Income Tax Appellate Tribunal - Mumbai
Meridian Construction P. Ltd, Mumbai vs Assessee on 16 February, 2012
IN THE INCOME TAX APPELLAT E TRIBUNAL
MUMBAI BENCHES, 'B', MUMBAI
BEFORE HON'BLE PRESIDENT SHRI G.E.VEERABHADRAPPA
AND SHRI D.K.AGARW AL (JM)
ITA No.3154 & 3155/Mum/2011
(Assessment Years:2006-07 and 2007-08)
M/s Meridian Construction Dy. Commissioner of
Pvt.Ltd., Income Tax,
112, Maker Chambers III, Central Circle-44,
223, Nariman Point, V/s Mumbai.
Mumbai-400021
PAN:AAACM4144Q
APPELLANT RESPONDENT
Date of Hearing : 16.2.2012
Date of Pronouncement : 29.2.2012
Appellant by : S/Shri Vijay Mehta & Ashwin Patel
Respondent by : Shri Arun Kumar
ORDER
PER D.K.AGARWAL (JM) These two appeals preferred by the assessee are directed against the common order dated 25.2.2011 passed by the ld. CIT(A) for the Assessment Years 2006-07 and 2007- 08 confirming the penalty of Rs.1,00,000/- in each year imposed by the assessing officer u/s 271B of the Income Tax Act, 1961(the Act). Since facts are identical and issue involved ITA N o .3154 & 315 5/ M um/ 2011 2 ( Assessmen t Yea rs:2006-07 and 2007- 08) is common both these appeals are disposed of by this common order for the sake of convenience.
2. Briefly stated facts of the case are that the assessee company is engaged in the business as builders and developers. A search and seizure action u/s.132 of the Act was carried out in the case of assessee on 10.8.2006. As a result of search, evidence was unearthed indicating the under statement of sales by the assessee to the tune of 40% of its turnover. The assessee filed its income declaring a total loss of Rs.1,57,02,360/- and Rs.11,89,74,148/- for assessment years 2006-07 and 2007-08 on 31.3.2008 and 1.5.2008 respectively and the assessments were completed on 31.12.2008 at incomes of Rs.7,50,75,192/- and 1,72,16,682/- for assessment years 2006-07 and 2007-08 respectively. The AO noted that the assessee failed to get its account audited before the specified date ie 30.11.2006 for A.Y.2006-07 and 30.11.2007 for A.Y.2007-08. The audit report in form No.3CA along with form No.3CB was filed by the assessee on 28.03.2008. In response to the show cause for levy of penalty, the assessee replied vide its letter dated 15.5.2008 as under:
"1. There was a search action on the group on 10.8.2006. Pursuance to which we were compiling the details of the paper seized. In that process it took lot of time. Moreover, the accounts were incomplete.
ITA N o .3154 & 315 5/ M um/ 2011 3 ( Assessmen t Yea rs:2006-07 and 2007- 08)
2. Thereafter our accounts personnel who was looking after the accounts left the organization which further delayed the process of finalization of accounts, consequently audit and filing of returns.
3. In the mean time we got the accounts completed and started working upon the finalization process. Our Chartered Accountant M/s. A C Kamdar & Co., who were auditing our accounts since last several years decided to discontinue due to his aging problems. He was 78 years as on the date of discontinuation.
4. Further the investigation department also wanted to fulfill their compliances. Therefore, in doing so we spent some time on search work.
5. Since our regular CA had decided to leave us we tried to find a new C.A. In that process also we lost substantial time."
The AO did not satisfy with the explanation of the assessee and observed that the accounts of the assessee were computerized and the department had merely taken the data on back up CD's while the original data remained with the assessee. The assessee company is part of a large group of companies, who have a large continent of staff and professionals working for them. The delay in getting the accounts audited has obviously been occasioned by the unearthing of incriminating evidences by the department confirming the fudging of accounts by the assessee. The explanations like not having a C.A. etc., put forth by the assessee are specious in nature and merely lame excuses to explain away its failure to get its accounts audited before the specified date. The assessee has failed to get its ITA N o .3154 & 315 5/ M um/ 2011 4 ( Assessmen t Yea rs:2006-07 and 2007- 08) accounts audited without any justified reasonable cause, before the specified date, which is a proven and admitted fact. Accordingly, the AO imposed penalty of Rs.1,00,000/- for assessment year 2006-07 and Rs.1,00,000/- for assessment year 2007-08 vide separate orders dated 30.6.2009 passed u/s 271B of the Act.
3. On appeal before the ld. CIT(A), the ld. CIT(A) while distinguishing the decisions relied upon by the assessee has upheld the above penalty imposed by the AO.
4. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
5. At the time of hearing, the ld. Counsel for the assessee submits that he is pressing the common ground No.3 only which reads as under :
"3. The learned CIT(A) has erred in law and in facts in confirming the levy of penalty of Rs.1,00,000/- under section 271B of the Act."
The ld. counsel for the assessee further submits that in past the assessee has always filed statutory audit report and tax audit report along with the return of income on due date of ITA N o .3154 & 315 5/ M um/ 2011 5 ( Assessmen t Yea rs:2006-07 and 2007- 08) filing of the return. The details are as under :
A.Y. Due Date Date of return Statutory Tax audit filing audit 2001-02 31.10.2001 31.10.2001 5.9.2001 2002-03 31.10.2002 31.10.2002 16.9.2002 29.10.2002 2003-04 30.11.2003 1.12.2003 6.9.2003 28.11.2003 (Sunday) 2004-05 31.10.2004 1.11.2004 7.8.2004 30.10.2004 (Sunday) 2005-06 31.10.2005 31.10.2005 6.9.2005 30.10.2005 He further submits that the search took place on 10.8.2006 and after the search the assessee remained busy in compiling the details of search which took lot of time, the accountant has left the assessee's company, Shri A C Kamdar, Chartered Accountant has also discontinued and he was 78 years old.
The details required by the Investigation Wing took long time and searching for Chartered Accountant for getting the accounts audited also took some time. He further submits that the assessee after getting account audited for the above assessment years has filed the returns as under :
A.Y. Due Date Date of Statutory Tax audit Delay return filing audit 2006-07 30.11.2006 31.3.2008 28.3.2008 28.3.2008 16 months 2007-08 30.11.2007 1.5.2008 31.3.2008 31.3.2008 4 months ITA N o .3154 & 315 5/ M um/ 2011
6 ( Assessmen t Yea rs:2006-07 and 2007- 08) He further submits that since the search took place on 10.6.2008 and according the provisions of section 153A the assessee is required to file return in response to notice u/s 153A of the Act. It has been provided in the second proviso to section 153A that the proceedings pending on initiation of search shall abate. He further submits that the return was filed in response to notice u/s 153A along with audit report, therefore, there is no default on the part of the assessee. He further submits that the assessment orders for both the assessment years were passed on 31.12.2008 and the AO has considered the said audit reports while passing the assessment orders. He, therefore, submits that the assessee was prevented by a reasonable cause, therefore, penalty imposed by the AO and sustained by the ld. CIT(A) be deleted. The reliance was also placed on the decisions in (a) CIT V/s Tea King (2002) 123 Taxman 162 (Guj) and CIT V/s S.R.Parmanand Chichar (1995)212 ITR 536(All).
6. On the other hand, the ld. DR supports the order of the AO and the ld. CIT(A).
7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the search took placed on ITA N o .3154 & 315 5/ M um/ 2011 7 ( Assessmen t Yea rs:2006-07 and 2007- 08) 10.8.2006 and the assessee remained busy in compiling the voluminous details related to search period. For making audit the various details are required which was not available with the assessee as the assessee remained busy in compiling the details for the search period. Apart from this, the reasonable cause shown by the assessee that his accountant has left the company, Chartered Accountant discontinued the company as he was 78 years old and search for new Chartered Accountant for keeping the account audited took some time was not controverted by the Revenue even at this stage.
8. In the case of CIT V/s Tea King (supra), a survey was carried out by the Department on March 1 and 2, 1990 and pursuant thereto the assessee filed the return for the assessment years 1985-86 to 1989-90 simultaneously on October 10, 1990. The Assessing Officer levied penalty for not auditing the books of account for all the years. The Commissioner of Income-tax (Appeals) upheld the levy of penalty for the assessment year 1985-86 but deleted the penalty for subsequent year on the ground that since the books of account for preceding year were not ready there was a reasonable cause which prevented the assessee to get the accounts audited for the subsequent year. This order of the Commissioner of Income-tax (Appeals) was upheld by the ITA N o .3154 & 315 5/ M um/ 2011 8 ( Assessmen t Yea rs:2006-07 and 2007- 08) Tribunal and ultimately by the High Court by stating that there was nothing wrong in the order of the Tribunal in deleting the penalty.
9. In ACIT V/s Kamlesh R.Agarwal (HUF) (2006) 282 ITR (AT) 117 (Ahmedabad) it has been held (page 118):
"Held, per R. P. Garg (Vice-President) agreeing with I. P. Bansal (Judicial Member) : Sanjay Arora (Accountant Member) (dissenting), dismissing the appeal, that if there was a reasonable cause for the delay in the earlier year, it had to be a reasonable cause for the subsequent year as well. If there was no reasonable cause for that year, it would still be a reasonable cause for the year under consideration, the reason being that in the absence of audit of the earlier year, the opening balances of the accounts would not be available and without which no audit could be completed validly. The audit without consideration of opening balances would be incomplete and would have no sanctity. To this extent, the assessee could not be said to be in default. It was not necessary to examine as to whether the delay was a valid cause for getting the accounts audited in the earlier year or not, because in considering the delay in the year under consideration one need not go into that aspect as the fact that the earlier year's audit was delayed by itself would be a reasonable cause for getting the accounts audited of this year. After the audit of the earlier year's accounts on October 29, 1994, the assessee took about four to five months in getting the accounts audited for the year under consideration on March 27, 1995. This period also could not be said to be unreasonable as the audit for the whole year's account generally takes this much time and that was the reason of allowing seven months' period for getting the accounts audited after the close of the year, namely, where the accounts were closed on March 31 of a particular year the audit was required to be done on October 31 of that year. Therefore, it would not be advisable to comment on the action of the auditor and attempt to find reasons as to why he had taken that much time, particularly when the Legislature itself ITA N o .3154 & 315 5/ M um/ 2011 9 ( Assessmen t Yea rs:2006-07 and 2007- 08) provided for a time-limit of seven months in obtaining the audit after the close of the accounts at the end of the accounting year. The penalty had been levied by the Assessing Officer under the pre-amended provisions. At that time, the requirement was to obtain the report on or before the specified date. Therefore, any delay in furnishing the same as was made a requirement under the amended provisions with effect from July 1, 1995, by the Finance Act, 1995, would not be of any consideration. Therefore, this was not a fit case for penalty."
10. Respectfully following the ratio of the above decisions, we are of the view that there was a reasonable cause in getting accounts audited and in filing tax audit reports along with return of income for the assessment years 2006-07 and 2007- 08 and accordingly the penalty of Rs.1,00,000/- each for the assessment years 2006-07 and 2007-08 imposed by the AO and sustained by the ld. CIT(A) is deleted. The common ground taken by the assessee is, therefore, allowed.
11. In the result, the assessee's appeals stand allowed. Order pronounced in the open court on 29th Feb.,2012.
Sd sd
(G.E.VEERABHADRAPPA) (D.K.AGARWAL)
PRESIDENT JUDICIAL MEMBER
Mumbai, Dated 29th February,2012.
SRL:
ITA N o .3154 & 315 5/ M um/ 2011
10 ( Assessmen t Yea rs:2006-07 and 2007- 08)
Copy to:
1. Appellant
2. Respondent
3. CIT Concerned
4. CIT(A) concerned
5. DR concerned Bench
6. Guard file.
True copy BY ORDER
ASSTT. REGISTRAR,
ITAT, MUMBAI