable cause for the delay in filing the audit report and no penalty is leviable.
3. We have considered the rival submissions. Section 44AB has come into force from 1-4-1985. It applies for the assessment year 1985-86. Under this provision every person carrying on business whose turnover or gross receipts exceed Rs. 40 lakhs shall get his 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 certified by such accountant. Under the proviso thereto where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance if such person gets the accounts audited under such law before the specified date and obtains before that date the report of the audit as required under such other law and a further report in the form prescribed under this section. Under the Explanation thereto the specified date means the date of expiry of 4 months from the end of the previous year of 30th June of the assessment year whichever is later. In this year the CBDT has extended the time up to 30-9-1985 for filing the audit report. Section 271B under which the penalty is levied reads as under :
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.
Under the above provision penalty may be levied by the ITO if without reasonable cause any person fails to get his accounts audited and obtain a report of such audit as required under Section 44AB. So, the question for consideration is whether there was a reasonable cause for the delay on the part of the assessee in obtaining the audit report under Section 44AB. Originally, Anjaneyulu & Co., chartered accountants were appointed as auditors for the statutory audit under the Companies Act as well as for the audit report under Section 44AB. They resigned on 16-8-1985. In their letter of resignation dated 16-8-1985 they had stated that due to pressure of work they are unable to continue and undertake the company's audit work. Thereafter the assessee appointed on 28-8-1985 C. Venkata Krishna & Co. who started the audit work in September 1985 and completed it in January 1986 and the audit report was filed in February 1986. The above facts would clearly show that it is on account of the resignation of Anjaneyulu & Co. on 16-8-1985 and thereafter reappointing C. Venkata Krishna & Co. chartered accountants as auditors there was delay in getting the books audited and obtaining the audit report. Thus, there was reasonable cause for the delay in obtaining the audit report required under Section 44AB. The ITO in his order referred to a letter dated 6-1-1986 of Anjaneyulu & Co. wherein it was stated that till the date of their resignation no communication was received in regard to the readiness of the books of account to commence the audit. This was not stated in their resignation letter dated 16-8-1985. This letter was not put to the assessee at all. In the grounds of appeal before the Commissioner (Appeals) a ground was taken urging that the said letter dated 6-1-1986 ought not to have been relied on by the ITO as it was not communicated to them for its reply and rebuttal. Hence, this letter dated 6-1-1986 of Anjaneyulu & Co. cannot be relied as it was not put to the assessee at all. The return was filed on 15-4-1985 along with statements and annexures based on books of account. That shows that books were available. The new auditors C. Venkata Krishna & Co. took up the audit in September 1985, completed the same in January 1986 and filed the audit report in February 1986. In our view there was reasonable cause for the delay in filing the audit report as required under Section 44AB.
4. Under Section 271(1)(a) also if any person has without reasonable cause failed to furnish the return within the time, the ITO has power to levy penalty. Both in Section 271(1)(a) and in Section 44AB the words 'without reasonable cause' occur. Section 271(1)(a) was considered in some cases. In Sulekha Works (P.) Ltd.'s case (supra) the Calcutta High Court held that unless the audit is completed and the auditors' report and balance sheet are made available, a company cannot furnish its return of income and so there was reasonable cause for the delay in filing the return till the audit report was received on 10-9-1964 and no penalty would be leviable up to that date under Section 271(1)(a). The Tribunal, Delhi Bench 'B' in Ravi Textile (P.) Ltd. v. IAC [1986] 15 ITD 49 held that there was reasonable cause for the delay in filing the return till the audit certificate was given on 8-10-1971 and no penalty would be leviable under Section 271(1)(a) till that date. The ratio laid down in the above decisions would squarely apply even in respect of penalty levied under Section 271B. With respect we follow the above decisions and apply the same to the facts of the instant case. In our view there was reasonable cause for the delay in obtaining the audit report under Section 44AB. Thus, on the facts of the instant case, no penalty would be leviable under Section 271B. We cancel the penalty levied under Section 271B.
5. In the result, the appeal is allowed.