Assessee can't be screwed if auditor is at fault to cause delay in filing of audited accounts

IT: Where assessee had provided books of account to auditors in time, but failed to get accounts audited in time due to delay on part of auditors, penalty under section 271B was not leviable as there was reasonable cause for delay

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[2013] 35 taxmann.com 471 (Allahabad)

HIGH COURT OF ALLAHABAD

Commissioner of Income-tax

v.

U.P. Rajya Sahkari Evam Bhoomi Vikas Bank Ltd.*

DEVI PRASAD SINGH 
AND DEVENDRA KUMAR ARORA, JJ.

IT APPEAL NO. 77 OF 1999†

APRIL  26, 2010 

Section 44AB, read with sections 271B and 273B, of the Income-tax Act, 1961 - Tax Audit [Penal provisions] - Assessment year 1990-91 - Whether, where assessee-cooperative society had provided books of account to auditors in time, but failed to get accounts audited within period stipulated under section 44AB due to delay on part of auditors, penalty under section 271B was not leviable as there was reasonable cause for delay as per section 273B - Held, yes [Para 11] [In favour of assessee]

FACTS

■		The assessee-cooperative society filed its return for the assessment year 1990-91 on 26-12-1990. The Assessing Officer levied penalty under section 271B for not getting the accounts audited within the period stipulated under section 44AB.
■		On appeal, the assessee contended that the delay in finalisation of audit, by auditors approved by the Registrar, occurred on account of delay in receipt of audit reports from the branches. It claimed that the books of account were provided to the auditors on 14-8-1989 (in time) for the statutory audit, but the audit was completed and report was provided only on 31-3-1991. The 'Commissioner (Appeals) did not accept the explanations and confirmed the penalty levied by the Assessing Officer.
■		However, the Tribunal accepted the plea of the assessee and deleted the penalty on ground that since the delay was beyond the control of the assessee, there was sufficient cause for delay and the rigours of the penal provision of section 271B should not have been invoked.
■		On revenue's appeal:

HELD

■		Section 273B provides that no penalty shall be imposable on the assessee for any failure to section 271B, if he proves that there was a reasonable cause for the said failure. Therefore, in case, if the assessee, on furnishing of explanation, is able to prove that there was a reasonable cause in getting the accounts audited as required under section 44AB, penalty is not imposable. [Para 8]
■		In the matter of Thanjavur Silk Handloom Weavers Co-operative Production & Sales Society Ltd. v. Union of India [2003] 263 ITR 334/132 Taxman 846, the Madras High Court, while examining the provisions of section 44AB and section 271B, observed that provisions of sections 44AB, 271B and 139(9), Explanation (e), can be read together and a harmonious construction is that the assessee has to file an audit report within the specified date, failing which he will have to pay the penalty if he fails to show reasonable cause for not doing so. However, if reasonable cause is shown, then it will be well open to the revenue to accept the reasonable cause and drop the proceedings. [Para 9]
■		The facts stated in the order of the Tribunal have not been disputed, namely, that the books of account had been delivered by the assessee for statutory audit on 14-8-1989 (in time), and the report was received from the auditors on 31-3-1991. On this fact, the Tribunal arrived at a conclusion that the delay was caused on the part of the auditors and it amounted to reasonable cause. No error is seen in the order of the Tribunal. The finding of the Tribunal that there was reasonable cause, is the finding of fact. No substantial question of law is involved. The order of the Tribunal is accordingly upheld. [Para 11]
■		In the result, appeal fails and is accordingly, dismissed. [Para 12]

CASE REVIEW

Thanjavur Silk Handloom Weavers Co-operative Production & Sales Society Ltd. v. Union of India [2003] 263 ITR 334/132 Taxman 846 (Mad.) (Para 9) and Rajasthan State Electricity Board v. ITAT [2003] 262 ITR 262/130 Taxman 840 (Raj.) (Para 10) followed.

U.P. Rajya Sahkari Evam Bhoomi Vikas Bank Ltd. ITA No. 1023/Allahabad/1994, dated 26-7-1999 affirmed.

CASES REFERRED TO

Thanjavur Silk Handloom Weavers Co-operative Production & Sales Society Ltd. v. Union of India [2003] 263 ITR 334/132 Taxman 846 (Mad.) (para 9) and Rajasthan State Electricity Board v. ITAT [2003] 262 ITR 262/130 Taxman 840 (Raj.) (Para 10)

D.D. Chopra for the Appellant. Amit Shukla for the Respondent.

JUDGMENT

Devendra Kumar Arora, J. - The present appeal has been filed under section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), against the judgment and order of the Income-tax Appellate Tribunal dated July 26, 1999, passed in Income Tax Appeal No. 1023/Allahabad/ 1994 for the assessment year 1990-91.

2. Heard Sri D. D. Chopra, learned counsel for the appellant and Sri Amit Shukla, learned counsel for the respondent.

3. The assessee-respondent (hereinafter referred to as "the assessee") is a co-operative society. For the assessment year 1990-91, the assessee filed the return on December 26, 1990, showing the receipt of Rs. 26,35,99,400 in the status of co-operative society. The assessing authority levied the penalty under section 271B of the Act, vide order dated August 26, 1993, on the ground that the assessee could not get its accounts audited within the stipulated period as required under section 44AB of the Act. Being aggrieved by the penalty order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). It was pleaded before the Commissioner of Income-tax (Appeals) that the assessee was a co-operative society and its accounts were being audited under the Co-operative Societies Act (hereinafter referred to as "the Society Act"). It was argued that the income of the assessee was exempted to tax under section 80P of the Society Act. It was further argued that the delay in finalisation of the audit by the auditors approved by the Registrar occurred on account of delay in the receipt of audit reports from the branches. The Commissioner of Income-tax (Appeals) has not accepted the plea of the assessee and confirmed the penalty order. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee further filed an appeal before the Tribunal. Before the Tribunal, it was pleaded that the books of account were provided to the auditors on August 14, 1989 (in time), for the statutory audit but the audit was completed and the report was provided on March 31, 1991, and, thus, the delay was caused on account in getting the accounts audited. The Tribunal accepted the explanation of the assessee and held that since the assessee had handed over its books of account to the auditors well before the stipulated date, the delay was caused on the part of the auditors. The Tribunal held that the failure to get the accounts for the assessment years 1990-91 and 1991-92 audited before the specified date was beyond the control of the assessee, i.e., due to delay on the part of auditors, which was the reasonable cause. The Tribunal further held that the default was in the nature of technical and venial for which the rigours of the penal provision of section 271B of the Act should not have been invoked and, accordingly, set aside the penalty.

4. Learned counsel for the appellant submitted that the explanation, which has been accepted by the Tribunal has not been made before the assessing authority and even before the Commissioner of Income-tax (Appeals), therefore, the Tribunal has erred in accepting the explanation and coming to the conclusion that there was a reasonable cause on the ground that the assessee had handed over its accounts for statutory audit well within specified time and the delay was on the part of the auditors in getting the accounts audited and, therefore, the Tribunal has erred in deleting the penalty.

5. We do not find any substance in the argument of the learned counsel for the appellant.

6. From a perusal of the memorandum of appeal and the questions framed therein, it appears that the questions for the four assessment years, namely, 1988-89, 1989-90, 1990-91 and 1991-92 have been framed. Learned counsel for the appellant submitted that the four separate revisions have been filed for four different assessment years, though inadvertently questions involved in all the aforesaid four assessment years have been typed in all the memorandum of appeals. He submitted that question No. 2 only relates to the assessment year 1991-92, which requires adjudication, which reads as follows :

"Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was justified in law in giving the assessee benefit of 'reasonable cause' for the delay in preventing it from complying with the provisions of section 44AB of the Income-tax Act, 1961, for the assessment years 1990-91 and 1991-92 ?"

7. Sections 44AB and 271B of the Act read as follows :

"44AB. Audit of accounts of certain persons carrying on business or profession.—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
(b)		carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year ; or
(c)		carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD or section 44AE or section 44AF, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by 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 :

Provided that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BB or section 44BBA or section 44BBB, on and from the 1st day of April, 1985, or, as the case may be, the date on which the relevant section came into force, whichever is later :

Provided further that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.

Explanation.—for the purposes of this section,—

(i)		'accountant' shall have the same meaning as in the Explanation below sub-section (2) of section 288 ;
(ii)		'specified date', in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the 31st day of October of the assessment year.

271B. Failure to get accounts audited.—If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing 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.

273B. Penalty not to be imposed in certain cases.—Notwithstanding anything contained in the provisions of clause (b) of section 271B, section 271BA, section 271, section 271A, section 271AA, section 271AE, section 271F, section 271G, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or sub-section (1) of section 272BB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 272, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure."

8. Section 273B of the Act provides that no penalty shall be imposable on the assessee for any failure to section 271B of the Act, if he proves that there was a reasonable cause for the said failure. Therefore, in case, if the assessee on furnishing of explanation is able to prove that there was a reasonable cause in getting the accounts audited as required under section 44AB, penalty is not imposable.

9. In the matter of Thanjavur Silk Handloom Weavers Co-operative Production & Sales Society Ltd. v. Union of India [2003] 263 ITR 334/132 Taxman 846, the Madras High Court while examining the provisions of section 44AB and section 271B pleased to observe as under (page 343) :

"This court is of the considered view that the provisions as contained under section 139(9), Explanation (e), and section 44AB and section 271B can be harmoniously read together and the expression 'without reasonable cause' provides a sufficient insulation to the workability of section 44AB. It is a better clue and it does not exclude the use of discretion to drop the penalty proceedings if there is sufficient cause. The conspectus of the whole situation is that both the provisions, i.e., section 44AB along with section 271B and section 139(9), Explanation (e), can be read together and a harmonious construction is that the assessee has to file an audit report within the specified date, failing which he will have to pay the penalty if he fails to show reasonable cause for not doing so. However, if reasonable cause is shown, then it will be well open to the respondent to accept the reasonable cause and drop the proceedings.

In this case, the tax return has been filed within time, but it is a defective return and it is only a partial failure on the part of the society in filing the audit report and such partial failure may not attract penalty. This is also an interpretation, which is permissible in law as has been held in Bangalore Steel Distributors v. ITO [1994] TLR 254 (ITAT-Bang).

Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority and such discretion should be exercised judicially and on a consideration of all relevant circumstances. Learned counsel for the petitioner rightly relied upon the decision of the apex court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) ; [1970] 25 STC 211 (SC), where the apex court held thus (page 29) :

'But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.'"

10. Similarly, the Rajasthan High Court, Jaipur Bench in the matter of Rajasthan State Electricity Board v. ITAT [2003] 262 ITR 262/130 Taxman 840 pleased to observe that since the assessee was required to get the accounts audited from the Accountant General Office and has no control over that office and held that the Tribunal has committed an error in sustaining a penalty and while setting aside the penalty so imposed observed that the assessee has reasonable cause for not submitting the accounts before due date.

11. The facts stated in the order of the Tribunal has not been disputed, namely, that the books of account has been delivered by the assessee for statutory audit on August 14, 1989 (in time), which is referred in the order of the Tribunal and the report was received from the auditors on March 31, 1991. On this fact, the Tribunal arrived at a conclusion that the delay was caused on the part of the auditors and it amounts to reasonable cause. We do not see any error in the order of the Tribunal. The finding of the Tribunal on the facts and circumstances that there was reasonable cause, is the finding of fact. No substantial question of law is involved. The order of the Tribunal is accordingly upheld.

12. In the result, appeal fails and is accordingly, dismissed.