{"id":93956,"date":"1996-12-31T00:00:00","date_gmt":"1996-12-30T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/deputy-commissioner-of-vs-machino-techno-sales-pvt-ltd-on-31-december-1996"},"modified":"2019-03-04T09:16:46","modified_gmt":"2019-03-04T03:46:46","slug":"deputy-commissioner-of-vs-machino-techno-sales-pvt-ltd-on-31-december-1996","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/deputy-commissioner-of-vs-machino-techno-sales-pvt-ltd-on-31-december-1996","title":{"rendered":"Deputy Commissioner Of … vs Machino Techno Sales Pvt. Ltd. on 31 December, 1996"},"content":{"rendered":"
Income Tax Appellate Tribunal – West Bengal<\/div>\n
Deputy Commissioner Of … vs Machino Techno Sales Pvt. Ltd. on 31 December, 1996<\/div>\n
Equivalent citations: 2000 242 ITR 17 Cal<\/div>\n<\/p>\n
<\/pre>\n
ORDER OF TWO-MEMBER BENCH<\/p>\n
R. Acharya (Accountant Member)<\/p>\n
1.  This appeal is instituted by the Revenue against the order of the Commissioner of Income-tax (Appeals) for the assessment year 1986-87 and the only ground raised therein is that the Commissioner of Income-tax (Appeals) erred in vacating the order imposing a penalty of Rs. 1,00,000 under section 271B of the Income-tax Act, 1961, holding that the provisions of section 44AB are complied with by the filing of provisional audit report dated July 30, 1986.\n<\/p>\n
2. During the assessment proceedings, penalty proceedings under section 271B were initiated and thereafter a show-cause notice was issued to the assessee. In response to that, the assessee submitted that they have obtained the audit report as required under section 44AB of the Income-tax Act, 1961, on July 30, 1986, i.e., within the time limit. It was also explained that the statutory audit could not be completed within the time as voluminous work was involved and bank statement was not received in time. On verification the Income-tax Officer found that the tax auditor has submitted his final report only on September 29, 1986, though a provisional report was obtained on July 30, 1986. The Income-tax Officer was of the opinion that as there is no provision for such a provisional report, the tax audit report dated September 29, 1986, is the actual report obtained under section 44AB. He rejected the provisional audit report dated July 30, 1986, on the ground that there are several variations in para. 7(1), para. 9(b), annexure D, annexure E, etc. According to him, since the assessee has not filed Form No. 6 seeking extension of time and since the provisional tax audit report does not reflect the correct state of affairs of the assessee, in the absence of important documents like bank statements he rejected the explanation of the assessee and imposed a penalty of Rs. 1 lakh under section 271B.\n<\/p>\n
3. The matter was carried in appeal and before the Commissioner of Income-tax (Appeals) it was submitted that the provisional report was the final step prior to the approved report under the company law was also certified by the auditor. It was also submitted that the variation between two audit reports was substantial in nature, as observed by the Income-tax Officer, does not stand the scrutiny as the amount under section 43B came down from Rs. 23,79,334 to Rs. 16,62,506. The Commissioner of Income-tax (Appeals) observed that the compliance with section 44AB can be said to have beer) made by the assessee by having filed the provisional report dated July 30, 1986. According to him, the assessee has satisfactorily discharged the burden of establishing a case against the imposition of penalty under section 271B. He, therefore, vacated the penalty order and allowed the appeal.\n<\/p>\n
4. Aggrieved by the above order of the Commissioner of Income-tax (Appeals) the Revenue has preferred this appeal to the Tribunal. The learned Departmental representative at the outset contended that there is no such provision in the Act to furnish the provisional audit report or to accept the provisional audit report. He also emphasised on the variations pointed out by the Assessing Officer and argued that because of these variations the provisional report cannot be accepted as the final report. The learned Departmental representative further submitted that the Commissioner of Income-tax (Appeals) has not given any reason for accepting the provisional report and, therefore, his order deserves to be vacated.\n<\/p>\n
5. The learned authorised representative, on the other hand, submitted that the final audit report was furnished on September 22, 1986, and the provisional audit report was submitted on July 30, 1986, and, therefore, compliance with the requirement of law has been completed by the assessee and there is no default as such under section 271B. He also filed a paper book containing 52 pages and submitted that the provisions of sections 179 and 230A of the Income-tax Act, 1961 have curtailed the provisions of the Companies Act unlike section 44AB and, therefore, in this case according to proviso to section 44AB, read with section 210 of the Companies Act, as the report was submitted before September 30, 1986, the requirement of law as envisaged in section 44AB is fulfilled and the assessee is not liable to any penalty. He further submitted that moreover there was sufficient cause for the delay as explained before the authorities below. In reply, the learned Departmental representative argued that the proviso (?) is non-est in the eyes of law. He also contended that the assessee has not explained the delay for two months and, therefore, penalty is imposable.\n<\/p>\n
6. We have carefully considered the rival contentions, relevant facts and materials placed on record. We find that the arguments and contentions of learned counsel for the assessee do not carry much weight as the proviso to section 44AB requires that the person should get the accounts audited under such law before the specified date and obtain before that date the report of the audit as required under such other law and a further report in the form prescribed under this section. We find that in this case although the specified date is July 31, 1986, but the assessee has failed to get its accounts audited before the specified date. Even under the Companies Act, the assessee has not got its accounts audited before that specified date and, therefore, it cannot be said that the compliance has been made with the requirement of the provisions of section 44AB by the assessee. Since the assessee has furnished the audit report late by two months and since the default has not been explained properly by giving sufficient cause the assessee cannot be exempted from the penalty imposable under section 271B. We also find that the Commissioner of Income-tax (Appeals) was not justified in treating the provisional audit report as the final audit report and in deleting the penalty on the facts and circumstances of the case. In view of this we, therefore, hold that the penalty under section 271B is exigible in this case and, therefore, the order of the Commissioner of Income-tax (Appeals) is vacated and the order of the Assessing Officer is restored.\n<\/p>\n
7. In the result, the departmental appeal is allowed.\n<\/p>\n
R. V. Easwar (Judicial Member)<\/p>\n
1.  I have carefully gone through the order proposed by my learned brother. I am unable to persuade myself to agree to the proposed order restoring the penalty of Rs. 1 lakh imposed under section 271B of the Act. I, therefore, wish to record my respectful dissent.\n<\/p>\n
2. The essential facts have been brought out in the proposed order. To those, I only wish to add that in response to the notice issued under section 271B, the assessee filed a reply dated April 23, 1990, which is as under :\n<\/p>\n
“Please refer to your aforesaid notice. It is submitted that the audit report under section 44AB was completed and obtained on July 30, 1986, and a copy of the same has duly been filed. The statutory audit under Companies Act was completed on September 29, 1986. But as mentioned earlier, since the audit report under section 44AB was obtained on July 30, 1986, there is no default under section 44AB. Further, the accounts were given to the auditor along with the profit and loss account, etc. Since voluminous work was involved and the bank statements were also not received in time, it took time to complete the statutory audit. Therefore, the assessee was also prevented by sufficient cause from getting the statutory audit completed within the time.\n<\/p>\n
Considering all the facts the proceeding under section 271B, please be dropped.”\n<\/p>\n
3. The Income-tax Officer was not convinced by the explanation. He, therefore, imposed the penalty.\n<\/p>\n
4. The fact that there was a delay in furnishing the audit report is not in dispute. The only question is whether the assessee had reasonable cause for the delay in furnishing the same. It is here that I am unable to agree with my learned brother. In my humble opinion, there was reasonable cause for the delay. The assessee had taken steps to get its accounts audited under the Companies Act. This is clear if reference is made to the “provisional” audit report under section 44AB filed by the assessee on July 30, 1986. The provisional report (a copy of which is filed in the paper book) acknowledges the fact that the statutory audit under the Companies Act is pending finalisation and, therefore, the audit report under the Companies Act along with the profit and loss account and balance-sheet, duly audited have not been annexed to the audit report under section 44AB. The provisional report further acknowledges that it is prepared on the basis of the provisional accounts produced before the auditors and also states that it is subject to change on the basis of the finalisation of the statutory audit report under the Companies Act. From the provisional audit report it is clear that the statutory audit under the Companies Act had not been completed by July 31, 1986, which is the due date for filing the audit report under section 44AB. The statutory audit under the Companies Act was completed and the audit report thereunder was signed only on September 20, 1986, as I find from the papers furnished in the paper book. After the completion of the statutory audit, the audit report under section 44AB of the Act was signed on September 29, 1986. The Income-tax Officer has not doubted those facts. It is difficult for me to imagine that the assessee would have been in a position to obtain the audit report under section 44AB even without the completion of the statutory audit under the Companies Act. The second proviso to section 44AB itself recognises the fact that in the case of limited companies where audit under the Companies Act is compulsory that audit has to be completed first before the assessee is able to obtain the audit report under section 44AB. If the statutory audit under the Companies Act gets delayed, consequentially the audit under section 44AB also gets delayed. Both are inter-linked. Therefore, the delay in getting the statutory audit finalised has to be necessarily considered as reasonable cause for the delay in obtaining the audit report under section 44AB. The Calcutta Bench of the Tribunal has taken the same view in the order reported in the case of Kumar Bros. v. Asst. CIT [1993] 47 ITD 552. In fact, the Calcutta High Court has taken the view in the case of CIT v. Sulekha Works (P.) Ltd. [1985] 156 ITR 190, that any delay in getting the accounts audited would constitute reasonable cause for the delay in filing the return of income and it was this decision that was followed by the Tribunal (supra). In the present case, the statutory audit under the Companies Act was completed on September 20, 1986. The audit report under section 44AB was signed by the auditors on September 29, 1986. It should have been obtained on July 31, 1986. The delay of nearly two months is only due to the delay in finalisation of the statutory audit under the Companies Act. There was thus, in my opinion, reasonable cause for the delay in obtaining the audit report under section 44AB and such delay was beyond the assessee’s control. The existence of reasonable cause has been proved by the assessee with sufficient evidence as required by section 273B of the Act introduced by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from September 10, 1986.\n<\/p>\n
5. In the case of K. Ravikumar and Co. v. ITO [1989] 29 ITD 537, it was held by the Madras Bench of the Tribunal, after referring to the judgment of the Supreme Court in the case of Hindustan Steel Ltd. V. State of Orissa<\/a> [1972] 83 ITR 26, that the expression “reasonable cause” must receive a liberal interpretation so as to advance substantial justice and if so interpreted, it would require consideration of all attendant circumstances, including the period of default, the conduct or the intention of the assessee, etc. The conduct of the assessee in the present case shows anxiety to comply with the statutory obligations. This is clear from the fact that the assessee filed a “provisional” audit report under section 44AB on July 30, 1986, notwithstanding the fact that the accounts were not finalised and the statutory audit under the Companies Act had not been completed. This shows the bona fides of the assessee. The assessee’s conduct cannot, therefore, be considered contumacious or in conscious disregard of the statutory duties.\n<\/p>\n
6. The period of default, which is also to be considered as one of the criteria for testing the validity of the levy of penalty in the present case, is only two months. The assessee was bound to furnish the report under section 44AB on July 31, 1986, but had furnished the same only on September 29, 1986. For a delay of just two months which was also on account of reasonable cause, the assessee cannot be penalised. This is more so if regard be had to the purpose of introducing section 44AB. As explained in para. 17 of the Circular No. 387 (see [1985] 152 ITR (St.) 1), dated 6th July, 1984, issued by the Central Board of Direct Taxes, the tax audit can facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verification, such as checking of totals, vouchers, etc. In the present case, the delay in filing the tax audit report does not appear to have been in any manner handicapped the Income-tax Officer from completing the assessment. In fact, the assessment was completed only on March 30, 1990. We also do not find from the assessment order that any penalty proceedings were initiated under section 271(1)(a) of the Act for the delay in filing the return. When the delay in filing the return has not been penalised it is difficult for me to hold that a short delay of two months in furnishing the tax audit report should be visited with penalty, especially when such delay does not appear to have handicapped the Income-tax Officer in making a proper assessment.\n<\/p>\n
7. It is no doubt true as held by my learned brother that there is no provision in the Income-tax Act enabling the assessee to file a “provisional” audit report under section 44AB but in my view the act of filing a provisional audit report merits consideration in judging the conduct of the assessee or its bona fides. As I have already held earlier, such act establishes the bona fides of the assessee and it would be incongruous to impose penalty notwithstanding such bona fide conduct.\n<\/p>\n
8. Much has been made by the Income-tax Officer of the “discrepancies” between the two tax audit reports-the “provisional” and the final. But I do not wish to attach undue importance to that aspect and such discrepancies are bound to exist since the “provisional” report is based on “provisional” accounts and a complete picture would be available only when the accounts are finalised.\n<\/p>\n
9. The letter dated April 23, 1990, written by the assessee in reply to the penalty notice, in substance, brings out the fact that the delay was occasioned due to the delay in completing the audit under the Companies Act. It also points out to further facts, viz., that the work involved was voluminous, non-receipt of certain bank statements, etc. The combined effect of all that as stated in the explanation is that the delay in furnishing the tax audit report was due to reasonable cause. In my opinion, the explanation should be accepted.\n<\/p>\n
10. The Commissioner of Income-tax (Appeals) has cancelled the penalty and one of his grounds is that the filing of the provisional audit report on July 30, 1986, is sufficient compliance with section 44AB. It is rather difficult to uphold this conclusion as a matter of law. I, therefore, wish to make it clear that I have relied on the filing of the provisional report only for the purpose of showing the bona fides of the assessee or the lack of any defiance on its part to comply with the requirements of law. On a totality of the facts and circumstances of the case I am of the opinion that there was reasonable cause for the delay in filing the tax audit report.\n<\/p>\n
11. I would, therefore, dismiss the appeal.\n<\/p>\n
ORDER OF THIRD MEMBER <\/p>\n
D. Manmohan (judicial Member)<\/p>\n
1. Penalty levied under section 271B of the Income-tax Act, 1961, was challenged before the Tribunal which was heard by a Division Bench. As there was a difference of opinion, amongst the learned Members, the point of difference was referred to the President under section 255(4) of the I.T. Act. The President was pleased to nominate me as the Third Member to give an opinion on the point referred to me. The question set out by the Division Bench reads as under :\n<\/p>\n
“Whether, on the facts and in the circumstances of the case, the assessee is liable to penalty under section 271B of the Income-tax Act, 1961 ?\n<\/p>\n
2. The facts in brief are as follows : For the assessment year 1986-87, the specified date” for obtaining the audit report ended on July 31, 1986, whereas the final tax audit report was obtained by the assessee-company on September 29, 1986. As the tax audit report\/further report, as prescribed under section 44AB of the Act, was not ready before the specified date, a report claimed to be a “provisional tax audit report” was filed on July 30, 1986, i.e., before the specified date.\n<\/p>\n
3. In response to the penalty proceedings, it was submitted that the audit report under section 44AB was obtained on July 30, 1986, and thus there was no default under section 44AB of the Act though the statutory audit under the Companies Act was completed on September 29, 1986. It was further contended that the delay in completion of statutory audit was due to non-availability of bank statement and also because voluminous work was involved. It was thus pleaded that the company was prevented by sufficient cause from getting the statutory audit completed within time. The Assessing Officer observed that the purported tax audit report dated July 30, 1986, is not acceptable as there is no provision under the Act for such a provisional report. He further observed that the provisional report and the final report vary to some extent and the very fact that the assessee-company has not received the bank statement in time proves that the provisional tax audit report is not reflecting the correct state of affairs of the company in the absence of such an important document like bank statement. As the provisional report cannot be equated to a final report, the Assessing Officer concluded that there is delay in filing the tax audit report and thus imposed penalty under section 271B of the Act. The Commissioner (Appeals), however, vacated the penalty order as, in his opinion, the act of the assessee-company in filing the provisional tax audit report dated July 30, 1986, can be said to be sufficient compliance with the provisions of section 44AB of the Act. Aggrieved, the Revenue has appealed before the Tribunal.\n<\/p>\n
4. The learned Accountant Member was of the opinion that the delay of two months in filing the tax audit report has not been explained properly by giving sufficient cause. In this regard he observed that even under the Companies Act, the assessee failed in getting its accounts audited before the “specified date” and, therefore, it cannot be said that compliance has been made with the requirements of the provisions of section 44AB of the Act.\n<\/p>\n
5. The learned judicial Member, dissenting from the order of the learned Accountant Member, was of the opinion that the delay in obtaining the audit report was supported by a reasonable cause. In a nutsell he made the following observations :\n<\/p>\n
 It is difficult to imagine that the assessee would have been in a position to obtain the audit report under section 44AB even without the completion of the statutory audit under the Companies Act, which was admittedly signed only on September 29, 1986;\n<\/p>\n
The second proviso to section 44AB recognises the fact that in the case of limited companies, where audit under the Companies Act is compulsory, that audit has to be completed first before the assessee is able to obtain the audit report under section 44AB and, therefore, the delay in getting the statutory audit finalised has to be necessarily considered as reasonable cause for the delay in obtaining the audit reports;\n<\/p>\n
The expression “reasonable cause” must receive a liberal interpretation so as to advance substantial justice and if so interpreted, it would require consideration of all attendant circumstances, including the period of default, the conduct or the intention of the assessee, etc. In the instant case, the intention is apparent from the fact that the assessee filed a “provisional audit report” under section 44AB on July 30, 1986, notwith-standing the fact that the accounts were not finalised by them. The above act shows the bona fides of the assessee and it cannot be said that the company acted contumaciously or in conscious disregard of the statutory duties;\n<\/p>\n
The period of default is also to be considered as one of the criteria for testing the validity of the levy having regard to the purpose of introducing section 44AB of the Act as explained in Circular No. 387 (see [1985] 152 ITR (St.) 1), dated July 6, 1984, issued by the Central Board of Direct Taxes;\n<\/p>\n
When the delay in filing the return has not been penalised under section 271(1)(a) of the Act, the short delay of two months in furnishing the tax audit report should not have been viewed seriously, especially when the delay has not hampered the assessment proceedings; and there is no provision in the Income-tax Act enabling the assessee to file a “provisional” audit report and so the conclusion arrived at by the Commissioner (Appeals) is not in accordance with law.\n<\/p>\n
6. In view of the aforesaid difference of opinion, the point of difference of opinion was placed before me as per the direction of the President.\n<\/p>\n
7. The learned senior Departmental representative contended that the “provisional” report cannot be taken cognizance of and the delay in obtaining the final audit report was not properly explained by the assessee-company. He further contended that it is the duty of the assessee to manage its affairs in such a way so as to comply with the statutory requirements within the time-frame allowed under law. He further explained that the statute provided sufficient time after the end of the accounting year for obtaining the tax audit report as the “specified date” for obtaining the report under section 44AB is July 31, 1986, and so the assessee cannot contend that the delay was on account of non-availability of bank statements and also because the work involved is voluminous. He further relied upon the order passed by the learned Accountant Member.\n<\/p>\n
8. On the other hand, learned counsel for the assessee submitted that under the Companies Act, vide sections 166, 210 and 216, the assessee has to obtain statutory audit report within six months from the end of the accounting year, i.e., on; or before September 30, 1986, and hence the report obtained on September 29, 1986, is well within the “specified date”. He has adverted my attention to para. 6 (page 21) of the order of the learned Accountant Member and pointed out that the observation of the learned Member that even under the Companies Act, the assessee has not got its accounts audited before the “specified date” is factually incorrect, inasmuch as, the “specified date” under the Companies Act is September 30, 1986. He further, submitted that Form No. 6 was filed before the Assessing Officer seeking extension of time on the ground that the audit of accounts could not be completed in time and time was accordingly granted by the Assessing Officer. He pointed out to us that the Assessing Officer is not correct in observing that the assessee has not filed Form No. 6 seeking extension of time. Learned counsel for the assessee placed before us xerox copies of Form No. 6 and also the letter by the Assessing Officer in support of the above submission. We may state herein that the two papers were not filed before the Division Bench at the time of hearing of the appeal and so I cannot take cognizance of the same at this juncture. 1, therefore, refuse to admit the additional evidence and the papers are returned.\n<\/p>\n
9. Learned counsel for the assessee submitted that the return for the assessment year 1986-87 was filed by the assessee-company on September 23, 1988, after a delay of more than two years-but the Assessing Officer has not initiated penalty proceedings under section 271(1)(a) of the Act. On the strength of the same, he submitted that the short delay of two months in obtaining the audit report cannot be visited with penalty as the Revenue has not proved that the reasonable cause shown by the assessee is not bona fide. He also submitted that as per the second proviso to section 44AB of the Act, a person who is required to get his accounts audited under any other law, a further report in the prescribed form shall be sufficient compliance with the provisions of section 44AB, and this presupposes that a statutory report under the Companies Act is necessary for compliance with the above requirement. He further explained that unless the statutory audit report under the Companies Act is not ready, the delay in obtaining the “further report” cannot be visited with penalty, as the same is supported by a reasonable cause, i.e., delay in obtaining the statutory audit report. He further contended that under the Companies Act, the assessee is entitled to obtain the report on or before September 30, 1986, and so there is no delay in obtaining the report under the Companies Act. Consequently, further report obtained within 9 days from the date of statutory report cannot be held to be delayed and penalty under section 271B is not attracted. Learned counsel for the assessee relied upon the following decisions in support of his contention that it is for the department to prima facie show that the delay in obtaining the audit report was caused with a mala fide intention or without any bona fide reason; the words “reasonable cause” should receive a liberal interpretation and in the instant case, the revenue has not repelled the reasons given by the assessee; and the delay in obtaining compulsory audit report under the company law or condonation of delay vis-a-vis the levy of penalty under section 271(1)(a) of the Act can be considered as reasonable cause for the delay in obtaining the audit report, under section 271B of the Act :\n<\/p>\n
 (a) Kerala State Drugs and Pharmaceuticals Ltd. v. CIT<\/a> [1994] 210 ITR 1042 (Ker);\n<\/p>\n
 (b) Rajkot Engg. Association v. Union of India [1986] 162 ITR 28 (Guj), at pages 59, 60 and 67;\n<\/p>\n
 (c) Prabhulal Sahu v. ITO [1995] 83 Taxman 177 (Jaipur Bench);\n<\/p>\n
 (d) H. Ajitbhai and Co. v. Asst. CIT [1993] 47 TTJ (Ahd.) 22;\n<\/p>\n
 (e) CIT v. Sulekha Works (P.) Ltd. [1985] 156 ITR 190 (Cal); and <\/p>\n
 (f) Kumar Bros. v. Asst. CIT [1993] 47 ITD 552 (Cal).\n<\/p>\n
10. Learned counsel thus supported the order of the learned judicial Member.\n<\/p>\n
11. Joining issue, the learned senior Departmental Representative submitted that the “further report” mentioned in section 44AB of the Act should be obtained by the assessee before the “specified date”, i.e., July 31, 1986, and the time available under the Companies Act has no relevance while interpreting the provision of section 44AB of the Act. In his opinion the assessee who is required to obtain a tax audit report under section 44AB of the Act, should make it convenient to obtain the statutory report before the “specified date” provided under this section so as to avoid the levy of penalty under section 271B of the Act. He further submitted that the decision of the Calcutta High Court in the case of Sulekha Works (P.) Ltd. [1985] 156 ITR 190 is distinguishable on facts.\n<\/p>\n
12. I have carefully considered the rival submissions and perused the record. Before I proceed to deal with the merits it may be useful to refer to the gist of the relevant case law for better appreciation of facts :\n<\/p>\n
13. In the case of Rajkot Engg. Association [1986] 162 ITR 28, the Gujarat High Court observed that the Revenue has to prima facie show that there was want of reasonable cause on the part of the assessee for committing the default under section 271B\/44AB of the Act. Their Lordships further observed that the expression “reasonable cause” should be interpreted in a liberal manner so as to advance the cause of justice and in that process, the Assessing Officer should consider all the attending circumstances including the period of default, the conduct or intention of the assessee, etc. <\/p>\n
14. The decision of the jaipur Bench in Prabhulal Sahu’s case [1995] 83 Taxman 177, as per the short note, states that mere delay in getting the accounts audited or filing the audit report along with the return should not result in levy of penalty without further proof of mala fide intention or contumacious or fraudulent conduct of the assessee. The note further states that if the default committed by the assessee was purely technical, the same should not be visited with penalty as the taxpayer should not be punished for unintended technical violations of the provisions of the Act.\n<\/p>\n
15. In the case of H. Ajitbhai and Co. [1993] 47 TTJ 22, the Ahmedabad Bench of the Tribunal held that penalty is not automatic as the words “may direct” in section 271B clearly reveal that the Assessing Officer is vested with the discretion to impose or not to impose penalty keeping in mind the facts and circumstances of each case and such a discretion has to be exercised judicially and on a consideration of relevant facts and circumstances. It was further held that when there is technical or minor breach of law and when having regard to the facts, ends of justice require that the assessee should not be penalised, Assessing Officer has the power to exercise such a discretion in a reasonable and judicious manner;\n<\/p>\n
16. In the case of Ahmed Hassan and Co. v. ITO [1993] 44 ITD 669 at page 676, it was held by the Calcutta (SMC) Bench of the Tribunal that it is not obligatory that penalty should be levied in each and every case of default; that an assessee should be visited with penalty only when his conduct is contumacious or there is a wilful disregard of legal obligations; and the Assessing Officer may in a given set of facts, condone the delay by not penalising the assessee and such discretion, with the Assessing Officer, can be exercised by the appellate authorities also;\n<\/p>\n
17. In the case of Asst. CIT v. Gayatri Traders [1996] 222 ITR (A.T.) 1 (Hyd) (SB), the Tribunal observed vide para. 25 of its order that levy of penalty under section 271B is neither mandatory nor a must. The Bench further referred to the provisions of section 271B and held that the words “may direct” in section 271B of the Act, clearly indicate that the Assessing Officer is vested with the discretion either to impose or not to impose penalty and the said discretion should be exercised judicially and not either arbitrarily or capriciously. This Special Bench further observed that when there is technical or minor breach of law, the ends of justice require that the discretion should not be exercised in favour of punishing a venial default. As regards the interpretation of the words “reasonable cause”, the Special Bench observed as follows (page 197) :\n<\/p>\n
 “What is ‘a reasonable cause’, in a given set of facts depends upon the peculiar facts of that case. A cause which a reasonable man accepts it as a reasonable one can be taken as a reasonable cause. The expression ‘reasonable cause’ requires to be interpreted liberally in a fair and reasonable manner so as to advance the cause of justice, since a harsh legalistic approach should be mitigated by soft practical approach in applying penal provisions,”\n<\/p>\n
18. The Special Bench also approved the decision of the Calcutta Bench of the Tribunal in the case of Kumar Bros. [1993] 47 ITD 552 and observed vide para. 29 (page 138) of its order that the reason that constituted reasonable cause for the delay in filing the return could also constitute a reasonable case for the delay in getting the audit report under section 44AB of the Act. The Special Bench followed the decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa<\/a> [1972] 83 ITR 26 and held that penalty cannot be imposed unless the party obliged, acts in defiance of law or in utter disregard of the statutory obligations cast on him;\n<\/p>\n
19. In the case of ITO v. Arun Kumar Bhuwalka [1992] 40 ITD 373, the Calcutta Bench of the Tribunal held that if the Income-tax Officer disbelieved the causes or explanation advanced by the assessee or if the Income-tax Officer required further evidence he should fix another hearing in the matter for further investigation before levying the penalty as otherwise, in the absence of the same, the reasonable cause tendered by the assessee is liable to be accepted and penalty is not leviable under section 271B of the Act.\n<\/p>\n
20. In the case of Kerala State Drugs and Pharmaceuticals Ltd. [1994] 210 ITR 1042 (Ker), the Kerala High Court held that delay of public sector undertaking in furnishing the return due to delay of statutory audit under the Companies Act can be condoned in the absence of any suggestion that the assessee lacked in bona fides; and <\/p>\n
21. In the case of Sulekha Works (P.) Ltd. [1985] 156 ITR 190, the Calcutta High Court held that delay in obtaining the audit report can be considered as a reasonable cause for the delay in filing the return.\n<\/p>\n
22. The propositions that emerge out of the above case law are (i) that the words “reasonable cause” in section 273B\/271B mean a cause which appeals to a reasonable man and it should be interpreted liberally so as to advance substantial justice and mere technical or venial breach need not be visited with penalty; (ii) the words “may direct that such person shall pay by way of penalty” in section 271B clearly indicate that the Assessing Officer is vested with the discretion which has to be exercised judicially and an appellate authority can consider whether the Assessing Officer has properly exercised his direction; (iii) after the introduction of section 273B of the Act, the initial burden to prove “reasonable cause” is on the assessee but if he tenders an explanation, it is for the Assessing Officer to consider whether the explanation is acceptable or not. An explanation given by assessee cannot be brushed aside as unsatisfactory without calling upon the assessee to adduce further evidence, if necessary. Failure to call for further explanation would relieve the assessee of proving further and the “reasonable cause” for the delay in obtaining audit report under such circumstances, cannot be visited with penalty under section 271B of the Act; (iv) delay in completion of statutory audit under the company law and non-initiation\/dropping of penalty under section 271(1)(a) of the Act, is a favourable circumstance in support of the “reasonable cause” advanced by assessee for delay in obtaining audit report; (v) period of delay and other surrounding circumstances should be taken into consideration in order to appreciate the “reasonable cause” tendered by the assessee; and (vi) mere delay in getting the accounts audited should not result in levy of penalty without further proof of mala fide intention or contumacious or fraudulent conduct on the part of the assessee.\n<\/p>\n
23. In the instant case, admittedly the books were presented to the auditors before the “specified date” but only a “provisional audit report” was issued under section 44AB of the Act on July 30, 1986, wherein it was stated that the same is based on “provisional accounts” and it is subject to change on the basis of finalisation of statutory audit report.\n<\/p>\n
24. In the explanation before the Assessing Officer, the assessee-company stated that the delay in obtaining the audit report is due to delay in obtaining bank statements apart from the fact that voluminous work is involved. It may be recorded here that the turnover of the assessee-company is Rs. 18.55 crores. On a perusal of the penalty order passed by the Assessing Officer under section 271B of the Act, it appears that the penalty was levied on the only ground that “provisional tax audit report” is not acceptable under section 44AB of the Act as there is no provision for such a report. However, the further explanation of the assessee that audit could not be completed in time due to voluminous work and non-receipt of bank statements in time, missed consideration of the Assessing Officer. At this juncture, it may be relevant to notice the second proviso to section 44AB of the Act which reads as under :\n<\/p>\n
 “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 obtains before that date the report of the audit as required under such other law and a further report in the form prescribed under this section.”\n<\/p>\n
25. The following points, relevant for the present purpose, emerge on a reading of section 44AB of the Act :\n<\/p>\n
Section 44AB(a) is applicable where the turnover of an assessee exceeds forty lakhs in any previous year;\n<\/p>\n
For the assessment year 1986-87, the audit report has to be obtained before the expiry of four months from the end of the previous year (with effect from April 1, 1989, up to April 1, 1994)’ “Specified date” for the company-assessee, means 31st day of December of the assessment year; with effect from April 1, 1994, it is 30th day of November of the assessment year and <\/p>\n
where an assessee is required under any law to get his accounts audited, the audit under such law is required to be completed before the “specified date” and a “further report” in the prescribed form need be furnished, which will be sufficient compliance with the provisions of section 44AB.\n<\/p>\n
26. Admittedly, the assessee herein is required, under the company law, to obtain an audit report and so, the second proviso to section 44AB is attracted. It is the contention of learned counsel for the assessee that the words “specified date” in the second proviso to section 44AB are to be understood as referring to the date specified for obtaining the statutory report as per the Companies Act. I am unable to appreciate the point sought to be made out by learned counsel in this regard. The words “specified date” is defined in the Explanation to section 44AB wherein it is stated that the words “specified date”, for the purposes of this section, means the date of expiry of four months from the end of previous year (i.e., July 31, 1986, in the present context). In view of the Explanation, the words “specified date” in the second proviso cannot be read as contended by learned counsel. It was argued by learned counsel for the assessee that under the Income-tax Act, whenever the Legislature wanted to exclude application of provisions of other enactments, it was specifically provided for in those sections such as sections 179, 230A, etc., and in the absence of any specific exclusion in section 44AB, the words “specified date” in the second proviso therein should be understood as “specified date” under other applicable laws but not the “specified date” under the Income-tax Act. Suffice it to state that in view of the Explanation to section 44AB of the Act, the aforesaid argument of learned counsel is not acceptable.\n<\/p>\n
27. I may quickly add that the statutory audit, in the instant case, though required to be obtained before July 31, 1986, as per section 44AB of the Act, it could not be obtained till September 20, 1986, and the “further report” could be obtained only on September 29, 1986,,as the books were voluminous and the bank statements could not be obtained in time. This explanation of the assessee was not proved to be wrong by the Assessing Officer. On the other hand, while holding that the “provisional report” has not reflected the correct state of affairs of the company, it was observed by the Assessing Officer that in the absence of important documents like bank statements, it was not possible to make a proper audit.\n<\/p>\n
28. In my opinion, the Assessing Officer has impliedly accepted the explanation of the assessee vis-a-vis the non-availability of bank statements. It is not the case of the Revenue that the explanation of the assessee is factually incorrect or lacks bona fides. The filing of a “provisional report” by the assessee, in my opinion, reflects the anxiety of the assessee to comply with the statutory dictates and discrepancies between the “provisional” and “final” reports cannot be viewed seriously in the context of appreciating reasonable cause for the delay in obtaining the audit report. The auditors have made it clear in the “provisional” report that it is based on, “provisional accounts” and it is subject to change, if any, on the basis of the finalised statutory report. Unless the statutory report, under the Companies Act, is obtained, the “further report”, as prescribed under the second proviso to section 44AB, cannot be filed as both are inter-linked. At any rate, the delay in obtaining the statutory audit report can be considered as a reasonable cause for the delay in obtaining the “further report” under section 44AB of the Act, inasmuch as, the reasons for the delay in obtaining the audit report as required under the Companies Act were neither proved to be wrong nor the bona fides of the assessee doubted by the Assessing Officer.\n<\/p>\n
29. Let me consider the issue from another angle. For the purpose of obtaining an audit report, either under the company law or (tax audit) under the Income-tax Act, the bank statements should be made available to the auditors failing which, it may not be possible to complete the audit. Admittedly, the audit commenced before the “specified date” and the delay is attributed to the non-receipt of bank statements in time apart from the fact that voluminous work was involved. Though there is considerable delay in filing the return of income, the Assessing Officer has not initiated penalty proceedings under section 271(1)(a) of the Act. The contention of learned counsel for the assessee that the audit, as per the time available under the Companies Act, has to be completed by 30th September, 1986 and so the assessee was under the bona fide impression that the “further report” can be filed only after obtaining the statutory audit report before 30th September, 1986 (audit was completed on September 20, 1986, and “further report” ready by September 29, 1986), cannot be brushed aside. The factors that the delay in obtaining the report under section 44AB is less than two months and the final report was available before completion of the assessment also deserve consideration. On an overall conspectus of the matter, and by keeping in mind the propositions culled out from various judicial decisions, I am firmly of the opinion that the assessee has proved the existence of reasonable cause under section 273B, read with section 27B, of the Act. Thus, the question referred to me by this reference under section 255(4) of the Act is answered in the negative and I hold that the penalty is not leviable under section 271B of the Act, in the instant case.\n<\/p>\n
30. Let the records be placed before the Division Bench for further orders in accordance with law.<\/p>\n","protected":false},"excerpt":{"rendered":"
Income Tax Appellate Tribunal – West Bengal Deputy Commissioner Of … vs Machino Techno Sales Pvt. Ltd. on 31 December, 1996 Equivalent citations: 2000 242 ITR 17 Cal ORDER OF TWO-MEMBER BENCH R. Acharya (Accountant Member) 1. This appeal is instituted by the Revenue against the order of the Commissioner of Income-tax (Appeals) for the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-93956","post","type-post","status-publish","format-standard","hentry","category-judgements"],"yoast_head":"\nDeputy Commissioner Of ... vs Machino Techno Sales Pvt. 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