ORDER
Joginder Pall, A.M.
1. By this order, I shall dispose of this appeal of the Revenue filed against the order of CIT(A), Jammu with headquarters at Amritsar for the asst. yr. 1998-99.
2. In this appeal, the Revenue has taken the following grounds :
“1. That on the facts and in the circumstances of the case, the learned CIT(A) has erred in cancelling the penalty of Rs. 1 lakh imposed under Section 271B by the AO.
2. That on the facts and the circumstances of the case, the learned CIT(A) has erred by ignoring that the assessee’s method of accounting was mercantile and entries in the books of account was required to be made on day-to-day, basis and issuance of TDS certificates had no bearing with the auditing of the case.
3. That on the facts and the circumstances of case, the learned CIT(A) has erred by ignoring the fact as is evident from the TDS certificates filed along with the return of income that the assessee had received the payments by cheques during the accounting period itself and the same were required to be deposited in the bank account within a period of three months. The bank account of the assessee could have been easily reconciled with the entries in the books of account.”
The facts of the case are that assessee was a carriage contractor. Return of income along with statutory audit report under Section 44AB for the assessment year under reference were due on 31st Oct., 1998, However, the assessee filed the same on 2nd Aug., 1999. The total contract receipts of the assessee aggregated to Rs. 3.36 crores. The AO noted that as per provisions of Section 44AB, the assessee was under a statutory obligation to get its accounts audited, obtain the audit report and furnish the same before the specified date, i.e., 31st Oct., 1998. However, the AO observed that assessee had furnished the same on 2nd Aug., 1999. He, therefore, initiated penalty proceedings under Section 271B. On reply to the show-cause notice, the assessee explained that it had to deal with Army authorities, which were located at far flung areas at Srinagar, Kargil, Leh and besides FCI, at Jammu. In order to clear accounts with the parties, assessee had to visit these places several times. Sometimes the officers concerned were not approachable due to one reason or other. Besides road communication was disrupted due to bad weather. Thus, it was submitted that these factors caused delay in getting the accounts audited and furnish the audit report before the specified date. However, the AO rejected these contentions on the ground that method of accounting being followed by the assessee was mercantile and the information in regard to the contracts executed was already available with the assessee. This fact was further evident from the TDS certificates which all Were dt. 1st April, 1998 and 19th, 22nd and 26th May, 1998. AO, therefore, observed that all information necessary for getting the accounts audited was available. Thus, the AO held that assessee failed to comply with the statutory requirement without any reasonable cause and accordingly imposed a penalty of Rs. 1 lakh under Section 271B of the Act.
3. Aggrieved, the assessee challenged the levy of penalty in appeal before CIT (A). The submissions made before the AO were reiterated. It was submitted that delay in getting the accounts audited was due to reasons beyond assessee’s control. An affidavit of Kulwant Singh, partner was also filed in support of above averments. It was also submitted that political conditions were also worst due to infiltration by the foreign mercluaries which ultimately resulted in war with Pakistan. It was submitted that though the TDS certificates bore dates of April and May, 1998, yet these were received on a much later date. It was also submitted that assessee was not to get any benefit by delaying the filing of return and audit report. It was also submitted that as per statement of income, assessee was entitled to a refund of Rs. 5,12,771. But only a refund of Rs. 1,96,435 was allowed to assessee and the balance was not allowed due to non availability of TDS certificates. Further refund of Rs. 28,566 was allowed vide order dt. 22nd Sept., 2000 passed under Section 154 of the Act and balance refund was still pending. It was also argued that default, if any, was only of technical in nature. Relying on the judgment of Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa , it was contended that penalty should not be imposed for technical default. Thus, it was contended that AO had imposed penalty under Section 271B without taking into account these facts. The learned CIT(A) considered these submissions and cancelled the penalty by recording following findings in paras 4 and 4.1 of the impugned order:
“4. I have considered the submissions made by the Authorised Representative of the appellant. The issue that requires to be decided is whether on the facts and circumstances of the case, the appellant can be said to be covered within the purview of ‘reasonable cause’ as mentioned in Section 273B of the IT Act, 1961.
4.1 The appellant is a carriage contractor who deals with Army authorities, Sringar, Kargil, Leh and Ladakh and FCI at Jammu. Physical location of these at difficult geographical areas and difficulty in communicating with such parties due to bad weather and closure of (sic) routes to plain, pleaded as main causes for delay in getting the necessary information required for getting the audit work completed and to file the return in time. It is a fact that dealing with clients at these locations, communicating with them and getting information from them in the form of copies of account, TDS certificates, etc. does create problem. Moreover the militancy in the area did add to the difficulty. Appellant’s contention that due to non receipt of TDS certificates from its clients at their location is evidenced by the order under Section 154 passed by the AO much later 22nd Oct., 2000. This proves that appellant did have difficulty in communicating and getting its accounts audited in due time due to lack of information and disruption of communication. Moreover the AO’s only ground for rejecting the appellant’s contention regarding reasonable cause has been countered by the appellant by producing the copy of order under Section 154 which was necessitated by delay in receipt of TDS certificates and also by the arguments that the dates mentioned on the TDS certificates do not represent the dates on which these certificates were received by the appellant. The affidavits filed by the appellant and the certificate of the chartered accountant reasponsible for auditing the case further strengthen the appellant’s case of delay being caused by facts beyond his control and which should constitute reasonable cause. In fact, the appellant has submitted that except the refund of Rs. 1,96,435 and Rs. 28,566 out of total refund of Rs. 51,277 due has not so far been received by it due to the fact that the TDS certificates have not been received even till date.
After considering the totality of facts and circumstances of the case and the case laws relied on by the appellant including the decision of Tribunal, Amritsar Bench in the case of ITO v. Venus Synthetics, in ITA No. 636/Asr/1994. I am of the opinion that the contentions raised by the appellant do constitute reasonable cause under Section 273B of the IT Act, 1961, for the delay in getting the accounts audited and, therefore, AO was not justified in rejecting the same and levying the penalty. Penalty, therefore, stands cancelled.”
Revenue is aggrieved by the order of CIT(A). Hence, this appeal before me.
4. The learned Departmental Representative heavily relied on the order of AO. He drew my attention to penalty order where the AO has fully dealt with submissions of assessee that assessee was following a mercantile system of accounting and, therefore, details were available. He further submitted that all TDS certificates were dated April and May, 1998, which show that requisite information was already available with the assessee, Still the assessee delayed the filing of audit report by 9 months. He submitted that reasons given by the assessee for the delay were general and not supported by cogent and reliable evidence. He further submitted that CIT(A) was not correct in accepting the plea of the assessee that delay was only of technical nature. He submitted that the very fact that law was amended to provide for filing the audit report before the specified date and not along with the return shows the intention of legislature to ensure that such accounts are audited and audit report must be filed (on) or before the specified date. He further argued that Kargil war broke out at a much latter date, i.e., in August, 1999. Therefore, delay could not be attributed to such irrelevant factors.
5. The learned Authorised Representative, on the other hand, relied on the order of CIT(A) and reiterated the submissions made before the authorities below. He drew my attention to pp. 1 to 2A of the paper book which is a copy of written submissions submitted before CIT(A). He submitted that assessee was a carriage contractor and had to deal with Army authorities located at far-flung and inhospitable areas like Kargil, Leh, Srinagar and FCI at Jammu. He submitted that delay took place in collecting the information from those places. He submitted that dates of TDS certificates were no doubt dated April and May, 1998. But these had been received on much later date. He drew my attention to p. 4A of the paper book, which is a copy of notice under Section 142(1), asking the assessee to furnish return of income. He submitted that assessee’s reply dt. 14th Jan., 1999 is at p. 5 wherein it was mentioned that assessee could not file the return because assessee had yet to collect relevant accounts besides TDS certificates. He further referred to p. 6 which is a copy of the statement of income filed along with the return as per which refund of Rs. 5,12,771 was due to the assessee. He, then referred to certificate dt. 12th Feb., 2001 of the auditors stating that accounts of assessee could not be finalized in time because assessee could not furnish the bank statements/relevant TDS certificates from the authorities concerned. He referred to p. 8 of the paper book which is a copy of order under Section 154 passed on 22nd Sept., 2000 allowing a credit for TDS of Rs. 28,566 on assessee’s furnishing TDS certificates. Thus, he submitted that this fact also shows that all relevant details and TDS certificates were not available with the assessee. He submitted that assessee did not derive any benefit in delaying the filing of audit report and return of income, as it was a case of refund. He submitted that in any case default was only of technical nature. Relying on the judgment of Punjab and Haryana High Court in the case of CIT v. Albino Electricals (2005) 17 IT Rep 386 (P and H), the learned Authorised Representative contended that levy of penalty under Section 271B was not automatic. Thus, he contended that there was a reasonable cause for the delay in getting the accounts audited and furnishing the audit report before the specified date. Accordingly, the learned Authorised Representative contended that the order of CIT(A) does not merit any interference.
6. The learned Departmental Representative stated in rebuttal that no cognizance could be taken of the so-called auditor’s certificate which is dt. 12th Feb., 2001 when the default was in 1999. This is only with a view to rescue the assessee from the penalty imposed under Section 271B.
7. I have heard both the parties at some length and given my thoughtful consideration to the rival contentions, examined the facts, evidence and material placed on record. I have also gone through the orders of authorities below and referred to the relevant pages of the paper book to which my attention has been drawn. The provisions of Section 44AB as these stand for the assessment year under reference stipulate that assessee having turnover of Rs. 40 lakhs (in this case receipts were of Rs. 3.36 crores) must get its accounts audited by an accountant and furnish the same before specified date which in this case was 31st Oct., 1998. Even if the return of income is not filed by the due date, the assessee is required to file the audit report before the specified date. Penalty for the default under Section 44AB has been spelt out under Section 271B. I am in full agreement with the learned Counsel that levy of penalty under Section 271B is not automatic. Section 273B provides that no order for imposing the penalty under Section 271B can be passed without allowing an opportunity and such penalty is not exigible if assessee explains that default was due to a reasonable cause. Now the question that requires to be decided in this case is whether there was a reasonable cause for the delay in getting the accounts audited and filing the audit report before the specified date.
8. Now I find the AO has found the explanation of the assessee untenable, firstly on the ground that assessee was following a mercantile system of accounting and, secondly, all TDS certificates were of earlier dates. As regards, method of accounting being followed by the assessee as mercantile, it is not understood as to how the same could be held against the assessee for not getting the accounts audited before the ‘due date’. On the contrary^ if cash method of accounting is followed, the assessee can leave certain receipts and expenses for which details are not available. But in mercantile system of accounting assessee is expected to ensure that all items of income which have accrued to the assessee and all items of expenses which have been crystallized and ascertained are taken into account for getting the accounts audited and for filing the return of income. If the assessee fails to include/claim such expenses in the return, the assessee cannot claim the same in subsequent assessment year(s) and also if income is not included, the assessee is liable to face reassessment proceedings and consequent penalty. Further, this is a case of carriage contractor where income is liable to TDS. The assessee is required to claim credit for TDS in the assessment year in which such income is disclosed in the return. Therefore, it was imperative that assessee must collect all TDS certificates relating to assessment year under reference-before filing the return of income. The other reason given by the AO that assessee-was already in possession (of) all information necessary for filing the return and getting the accounts audited also does not appear to be correct. I find from the rectification order dt. 22nd Sept., 2000 (a copy placed at p. 8 of the paper book) that credit for TDS of Rs. 28,566 was not allowed; at the time of processing the return because TDS certificates had not been filed earlier. Earlier also one rectification order was passed on 24th Aug., 2000 for similar reason in allowing credit for TDS on account of filing belated TDS certificates. Thus, the claim of the AO that all TDS certificates were available with the assessee does not appear to be correct. It is a fact that assessee was a carriage contractor for the Army and FCI and its business was located at far flung areas like Leh, Srinagar, Kargil and Jammu. The weather in these areas is also inhospitable and sometimes accessibility is also difficult due to heavy snowfall and terrorist activity. Thus, the explanation given by the assessee for the delay appears to be reasonable.
9. Further, a copy of the statement of income is at p. 6 and the same shows assessee had declared income of Rs. 3,10,761 on which tax payable was Rs. 1,08,766. As against the same TDS was Rs. 6,21,537 resulting in refund of Rs. 5,12,771. Income declared in the return has been accepted as it is. Therefore, the assessee did not derive any benefit in delaying the filing of audit report and return of income. On the contrary, assessee was entitled to interest on excess TDS and for delayed filing of the return/TDS certificates, the Department has not granted any interest under Section 244A for the reason that delay in filing the return/TDS certificates was attributable to the assessee. Thus, instead of getting any benefit, the assessee has lost interest due on the refund.
10. In the light of these facts and circumstances of the case and for the reasons given by the learned CIT(A) with which I agree, I am of the opinion that CIT(A) was justified in cancelling the penalty imposed under Section 271B for the reason that there was a reasonable cause for the delay in filing the audit report late. I confirm his order and reject the grounds of appeal of Revenue.
11. In the result, appeal filed by the Revenue is dismissed.