JUDGMENT
M.C. Agarwal, J.
1. This is an application under Section 256(2) of the Income-tax Act, 1961, praying that the Income-tax Appellate Tribunal, Allahabad, be directed to state a case and to refer the following questions stated to be of law and to arise out of the Tribunal’s order dated October
30, 1996, passed in ITA No. 2294 (Alld.) of 1995 for the assessment year 1992-93 for the opinion of this court :
“1. Whether the Tribunal was justified in the circumstances of the case to distinguish the audit report obtained under Section 44AB of the assessment year 1992-93 from that of the assessment year 1991-92 and thus arrive at a different conclusion ?
2. Whether a qualified audit report by the chartered accountant in the circumstances of the case is invalid and has no sanctity in the eyes of law ?
3. Whether the Tribunal was justified in the circumstances of the case in refusing to consider the contention that Section 44AB of the Income-tax Act was not attracted in the case of the corporation since its activities do not fall in the category of business ?
4. Whether the activities of the assessee-Corporation carrying on general public utility service being charitable purpose as declared by the Supreme Gourt in the case of CIT v. Andhra Pradesh State Road Transport Corporation can be categorised as business ?”
2. We have heard Sri Samir Sharma, learned counsel for the applicant, and Sri Prakash Krishna, learned counsel for the respondents.
3. The assessee-applicant is engaged in providing transport services to the travelling public in U. P and outside the State. Its turnover admittedly exceeds 40 lakhs rupees. It obtained an audit report in compliance with the provisions of Section 44AB of the Income-tax Act for the assessment year 1992-93. The report was found to be defective and held to be invalid and, therefore, penalty under Section 271B was levied and was upheld by the Tribunal by the impugned order and the applicant’s application under Section 256(1) has also been dismissed.
4. Section 271B provides that 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,… or a sum of one hundred thousand rupees, whichever is less.
5. Section 44AA creates an obligation for the maintenance of accounts. Sub-section (2) thereof provides that every person carrying on business or profession if his income from business or professional exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, exceeds ten lakhs rupees in any one of the three years immediately preceding the previous year, shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. Section 44AB then provides for audit of accounts where the total sales, turnover or
gross receipts exceed forty lakh rupees. There is no dispute that the assessee-applicant’s gross receipt exceeds forty lakhs of rupees and, therefore, it was obliged to maintain accounts and furnish audit report as prescribed under the Act and the rules. Rule 6G prescribes the requirement of audit and the contents of the audit report. Rule 6G(1)(a) says that the report of audit of the accounts of a person required to be furnished under Section 44AB shall, in the case of a person who carries on business and who is required by or under any other law to get his accounts audited, be in Form No. 3CA. The U. P. State Road Transport Corporation, applicant, being a statutory Corporation under the Road Transport Corporations Act, 1950, was required by the said statute to get its accounts audited by the Comptroller and Auditor-General. The Comptroller and Auditor General did not carry out any audit within the time prescribed. The assessee obtained a report from Dhawan and Madan, chartered accountants. The report was submitted in Form’No. 3CB and stated as under :
“Audit report under Section 44AB of the Income-tax Act in case where the accounts of business of a person carrying on business.
We have examined the attached balance-sheet of U. P. State Road Transport Corporation, Lucknow (permanent A/c No. 19-208-CV-597B), as at 31st March, 1992, and the profit and loss account for the year ended on that date which was required to be got audited by the Account ant-General (Audit II), Uttar Pradesh, only in pursuance of the provisions of the Road Transport Corporations Act, 1950. The same are in agreement with the compilation ledger maintained at the headquarters of the Corporation and the returns received from its branches. However, the said balance-sheet and profit and loss account ended on that date has been adopted by the board of directors in their meeting dated October 29, 1992.
We have not obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of the audit.
We are unable to express whether proper books of account have been kept by the corporation so far as appears from our examination of books.
In view of comment made above and to the best of our information and according to the explanations given to us, we are unable to express our opinion whether the said accounts give a true and fair view-
(i) in the case of balance-sheet of the above mentioned corporation’s affairs as at 31st March, 1992.
(ii) in the case of profit and loss account of the loss of the above mentioned corporation for the accounting year ended on 31st March, 1992.
The prescribed particulars are furnished in Form No. 3CD annexed hereto, which are based on unaudited accounts and informations produced before us at the same are subject to change/modification during the
course of statutory audit by the Accountant-General (Audit-II), Uttar Pradesh.
Subject to the above, in our opinion and to the best of our information and according to the explanation given to us, the particulars given in Form No. 3CD are true and correct.”
6. This report has been held to be invalid because it, on the face of it, showed that there was no audit of the accounts of the Corporation. The report states that the auditors have not obtained all the information and explanations which, to the best of their knowledge and belief, were necessary for the purposes of the audit. It also stated that the auditors are unable to express whether proper books of account have been kept by the Corporation so far as it appears from the examination of books. It further says that the said auditors are unable to express their opinion whether the said accounts give true and fair view and lastly it says that the prescribed particulars furnished in Form No. 3CD are based on unaudited accounts and the information produced before them was subject to change, modification during the course of statutory audit by the Accountant-General, U. P. Thus, the report candidly acknowledged that there was no audit and .such a report could not be held to be a valid compliance with the provisions of Section 44AB. Therefore, the answer to question No. 2 is self-evident and the same cannot be said to be a referable question of law.
7. As regards proposed question No. 1, the Tribunal has stated that in the earlier year, i.e., 1991-92, the question of the validity of the report of the chartered accountant was not raised at all. The applicant has annexed a copy of the Tribunal’s order for the assessment year 1991-92 with this application and it shows that in that year the question of the validity of the report was not there. On the other hand, the question was whether delay in the conduct of the audit by the Comptroller and Auditor-General was a sufficient cause. The Tribunal cancelled the levy of penalty for that year on the ground that for the delay in completion of audit by the Comptroller and Auditor-General, the assessee cannot be held responsible. Therefore, patently the facts and circumstances and the pleas in the two orders were different and the reasoning adopted for the year 1991-92 was rightly not applied in the year under consideration because no such plea was raised. Therefore, the answer to question No. 1 is also self-evident.
8. As regards questions Nos. 3 and 4, we find that such questions do not arise out of the Tribunal’s order. The Tribunal’s order shows that in the appeal that was preferred by the applicant before the Tribunal, no ground was set up to contend that the activity of the applicant was not of the nature of business and, therefore, Section 44AB did not apply. The Tribunal’s order does not show that the applicant ever prayed to the Tribunal to allow such a contention to be raised and this contention which probably
was attempted to be raised merely during the arguments on the appeal, was against the conduct of the assessee in filing a report in purported compliance with Section 44AB and in filing a return of income. Since there was no ground of appeal on this point, the answer to questions Nos. 3 and 4 is also self-evident that the Tribunal was not in error in refusing to entertain a contention without the same being included in the grounds of appeal and without there being any request for permission to raise an additional ground of attack.
9. For the above reasons, this application is rejected.