TMI Blog2006 (8) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... b work done by him exceeded Rs.40 lacs, the Assessing Officer opined that the assessee was under an obligation to get the accounts audited. 3. The assessee's contention was that since under Section 44AB, three expressions (i) 'total sales', (ii) 'turn over' and (iii) 'gross receipts' are used by legislature each of them are independent criteria and one does not overlap the other. 4. According to the assessee, since the three expressions are related to three types of business activities, it be considered that under each independent criterion unless the "total sale" or "turnover" or "gross receipts other than the sale or turn over" independently have exceeded 40 lacs, he was not liable statutorily to have his accounts audited. Since in the case of assessee neither "turnover" nor "total sales" nor "gross receipts" excluding "turnover" or "sales" to be considered independently did not exceed Rs.40 lacs, he was not liable to have his accounts audited for Assessment Year 1994-95. Since for subsequent year he fell into criterion he has got his accounts duly audited and since then he has getting his accounts duly audited every year. 5. However, the Assessing Officer opined oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be considered as a reasonable cause in terms of Section 273B read with Section 271B of Income Tax Act, 1961? (III) Whether penalty under section 271B could be validly imposed without invoking the provisions of Section 139(9) of the Income Tax Act, 1961?" 11. Coming to the first question, it would be apposite to refer to the provision of Section 44AB itself which was inserted vide Finance Act, 1994 w.e.f. 1.4.1985. This provision was primarily intended to ensure the credibility of accounts maintained by any assessee other than a company, which is otherwise required to get its accounts audited, and the cooperative societies which were also required to be audited by the Cooperative Societies Act. Object for which this clause was sought to be inserted was that a proper audit for the tax purposes would ensure that the books of account and other records are properly maintained and that they faithfully reflect the income of the tax payer and claims for deductions are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n business in sale of commodity, if gross receipts of his business exceeds Rs.40 lacs, he is liable to compulsory audit, otherwise he is not liable to compulsory audit, if he is having in 3 different business not falling in same genera and in each business his aggregate turn over, or sale proceeds or gross receipts separately less than Rs.40 lacs. 17. Since the assessee carried on business of sales of the commodity manufactured by him, as well as doing the job work which did not relate to sale of commodity, the sale proceeds from sale of goods, and remuneration from job work, could not have been clubbed together for the purpose of Section 44AB. The receipts from job work being not a part of his "total sales" amount received from job work could not have been considered as "sales proceeds". Therefore, it is contended at the first instance that the view taken by the Revenue authorities that sale proceeds from sales and receipts from job work are to be clubbed for operating Sec.44AB, which obligates the assessee to compulsory audit is erroneous. 18. He further argued that all receipts of whatever nature are not to be included in computing the limit, crossing of which subjected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of businesses but aggregate of all business carried on by such persons which make him subject to obligation of getting his accounts audited, else the very purpose of providing these provisions would be redundant. Since a professional is not supposed to indulge in trading or business activity other than the professional activity, he cannot have any volume of sales or turnover from the professional service rendered by him which explains exclusion of expression "sales" and "turnover" from sub-clause (b) of Sec.44AB. He further pointed out that since the aggregate of money received or payable to the assessee without claim to any deduction and his obligation under the head Profit and Gains from the business or profession but there is definite distinction between carrying on a business and carrying on a profession. Keeping this distinction in mind lesser limit of gross receipts in the case of a professional has been provided, crossing of which entails his accounts to be subjected to compulsory audit, since no capital investment factor is involved in carrying on profession. Where the assessee is a professional carrying on business in contradiction to profession, it involves investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and what he is receiving as charges for the work done by him, like job work, where the raw material is provided by the other manufacturer, the assessee is merely to relate his receipts to labour charges or procuring cost incurred by him along with part of his profit. It is in that sense that business which is carried on by the assessee has to be taken into totality. It may be noticed that the "sales", "turnover" or "gross receipts" are not words of art used in relation to any individual transaction independently but has been used as "sales", "turnover" or "gross receipts". The expression 'total' qualify all the other three expressions viz. 'sales', 'turnover' and 'gross receipts'. Total sales indicate the aggregate price of the sales of commodities carried out by the assessee as a trading business. Obviously, it would not include such transfer of immovable or movable property by way of investment. Similarly, where the assessee is not merely selling the movable commodities, but relating to other trading activities e.g. where assessee is a land developer and he is engaged in business of acquiring land developing it and selling houses or purchasing or is indulged in leasing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing officer may, in his discretion, allow; and if the defect is not removed within the said period of fifteen days or within the extended period as may be allowed by the Assessing Officer, the return has to be treated invalid and the assessee is considered to have failed to furnish the return. 28. The provisions of Section 139(9) is of singular importance from the point of view to allow a chance to assessee to make his return complete and specify the defects which are curable and for the purpose of curing that defect an opportunity has to be offered to the assessee before the consequences of such defects follow. In other words, the consequence of non-compliance of requirement of furnishing of valid return takes effect only after the assessee fails to remove the defects within time allowed until the assessee has opportunity to remove such defects, the consequence of such failure to comply with such defects cannot follow. 29. Clause (bb) of the Explanation attached with Sub-Section (9) reads as under : "Explanation.- For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed that the assessee has failed to submit any return which may lead to consequence of default in filing return. 33. However, the second and third contingency be set further question to be probed. If the accounts have duly been audited before 31 st October of the Assessment Year, and such report is submitted after receipt of notice under section 139(9) the return in all literal sense and substantial sense has to be considered as a valid return to be dealt with in accordance with provision of law. 34. However, in response to notice under section 139 (9) the assessee submits a auditor's report in terms of Sec.44 AB and also the audited accounts and balance sheet, but such audit has taken place after 31 st October of the Assessment year, the question arises whether furnishing of such auditor's report and audited accounts, results in filing of valid return or the return remains an invalid as if such belated audit is of no consequence? 35. Similarly if the assessee, instead of submitting such auditor's report as notified joins an issue about requirement of getting his accounts compulsorily audited at all, whether in such case, the return has to be ignored or opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay not be levied. However, in the present case subsection (9) of Section 139 cannot be invoked. This takes us to consider the last question whether non-compliance with the provisions of Section 44 AB in the present circumstances can be attributed to a bona fide belief held by the assessee about the true interpretation of clause A of 44 AB which was ultimately found to be erroneous can be considered as a reasonable cause for the assessee's failure to get his accounts audited for the assessment year 1994-95 so as to attract the provisions of Section 271 B for absolving himself to levy of penalty. 41. Apparently when a return is filed unaccompanied with auditor's report as required under Section 44 AB it by itself does not make the person liable for any consequence in the first instance. But he is required to be called upon by the Assessing Officer, if he thinks that it is a case to which Sec.44 AB is attracted to remove the defect for which a minimum 15 days time is given to the assessee. The period may further be extended on an application being made by the assessee in that regard. In provision like the one with which we are concerned, it is primarily of the procedural nature f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing officer for the purpose of effecting charge of tax, as such defect cannot be cured. 42. A construction leads to such a result will lead to absurd end. 43. We are, therefore, of the opinion that clear purpose of Sec.139(9) in the contract is that whenever from the return submitted by the assessee it appears to the Income Tax Officer or Assessing Officer that accounts of the assessee are required to be audited under Section 44 AB and, therefore, the return ought to have been accompanied with the auditor's report, before rejecting the return as invalid return, he is required to afford an opportunity as a matter of statutory obligation u/s 139(9) of the Act to the assessee to submit the auditor's report. On receiving such notice, an assessee can avail such opportunity either by submitting the auditor's report if the accounts have already been audited and if the accounts have not been audited by then and he realises that the accounts are required to be audited then he can in the given time get his accounts audited and submit the accounts along with the report of the auditor in terms of clause (bb) and (d) of Section 139(9) of the Act of 1961 and on furnishing of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider whether not getting the accounts audited by 31 st October of the relevant assessment year was due to any reasonable cause which the assessee may put forward as defence for the failure to comply with the aforesaid provisions. In either case where the assessee raises an issue that his case does not fall within the purview of Section 44 AB before penalty could be levied, the Assessing Officer would be under an obligation to decide such objection raised by the assessee. If the objection is sustained obviously, no occasion would arise either of filing of auditor's report along with the return so as to complete the defective return on such receipt of the notice under Section 139(9) or to suffer penalty under Section 271B. In case where the Assessing Officer over rules the assessee's objection and holds that the assessee is/was liable to get his accounts audited in terms of Section 44 AB the question is always be germane to consider whether such objection raised by assessee as to his obligation u/s 44AB was frivolous or a plausible stand, before arriving at conclusion whether in such case penalty could be levied. 49. Section 273 B clearly postulates where the assessee furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tertained. For that matter under the earlier provisions also the questions of law only could be referred to this Court for its opinion by way of reference. In this connection, the position is also clear from the decisions of the Supreme Court that any question answer to which is self-evident is not a question of law which is required to be referred to this Court or the question which is self-evident or governed cannot be said to be a substantial question of law which need consideration in an appeal under Section 260A. 53. The fact that the Tribunal has to take up the interpretative exercise by referring to the provisions and analyzing the different phraseology used in Section 44 AB(a) before reaching its conclusion at least gives a clue that the interpretative exercise in respect of objection raised by the assessee was not a self-evident exercise but needed a rational and reasoned approach keeping in view the content, context and object of provisions itself, in conjunction with other provisions of the Act having a relevant bearing of concerned provision. 54. The fact that this Court while considering the admission of the appeal has found that interpretation of Section 44AB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in refusing to impose penalty 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. In our opinion, the aforesaid ratio in Hindustan Steel Ltd.'s case [1972] 83 ITR 26 (SC) case fully governs the facts of the present case and, therefore, the assessee was entitled to absolution from the liability to penalty under Section 271 B for non-compliance of Section 44 AB. Failure to comply with the provisions of Section 44 AB can be directly related to a bona fide belief by the assessee that he was not liable to get his account audited under Section 44 AB looking to the different nature of receipts by him from the different activities. 58. For the same reason, raising a contest by taking a plausible stand as true construction of statute which may ultimately be not found correct in the given circumstances constitutes a reasonable cause due to which the assessee can be said to have failed to comply with requirement of Section 44 AB by not getting his accounts audited for the relevant assessment year. If that were not so, it will be det ..... 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