ORDER
B. S. Saluja, J.M.
1. The Department is in appeal against order of first appellate authority on the ground of cancellation of penalty of Rs. 1 lakh levied under s. 271B of the IT Act.
2. The brief facts are that the assessee filed its return declaring loss after adjustment of brought forward loss against net profit of the year under consideration. The return filed on 31st December, 1990, was accompanied with P&L a/c, balance sheet, etc. It was also accompanied with tax audit report under s. 44AB in Form No. 3CD, as prepared by the chartered accountants, M/s. Shushil K. Singla & Co. The AO observed that, an per certificate of auditors, they had prepared tax audit report on the basis of unaudited balance sheet as on 31st March, 1990, along with other documents annexed to the P&L a/c, balance sheet, etc. Since sales exceeded amount of Rs. 40 lakhs, the assessee was required to get its accounts audited by a CA, as per provisions of s. 44AB and obtain audit report in Form No. 3CD before due date, i.e. 31st December, 1990. The assessee filed tax audit report on the basis of unaudited accounts and, therefore, tax audit report submitted by CA was deficient and not complete, as per provisions of s. 44AB. AO issued a show cause notice for levy of penalty under s. 271B. He asked the assessee-company to show-cause as to why penalty order be not passed. No reply was received and the case was again fixed for 7th February, 1992, and notice served. However, nobody attended the proceedings nor any written submissions were filed. AO ultimately imposed a penalty of Rs. 1 lakh under s. 271B.
3. On first appeal, learned counsel submitted that AO had erred in levying the impugned penalty. The assessee is a Government corporation and its statutory auditors are appointed in consultation with the Comptroller and Auditor General of India. Despite best efforts, the assessee-corporation, could not get the auditors appointed and, therefore, in order to comply with s. 44AB, got its accounts audited by Sushil K. Singla & Co. and the same should have been treated as sufficient compliance with the provisions of s. 44AB. Learned counsel stressed that it was not that the assessee intentionally did not get its accounts audited by CAG but it was beyond its powers because CAG took time in appointing auditors who themselves take a lot of time in auditing accounts. Since the assessee had got its accounts audited by a regular auditor, as defined in s. 288, there was no default as held by AO and no penalty should have been levied. He filed an affidavit of the chairman-cum-managing director of the assessee-corporation, wherein it was stated that auditors for asst. yr. 1990-91 had not so far been appointed by CAG and that it had written several letters for appointment of auditors. The chairman-cum-MD had also made personal visits to Delhi for the purpose but statutory auditors had not so far been appointed and as such accounts could not be get audited, though compiled and have been got audited for limited purpose of tax audit.
4. Learned CIT(A) considered the submissions and observed that the assessee was a Government-corporation and auditors were to be appointed by CAG. Normally there was delay in appointment of auditors by CAG and there was no intentional default on the part of the assessee in not getting its accounts audited in terms of the provisions of s. 44AB. If the assessee did not get its accounts audited before due date, it could have been held in default. He referred to the provisions of s. 273B, wherein it is provided that no penalty under s. 271B shall be imposable for any failure, if the assessee proved that there was a reasonable cause for the said failure. CIT(A) held that the assessee had a reasonable cause as appointment of statutory auditors was beyond its control and still it got its accounts audited from CA within time to comply with the spirit of s. 44AB. He referred to the decision in the case Hindustan Steel vs. State of Orissa (1972) 83 ITR 26 (SC), wherein it was observed that penalty would 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 would not be imposed merely because it was lawful to do so. Learned CIT(A), therefore, held that it was not a gift case for levy of impugned penalty which he cancelled.
5. Learned Departmental Representative Shri Yog Raj Saini relied heavily on penalty order and submitted that the assessee did not appear before AO and this by itself is sufficient ground for imposition of impugned penalty. He referred to the decisions in the cases of P. N. Sikand vs. CIT (1980) 126 ITR 202 (Del) and J. K. Baruah vs. CIT (1984) 146 ITR 341 (Guj). He submitted that there is no reasonable cause with the assessee for not getting its accounts audited in terms of the provisions of s. 44AB and that actually it was a case of negligence. He referred to the decision in the case of CWT vs. Sri Jagdish Prasad Choudhary (1995) 211 ITR 472 (Pat) (FB), wherein it is observed at p. 487 that :
“…… ‘reasonable cause’ has not been defined under the Act but it could receive the same interpretation which is given to the expression ‘sufficient cause’. Therefore, in the context of the penalty provisions, the word ‘reasonable cause’ would mean a cause which is beyond the control of the assessee. ‘Reasonable cause’ obviously means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fide, from furnishing return in time.”
6. Learned Departmental Representative stressed that the Government corporation, should take steps to comply with provisions of law and the assessee could have appointed a private auditor for audit of its accounts. If accounts are not audited, then where is the question of filing a proper tax audit report ? He referred to the decision in U.P. Nalkoop Nigam Ltd. vs. Dy. CIT (2000) 66 TTJ (All) 393 : (1999) 71 ITD 395 (All), wherein it has been held that in case of the Government-company, its plea that failure on the part of Government to appoint statutory Government auditors may be taken as reasonable and sufficient cause for not complying with the provisions of s. 44AB, could not be accepted. Learned Departmental Representative referred to p. 398 of the said report, wherein the Tribunal observed that :
“…….. The assessee was free to engage a private auditor for meeting its obligation relating to complying with the provisions of the Act and having failed to do so, it was the assessee and the assessee only who could be said to be responsible and not the State Government.”
7. He pointed out that the plea of reasonable cause of the assessee was thus rejected by the Tribunal.
8. Learned counsel Shri Atul Gandhi pointed out that return was filed in time along with Form No. 3CD and that tentative balance sheet was duly signed by chairman-cum-MD of the assessee-corporation, and by M/s. Sushil K. Singla & Co. In the absence of appointment of statutory auditors by CAG, the assessee discharged its onus by appointment of private auditors and it was the best possible thing which could have been done in the circumstances of the case. The delay in appointment of statutory auditors could not be attributed to the assessee. Learned counsel referred to the affidavit by chairman-cum-MD, which has been duly considered by CIT(A) before holding that the assessee had a reasonable cause in not getting the accounts audited in normal course. Learned counsel also referred to the provisions of s. 44AB and the purpose behind its introduction which was that the books of account and other records are properly maintained by the assessee and they fully reflect income of the taxpayer and claims for deduction are correctly made. Another purpose was that such audit would also help in checking fraudulent practices and it could facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably saving the time by AOs in carrying out routine verification. He, therefore, urged that the real purpose of audit contemplated under s. 44AB is to assist AO in completing assessment. He, therefore, urged that in order to fulfil its obligation in terms of provisions of s. 44AB, the assessee appointed auditors, even when statutory auditors were not being appointed by CAG. He submitted that CA who has done audit has certified that the prescribed particulars furnished in Form 3CD are true and correct. Learned counsel tried to distinguish the said certificate, vis-a-vis certificate given by an accountant in other cases where it is stated that to the best of our information and according to the explanation given to us, the accounts give a true and fair view of the assessee’s affairs. Learned counsel thus urged that there was a reasonable cause with the assessee in filing Form No. 3CD on the basis of tax audit report under s. 44AB done by Sushil K. Singla & Co. and that learned CIT(A) rightly deleted the impugned penalty. Learned counsel relied on the following decisions :
(i) Solapur Zilla Vinkar Sahakari Federation Niyamit vs. Dy. CIT (1999) 63 TTJ (Pune) 482 : (1999) 71 ITD 117 (Pune), wherein it was held that where the assessee cooperative society was required to get its accounts audited under s. 8 of the Maharashtra Co-op Societies Act, it was not necessary for it to get its accounts audited separately by CA under s. 44AB. It was held that delay in filing tax audit report because of pendency of statutory auditors would not attract penalty under s. 271B on facts of the case.
(ii) Dy. CIT vs. U.P. Rajkiya Nirman Nigam Ltd. (1999) 65 TTJ (All) 744, in which statutory audit under the Companies Act had not been conducted and the assessee-company obtained tax audit report from its accountants on due date on the basis of unaudited P&L a/c and balance sheet. The Tribunal noted that for statutory audit, the assessee had to depend upon the decision of Government for appointment of statutory auditors. It held that the assessee was prevented by reasonable cause in obtaining statutory audit report and AO was not justified in treating the report obtained by the assessee as no report under s. 44AB.
(iii) Asstt. CIT vs. Gayatri Traders (1996) 56 TTJ (Hyd) 303 (SB) : (1996) 58 ITD 121 (Hyd) (SB), wherein it was held that delay on the part of a CA in completing audit work before specified date because of his prior professional commitments would constitute a ‘reasonable cause’ for failure of assessee to obtain audit report as required under s. 44AB within specified date.
(iv) Dy. CIT vs. Rediffusion Advertising Ltd. (1998) 65 ITD 29 (Mumbai), wherein it was held that in case of the assessee covered by second proviso to s. 44AB, there is no time limit for obtaining tax audit report. It was also held that where the assessee who is required to get his accounts audited under any other law, has got accounts audited and obtained report before specified date and thereafter obtained tax audit report, then he could be considered to have complied with requirement of s. 44AB.
(v) Indian Handloom Textiles vs. ITO (1999) 64 TTJ (Cal) 13 : (1999) 68 ITD 560 (Cal), wherein it is observed that tax audit report is essential to facilitate AO to make assessment so that he can avoid making investigation into facts and thus can save lot of time. The auditors affirmed that delay was caused due to his illness/absence and the audit report was submitted by the assessee well before assessment was made. The Tribunal held that purpose of s. 44AB was fulfilled and hence there was no justification for levying penalty under s. 271B.
9. Learned counsel submitted that the decision in (2000) 66 TTJ (All) 393 : (1999) 71 ITD 395 (supra), as relied upon by learned Departmental Representative, is distinguishable on facts and that the same does not talk about appointment of auditors by CAG.
10. Learned Departmental Representative, in his reply, submitted that once the accounts are unaudited, the certificate given by CA cannot state that the particulars are true and correct. It could not be law of land that Government corporations always take time in getting their statutory audit does through auditors appointed by CAG.
11. Even in the decision in (2000) 66 TTJ (All) 393 : (1999) 71 ITD 395 (supra), the CAG was involved in appointment of auditors. He referred to the provisions of s. 44AB and submitted that the word used is ‘shall’ and it is mandatory for the assessee to comply with the said provisions. The affidavit filed by the chairman-cum-MD of the assessee-corporation is only a self-serving evidence, as per learned Departmental Representative.
12. I have carefully considered the submissions made by both the parties and have perused orders of the tax authorities and also seen the case law relied upon by them. I feel that the submissions made by learned Departmental Representative that Government corporation/companies should take steps to comply with the provisions of s. 44AB by appointing private auditors, in the absence of appointment of auditors by CAG for doing statutory audit, are devoid of any merit, having regard to the scheme of legislation, i.e. provisions of s. 44AB. A reference to the said provisions would show that every person carrying on business shall, if his total sales, turnover or gross receipts exceed Rs. 40 lakhs in any previous year, get his accounts of such previous year audited by an accountant before the specified date and obtain before that date report of such audit in the prescribed form duly signed and verified by such accountant. The second proviso to s. 44AB further provides 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 that section if such person gets the accounts of such business audited under other law before specified date and obtains before that date report of audit as required under such other law and a further report in the form prescribed under that section. Thus, it is clear that s. 44AB, second proviso deals with a situation where the assessee is required by or under any other law to get his accounts audited. The only condition is that audit under such other law has to be complete before the specified date and the assessee is to obtain report of audit as required under such other law before the specified date. A further report is required in the form prescribed under the section. It is further observed that r. 6C(1) prescribes Form No. 3CA in case of an assessee who carries on business and who is required by or under any other law to get his accounts audited. In case of an assessee who carries on business but is not required to get his accounts audited under any other law, Form No. 3CB has been prescribed. A person falling in first category has to furnish a further report in Form No. 3CD, which deals with statement of various particulars, for example method of valuation of opening/closing stock in trade, amount of expenditure incurred by the assessee by way of capital expenditure, personal expenses, advertisement, publicity and sales promotion, articles presented or intended for presentation, travelling, maintenance of accommodation in the nature of guest house, entertainment, scientific research, payments made to clubs, details of expenditure under s. 40A, etc. Audit report in Form No. 3CA and further report in Form No. 3CD are required to be signed by same auditors, as per scheme of r. 6G read with Form Nos. 3CA and 3CD. Thus, the scheme of legislation clearly shows that the audit in case of an assessee under any other law is required to be done, as per provisions of that law. Thus, where an assessee is required to get his accounts audited through auditors appointed by CAG, there is no obligation cast upon such assessee by the provisions of s. 44AB r/w r. 6G to get the accounts audited from a private auditor, as pleaded by learned Departmental Representative. Learned Departmental Representative has relied upon the decision in (2000) 66 TTJ (All) 393 : (1999) 71 ITD 395 (All), wherein the Tribunal has observed at p. 398 that the assessee was free to engage a private auditor for meeting its obligation relating to complying with the provisions of the Act and having failed to do so, it was the assessee and the assessee only who could be said to be responsible and not the State Government. With utmost regard to the said decision, I feel that the said observations appear to have been made losing sight of the basic scheme of legislation, as mentioned above. I feel that there is no obligation on a Government corporation company whose audit is to be done by the auditors appointed by CAG to go in for private audit. However, where such an assessee has attempted to get its audit done by a private auditor within specified date, obviously it has done more than what is contemplated by law. I may also refer to the decision in (1998) 65 ITD 29 (Mum) (supra) and (1999) 65 TTJ (All) 744 (supra), which in directly on the point. It has been observed that the assessee had to depend upon the decision of the Government for appointment of the statutory auditors and it did its best in obtaining audit report from its accountant before the date specified for the purpose and that the assessee could not be expected to do more. It further held that AO was not justified in treating this report as no report under s. 44AB. This is what happened in the present case also. The decisions in (1998) 65 ITD 29 (Mum) (supra) and (1999) 6 TTJ (Cal) 13 : (1999) 68 ITD 560 (Cal) (supra) also support the case of the assessee. I, therefore, hold that the assessee had a reasonable cause as it filed return within due date and also filed its audit report under s. 44AB in Form No. 3CD along with return and learned first appellate authority was right in cancelling the impugned penalty. I, therefore, decline to interfere with the order of CIT(A).
13. In the result, the appeal is dismissed.