Indian Kanoon - Search engine for Indian Law

1. The question referred to this court for answer is as follows :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in cancelling the penalty imposed under Section 271B of the Act on the ground that there was no absolute default on the part of the assessee to get the accounts audited ?"

2. Mr. Mihir Lal Bhattacharjee, learned senior counsel for the assessee, had pointed out that though the learned Tribunal had rejected the assessee's explanation with regard to the reasonable cause for default contemplated under Section 271B in respect of furnishing the audited accounts required under Section 44AB, it is a quasi-criminal matter as was held in the case of CIT v. Anwar Ali , therefore, according to him, the default does not automatically attract the mischief of penalty in view of the changed proposition of law now prevailing and accepted by the Supreme Court and various other High Courts. He relied on the decisions in CIT v. ASK Enterprises [1998] 230 ITR 48 (Bom); CIT v. Vegetable Products Ltd. ; Calcom Electronics ltd. v. Sales Tax Officer [2001] 121 STC 600 (Delhi) ; Mysore Minerals Ltd. v. CIT ; Rupa Ashok Hurra v. Ashok Hurra ; CIT v. Jai Durga Construction Co. and Cemento Corporation Ltd. v. CCE . Relying on these decisions, he contended that the expression "may" employed in Section 271B is not mandatory but discretionary. It is not an absolute proposition that rejection of reasonable cause would definitely result in the imposition of penalty. According to him, by reason of Section 273B, the Legislature had intended that the imposition of penalty would not be an absolute proposition.

6. Section 271B, inserted through the 1984 Finance Act, appears to be a little different when amended through the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. The Legislature had an intention for the omission of the phrase "without reasonable cause" qualifying the failure to get the accounts audited. The substantive provision providing for penalty omitted to qualify the failure inviting the penalty. Thus, the substantive law creating liability, attracting penalty was made unqualified. Whereas through the 1986 amendment Act, Section 273B was inserted. A plain reading of the text of Section 273B makes it clear that the same is a procedural law with regard to the question of imposition of penalty under different sections including Section 271B. Section 271B mandates imposition of penalty on the failure, but, by reason of the rule of evidence provided in Section 273B, such imposition of penalty is dependent on the proof that there was no reasonable cause for the failure. The omission of the particular phrase from the substantive law and incorporation thereof in the procedural law bears the legislative intent to make the provision of Section 271B coercive instead of penal. This amendment was intended to remove the scope of any confusion with regard to the characteristics and nature of the proceedings under Section 271B, as we shall discuss a little later. The word "may" employed in Section 271B, though may be interpreted as discretionary yet that discretion is limited within the confines of Section 271B providing the procedure therefor. The word "may" has been used only to accommodate the procedural law enabling the assessee to prove that there was reasonable cause for the failure. Unless it is proved that there was reasonable cause for the failure, there is no escape from the imposition of penalty. Section 271B does not leave any discretion at the hands of the authority except as provided in Section 273B. It is only when reasonable cause for failure is proved, the penalty can be avoided. A combined reading of the two sections does not admit of any theory of absolute default in order to attract the mischief of Section 271B.

7. Now, in the above context, let us examine the present case. At page 48 of the paper book, the learned Tribunal had rejected the explanation sought to be set up to prove reasonable cause. Immediately thereafter, it had observed that the learned Tribunal was of the view that there was no absolute default on the part of the assessee to get the accounts audited. Therefore, at the time when the penalty was being intended to be imposed, there was no existing failure. This proposition seems to be doubtful. If there was a default, then the penalty can be imposed. It is not necessary that the default is to continue till imposition of penalty. The reading of Section 271B does not imply that the default must be a continuous one and that if the audit is made before the completion of the assessment then the penalty is not imposable. Such a construction cannot be made having regard to the language employed in Section 271B read with Section 273B.

13. Section 44AB imposes a liability to get the accounts audited within the stipulated time. There is nothing in the section to make it incumbent to furnish the audited accounts within the stipulated time. Failure to furnish, therefore, will not attract the mischief of Section 271B, though failure to get the accounts audited within the stipulated time would attract it. Initially the liability imposed under Section 271B was qualified with the phrase "without reasonable cause". This indicated somewhat a substantive proposition of law, which could have been treated to be an indication of inviting an element of quasi-criminality in the failure. But as soon it is omitted, it simply becomes a coercive manner or method to ensure compliance of Section 44AB. No element of quasi-criminality seems to be present in Section 271B. While laying down the procedure in Section 273B, the reasonable cause has been made a factor preventing the income-tax authority from imposing penalty. This being a procedural law, the liability would not indicate any quasi criminal implication in the default; but it only lays down a procedure making it a rule of evidence as to when penalty could be imposed. Thus, it seems, though described as penalty, it is really creating a civil liability in default of compliance of Section 44AB.