TMI Blog1998 (9) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... 985-86, the then Hon'ble Finance Minister informed the Parliament that the compulsory audit under section 44AB for the assessees other than limited companies, co-operative societies, etc. would help in checking fraudulent practices and could reflect the correct income of the taxpayer. It was submitted that the assessee was a co-operative bank carrying on business of banking and its accounts are audited under Co-operative Societies Act. Its entire income were exempt under section 80P of the IT Act since its inception in the year 1970 and always assessed at Nil income including the years under appeal. Further, it was pleaded that in co-operative bank circles it was a common belief that when income of the co-operative banks was exempted under section 80P and there was no scope for fraudulent practices or tax evasion section 44AB was not applicable. It was further argued that audit report under section 44AB had been obtained. The assessee filed those audit reports along with the reply to the show-cause notice. Further, it was contended that the Assessing Officer should have given opportunity to the assessee under section 139(9) treating the returns as defective returns stipulated under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcuse as per established legal position. He referred to the Punjab and Haryana High Court in the case of Daljit Singh v. CWT [1981] 130 ITR 236 where it had been held that the assessee's plea was not acceptable that he was not conscious of his obligation under section 14(1) of the Wealth-tax Act, 1957 for filing return and penalty levied under section 18(1)(a) of the Act was found correct. 2.1 In respect of assessee's contention that the returns of income should have been considered as defective to give opportunity to the assessee would not in any way shift its legal obligation. According to the Assessing Officer, it was only discretionary on the part of him to convey the defect and it is not mandatory for him to do so. He also pointed out that role of an Assessing Officer came later on when the return of income was filed but when the default had been committed by the assessee prior to that penalty is leviable under section 271B. He, therefore, levied the penalty. 3. Before the ld. CIT(A) the assessee contended that penalty under section 271B was leviable if the audit report was not furnished along with the return of income filed under section 139(1) or in response to a notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition to furnish audit reports along with the returns of income because it did not have to lose anything by filing the same because the entire income was exempt under section 80P and assessed at Nil but only because of the bona fide belief that no audit reports were required to be filed with the returns the same were not filed. In any case, he submitted that the deficiency of not filing the audit reports is curable under section 139(9) and the Assessing Officer should have given opportunity to the assessee in view of the departmental Circular No. 528 dated 16-12-1988 which reads as under :- "Sub-section (6A) of section 139 of the Income-tax Act provides that an assessee engaged in any business or profession should furnish along with a return of income certain particulars. This section has been amended so as to provide that an assessee engaged in any business or profession who is required to get his accounts audited under section 44AB of the I.T. Act should file along with the return of income. Further, section 139(9) of the I.T. Act has also been amended to provide that a return of income shall be regarded as defective if the audit report obtained under section 44AB of the I.T. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to cure the defect as envisaged under section 139(9) Explanation (bb) to the proviso he viewed that it was not obligatory on the part of the Assessing Officer to do so because under section 139(9) the Assessing Officer may or may not inform the assessee of defective nature of the return. Further, he viewed that this was not very relevant for the purpose of levy of penalty under section 271B because even if the defect was intimated to the assessee and the audit reports were filed the original default of not filing the audit report along with the returns of income would not be wiped out. The assessee still would be liable to levy of penalty under section 271B unless, of course, it was approved that there was a reasonable cause for the said failure as per provisions of section 271B. According to him, the ultimate question turned upon as to whether there was reasonable cause for the failure and whether the assessee's onus to prove the existence of such reasonable cause had been discharged in the present case. He opined that after the Hon'ble Supreme Court decision relied on by the assessee in the case of Hindustan Steel Ltd. (supra), the Hon'ble Supreme Court decisions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or obtain a report of such audit as required under section 44AB or furnish the said report along with the return of his income filed under sub-section (1) of section 139, or along with the return of income furnished in response to a notice under clause (i) of sub-section (1) of section 142." These are not the cases that the assessee did not obtain audit report before specified dates or that the assessee had filed returns under section 139(1) or in response to notice under clause (i) of sub-section (1) of section 142. Therefore, if the strict interpretation of the section is adopted the assessee cannot be visited with the penalty under section 271B. The Hon'ble Supreme Court in the case of Vegetable Products Ltd.'s (supra) had held that strict interpretation should be made on penal provisions in taxing statute. The ld. CIT(A)'s opinion that the return filed under section 139(4) could be treated as return filed under section 139(1) is not according to law as found by the Hon'ble Supreme Court in the case of Kumar Jagdish Chandra Sinha v. CIT [1996] 220 ITR 67. It is pertinent to note that section 44AB itself does not stipulate that the audit report has to be enclosed to the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where obligation of filing such report was made in that section itself so that the assessee can file its audit report within the specified date if it is obtained before the date and the return under section 139(1) is not filed. No such enabling section was there before the amendment of section 44AB came into effect before 1-7-1995 where in place of the words "obtained before" the words "furnished by" have been substituted. These amendments clearly show that before such amendment inspite of having the audit reports in hand before the specified date if the return under section 139(1) was not filed the assessee had no obligation or any opportunity of filing the audit report before the specified date. The retention of filing of report under section 44AB with 139(1) return even after the amendment of section 44AB had been made clearly supports the proposition that in case of return filed under section 139(1) the assessee can file report under section 44AB and when he is not able to file return under section 139(1) he can file the same by the specified date as provided in amended section 44AB from 1-7-1995. Now in respect of the opinion of the ld. CIT(A) that the Assessing Officer is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art from the legalities of levy of penalty if the audit reports are not filed along with the returns under section 139(4) when returns under section 139(1) were not filed and audit report in terms of section 44AB was obtained before the specified date. 5.3 In any case, according to me, the default committed by the assessee is only technical and no penalty should have been levied in view of the decision of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. (supra). The above law laid down by the Hon'ble Supreme Court has not been altered vide subsequent decisions in the case of Gujarat Travancore Agency (supra) and I.M. Patel Co. (supra) relied on by the ld. CIT(A). In the decisions of the Hon'ble Supreme Court in the case of Gujarat Travancore Agency (supra) and I.M. Patel Co. (supra) it would be seen that the Hon'ble Supreme Court had decided the issue on the basis of "mens rea". The Hon'ble Allahabad High Court in the case of CIT v. Chander Prakash [1991] 188 ITR 654 has distinguished the case as follows :- "Learned Standing Counsel for the Revenue relied upon a decision of the Supreme Court in Gujarat Travancore Agency v. CIT [1989] 177 ITR 455. The Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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