ORDER
N.K. Agrawal, Member
1. These are two appeals by two different assessees. Since the issue involved is common, these are being decided by this consolidated order for the sake of convenience. In both the cases, penalty has been imposed under Section 271B of the Income-tax Act. The Assessing Officer noted that the assessee did not file the audit report along with the return and, therefore, proceedings were initiated for levy of penalty for violation of Section 271 B.
2. In the case of M/s Aggarwal Agricultural Industries, the facts are like this. The assessee’s accounting year ended on 31-3-1990 and the audit report was prepared by the auditors on 17-8-1990. The last date for filing of the return was 31-10-1990 but it was filed on 18-1-1991. The return was processed under Section 143(1) on 15-7-1991. Thereafter, penalty proceedings were initiated by issuing notice on 11-5-1992. Penalty was levied on 15-3-1993 at Rs. 92,830. In the case of M/s United Wine Traders, the year ending relating to assessment year 1991-92 was 31-3-1991 and the audit report had been prepared by the auditors on 20-10-1991. Due date for the filing of return was 31 -10-1991 but it was filed on 20-11 -1991. Assessment was made on 28-12-1992 under Section 143(3). A penalty of Rs. 1 lakh was imposed under Section 27 1B for failure to file audit report.
3. The ld. counsel representing both the assessees has contended before us that the returns in both the cases had been actually filed under Section 139(4) and not under Section 139(1) of the Act. Since it was a belated return, It could not be treated to have been filed under Section 139(1). There was no notice also under Section 142(1) to the assessee in either case. Therefore, the first plea raised by the ld. counsel is against the applicability of Section 27 1B of the Act. It will be appropriate to read the section so as to understand its applicability in the present case. Section 27IB of the Act reads as under :-
271B. If any person fails 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 or furnish the said report along with the return of his income filed under Sub-section (1) of Section 139, or along with the return of income furnished in response to a notice under Clause (i) of Sub-section (1) of Section 142, 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.
A plain reading of the section makes it clear that the penalty is leviable if an assessee failed to furnish the audit report along with return of income filed either under Section 139(1) or in response to a notice under Section 142(1)(i). There is no mention of Section 139(4) in Section 271B. The ld. counsel has, therefore, raised a contention that no penalty was leviable in the present cases inasmuch as the returns had been filed after the expiry of due dates. In the case of M/s Aggarwal Agricultural Industries, due date for filing of return was 31-10-1990 but it was filed on 18-1 -1991. Similar is the situation in the case of M/s United Wine Traders, where the return was filed 20 days after the due date. Since in both the cases, returns were filed after the expiry of due dates, these could never be treated to have been filed under Section 139(1) of the Act. Since the returns were also not filed in response to any notice under Section 142(1)(i), the two cases under appeal do not fall in the second category also as is specified in Section 271B.
4. The second contention raised by the ld. counsel is that the audit report had actually been obtained by the assessee on 20-10-1991 in the case of M/s United Wine Traders and on 17-8-1990 in the case of M/s Aggarwal Agricultural Industries. Section 44AB lays down the date on or before which the assessee must obtain the audit report. Section 44AB lays down two requirements, one, to get the accounts audited by an accountant before the specified date; and second, to obtain the report of such audit in the prescribed form duly signed and verified by such accountant before the specified date. The ‘specified date’ has been defined in the Explanation below Section 44AB as under :-
(iii) ‘specified date’, in relation to the accounts of the previous year relevant to an assessment year, means,-
(a) Where the assessee is a company, 31st December of the assessment year ;
(b) In any other case, 31st October of the assessment year.
The present assessees are in the status of partnership firms and, therefore, the specified date in these two cases shall be treated to be October 31. In both the cases, the audit report had been obtained before the said specified date. It may be noted that the specified date and the due date for filing of return are the same. Since the assessee did not fail to obtain the report before the specified date as required under Section 44AB, there is no violation of Section 44AB. In this light, it has been argued by the ld. counsel that the assessee, by making compliance of Section 44AB, did not commit any default so far as the submission of the report is concerned. It is only a default in the filing of the return. Section 271B did not lay down any requirement regarding the filing of the return. It simply laid down three conditions :-
(i) The assessee must get his accounts audited ;
(ii) The assessee must obtain a report of the audit as required under Section 44AB; and
(iii) The assessee must furnish audit report along with the return of income.
There is no mention of any time-limit in Section 271B for the furnishing of the report before the Assessing Officer. The ld. counsel has, therefore, submitted that the assessee did commit a default in filing of the return but that will not entitle the revenue to impose penalty under Section 27 1B. It may be noted that there was no provision requiring the assessee to file the audit report independently or separately. The report had to be filed along with the return and if, for any reason, the return could not be filed in time, that would be a default under a different provision of the Act but that could not be treated to be a default in respect of furnishing of the audit report.
5. The third argument of the learned counsel is that the penalty proceedings had not been initiated in the case of M/s Aggarwal Agricultural Industries in the course of assessment proceedings. As already seen, the return had been processed under Section 143(1} on 15-7-1991. Penalty notice had been issued on 11-5-1992. The Id. counsel has thus submitted that this is another ground on which the penalty must be held to be vitiated because action was started much after the completion of the assessment proceedings.
6. Yet another argument of the ld. counsel is that the assessee made substantial compliance of Section 44AB read with Section 27 1B so far as audit of accounts and the audit report are concerned. The accounts were got audited within the specified date and also the audit report had been duly obtained. This is how Section 44AB stood complied with in to. to. Section 271B also did not require the assessee to furnish the report along with return, prior to amendment inserted by the Finance Act, 1988, w.e.f. 1-4-1989. It is only after the amendment brought into force on 1-4-1989 that the assessee was also required to furnish the audit report along with the return of income. The Id. counsel has submitted that in the case of M / s United Wine Traders, it was their first year of business and, therefore, this factor must be kept in view while determining the guilt of the assessee. Our attention has been drawn to the intent and purpose of Section 44AB. Our attention has also been drawn to the Finance Minister’s speech in respect of the Budget for the financial year 1984-85, copy of which is reproduced in [1984] 146 ITR 66 (Statute). It was stated therein that the compulsory audit of accounts was being required to ensure that the books of account and other records are properly maintained and faithfully reflect the true income of the taxpayer. Since the intention was to ensure the reflection of the true income, the assessee made sufficient compliance of Section 44AB by getting its accounts audited and obtaining audit report within the specified date in the prescribed form. Our attention has been drawn to the CBDT circular in respect of new Section 271B, which was inserted by the Finance Act, 1984 [152 ITR 12 (Statute)]. There also, it has been made clear that the new section required the assessee to get the accounts audited and to obtain report of audit. The main thrust of the argument of the ld. counsel is that the intention of the Legislature should be kept in view while levying any penalty. Since the intention was to ensure the proper maintenance of accounts and the reflection of the true income of the taxpayer, there was no reason to punish the assessee only on account of late furnishing of the audit report.
7. The ld. counsel has drawn our attention to the decision of the Madras High Court in the case of CWT v. Kumari Kavitha Goenka [1979] 119 ITR 974. That was a case where the return had been submitted after the due date. It was observed therein that if there was deliberate contravention of law, then only the penalty could be justified. The ld. counsel has, on the strength of the said decision, submitted that in the present case, there was no act on the part of the assessee to withhold the audit report and it was for some other reasons that the returns of income were delayed. Therefore, there was no deliberate attempt not to file the audit report. Our attention has also been drawn to a decision of the Patna High Court in the case of Jogannath Singh v. CWT[1980] 122 ITR 114. There also, it has been laid down that a penalty will not ordinarily be imposed unless a party obliged either acted deliberately or in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation and when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute the authority competent to impose penalty would be justified in refusing to impose penalty. The ld. counsel has submitted, on the basis of the said observations, that in the present cases the assessees could not file audit reports without returns of income. They were, therefore, prevented from filing audit report separately as there was no such provision in the Act. The audit report had to be filed with the return of income which had been delayed for certain other reasons.
8. Reliance is also placed by the ld. counsel on an order of the Supreme Court dismissing the SLP filed by the Department against the order of the Gujarat High Court whereby the question of registration of the assessee-trust under Section 11 of the Act had been decided in favour of the assessee with the observation that the auditors’ report in Form 10B was not filed along with return but later on, [179 ITR 61 (Statute)]. In that case, the delay in the filing of the auditors’ report was not found to be fatal for the purpose of registration of the assessee-trust. Our attention has also been drawn to a decision of the Tribunal in the case of Sanyasi Majhi 30 ITD 61 (Cal.). That was a case of penalty under Section 271A for failure to keep/maintain the books of account/documents etc. It was held that where no tax had been actually avoided, there was no justification to impose a penalty. The ld. counsel, on the strength of the said decision, has submitted that in the case of M/s Aggarwal Agricultural Industries, return of income had been duly accepted under Section 143(1) and in the case of M/s United Wine Traders, assessment had been framed under Section 143(3) without raising any objection against the filing of the return.
9. We may also refer to certain other decisions of the Tribunal on the similar question. One case relates to the penalty imposed under Section 271B where the audit report was available with the assessee before the specified date but the same could not be filed along with the return in time. The return was filed late by 21 days. No notice had been issued by the Department under Section 142(1)(i) for filing the return. It was held that the penalty under Section 27 1B was not justified (Re. Mohinder Kumar 42 ITD 384 Delhi SMC). Similar view was taken by the Bangalore Bench in the case of P.C. Mohan v. Asstt. CIT[1993] 45 ITD 251 and by the same Bench again in the case of Bangalore Steel Distributors v. ITO [1994] 49 ITD 668.
10. The learned D.R. has, in reply, submitted that the assessees, by not furnishing the audit reports along with the returns, committed a clear breach of the provisions contained in Section 27 1B and, therefore, penalty must be upheld. Our attention has been drawn to a decision of the Supreme Court in the case of Jain Bros. v. Union of India [1970] 77 ITR 107. That case, however, is not found to be relevant because the question which had arisen there related to the initiation of proceedings under the Income-tax Act, 1961, whereas the return had been filed under the Indian Income-tax Act, 1922. Therefore, the said decision is on a different subject and is not relevant to the controversy before us.
11. Looking to the entire facts, we are of the view that the penalty is not leviable in both the cases before us because the returns were filed under Section 139(4) and this factor took out the cases from the purview of Section 271B. As already seen, the penalty is leviable in only two situations where the assessee fails to file audit report along with the return filed under Section 139(1) or in response to a notice under Section 142(1)(.i). It is also clear that there is no provision in the Act requiring the assessee to file audit report independently or separately if the return of income, for any reason, could not be filed on or before the due date. We have also noted that the assessee had obtained audit report before the specified date and thus requirements under Section 44AB had been fully complied with. The return was accepted in the case of M/s Aggarwal Agricultural Industries and no objection was raised for the late filing of the return. Any action against the late filing could have been taken under the appropriate provision of the Act but that does not appear to have been done. It is also noted that the assessees did-.file audit report along with the return and Section 271B cannot be said to have been violated because it did not deal with belated furnishing of the return but simply required the assessee to furnish the report along with the return of income. In this light also, the delay in furnishing of the audit report does not invite the application of Section 27IB.
12. The learned counsel has also raised a plea regarding limitation in the case Of M/s Aggarwal Agricultural Industries on the ground that the penalty proceedings are ‘time-barred’. It has been pointed out that the return of income had been processed on 15-7-1991 but the notice initiating penalty proceedings had been issued on 11-5-1992. The last date for issuance of any notice initiating penalty proceedings was 31-3-1992. Our attention has been drawn to Section 275(1)(c) of the Act, which reads as under :-
275(1). No order imposing a penalty under this Chapter shall be passed-
(a) ** ** ** (b) ** ** ** (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.
Though penalty proceedings were not initiated in the course of assessment proceedings, but still if the question is examined on the assumption that the penalty proceedings had been started, these should have been completed before the expiry of the financial year in which assessment proceedings had been initiated. In this light, we find that the initiation of penalty proceedings by issuance of notice on 11 -5-1992 was time-barred. The second limb in Clause (c), reproduced above, again makes it clear that the penalty should be imposed within six months from the end of the month in which the penalty proceedings are initiated. The penalty notice was issued on 11-5-1992 but penalty was ultimately imposed on 15-3-1993. The period of six months expired on 30-11-1992. This is how the proceedings appear to be vitiated on the question of limitation. We agree with the learned counsel that in the light of Section 275(1)(c) of the Act, the penalty proceedings are barred by limitation in the case of M/s Aggarwal Agricultural Industries. In the case of M/s Universal Wine Traders, the plea of limitation has not been raised and rightly so.
13. Looking to the entire facts of the case, we are of the view that the penalty cannot be sustained in either of the two cases. In the case of M/s Aggarwal Agricultural Industries, penalty was not leviable because proceedings were barred by limitation as laid down in Section 275(1)(c) of the Act. As already seen, audit report had duly been obtained by the assessees in both the cases before the specified date as required in Section 44AB. There was substantial compliance of law and the assessee could not be punished for the late furnishing of the audit reports inasmuch as there is no provision for levy of penalty for late filing/furnishing of report but only for failure to furnish report along with the return. If at all any action was warranted, it was against late filing of return for which Section 271B was not applicable attracted. Therefore, we hold that the penalty levied is not warranted in both the cases. The same is deleted.
14. In the result, both the appeals are allowed.