TMI Blog1997 (2) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... erification the ITO found that the tax auditor has submitted his final report only on 29-9-1986, though a provisional report was obtained on 30-7-1986. The ITO was of the opinion that as there is no provision for such a provisional report, the tax audit report dated 29-9-1986 is the actual report obtained under section 44AB. He rejected the provisional audit report dated 30-7-1986 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 the 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 the important document like bank statement he rejected the explanation of the assessee and imposed a penalty of Rs. 1 lac under section 271B. 3. The matter was carried in appeal and before the CIT(A) 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 ITO, does not stand the scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee do not carry much weight as proviso to section 44AB requires that the person should get the accounts audited under such law before the specified date and obtains before that the report of the audit as required under such other law an a further report in the form prescribed under this section. We find that in this case although the specified date is 30-7-1986 but the assessee has failed to get it accounts audited before the specified date. Even under 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 CIT(A) 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit 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 31-7-1986 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 20-9-1986 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 29-9-1986. The ITO 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were not finalised and the statutory audit under the Companies Act had not been completed. This shows the bona fide of the assessee. The assessee's conduct cannot, therefore, be considered contumacious or in conscious disregard of the statutory duties. 13. 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 31-7-1986 but had furnished the same only on 29-9-1986. 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 it had to be the purpose of introducing section 44AB. As explained in para-17 of the Circular No. 387 dated 6-7-1984 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 18. I would, therefore, dismiss the appeal. THIRD MEMBER ORDER 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 difference, of opinion, amongst the ld. Members, the point of difference was referred to the Hon'ble President under section 255(4) of the I.T. Act. The Hon'ble 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: "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?" 2. The facts in brief are as follows: For the assessment year 1986-87, the 'specified date' for obtaining the Audit Report ended on 31-7-1986, whereas the final Tax Audit Report was obtained by the assessee-company on 29-9-1986. As the Tax Audit Report/further report, as presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cause. In a nutsell he made the following observations: (a) 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 29-9-1986; (b) 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; (c) 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 of 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 30-7-1986 notwithstanding the fact that the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Held 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 30-9-1986. 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. Ld 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. I, therefore, refuse to admit the additional evidence and the papers are returned. 9. The ld. counsel for the assessee submitted that the return for the assessment year 1986-87 was filed by the assessee-company on 23-9-1988 after a delay of more than two years -- bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case; (f) Kumar Bros.'s case. The ld. counsel thus supported the order of the ld. Judicial Member. 10. Joining the issue, ld. senior departmental representative submitted that 'further report' mentioned in section 44AB of the Act should be obtained by the assessee before the 'specified date', i.e., 31-7-1986 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 Hon'ble Calcutta High Court in the case of Sulekha Works (P.) Ltd. is distinguishable on facts. 11. 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: (a) In the case of Rajkot Engg. Association, the Hon'ble Gujarat High Court observed that the revenue has to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench), 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 indicates 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: "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 harsh legalistic approach should be mitigated by soft practical approach in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, 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 circumstances 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 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. 13. In the instant case, admittedly the books were presented to the auditors before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished, which will be sufficient compliance with the provisions of section 44AB. 15. Admittedly, the assessee herein is required, under the Company Law, to obtain an audit report and so, second proviso to section 44AB is attracted. It is the contention of the ld. counsel for the assessee that the words 'specified date' in second proviso to section 44AB is 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 the ld. counsel in this regard. The words 'specified date' is defined in Explanation to section 44AB wherein it is stated that the words 'specified date'. for the purpose of this section, means the date of expiry of 4 months from the end of previous year (i.e., 31-7-1986 in the present context). In view of the Explanation, the word 'specified date' in second proviso cannot be read as contended by the ld. counsel. It was argued by the ld. counsel for the assessee that under I.T. 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., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. Let me consider the issue from another angle. For the purpose of obtaining audit report, either under Company Law or (Tax audit) under I.T. Act, the bank statements should be made available to the auditors failing which, it may not be possible to complete the audit. Admittedly, 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 is 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 the ld. 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 complete on 20-9-1986 and 'further report' ready by 29-9-1986), cannot be brushed aside. The factors that delay in obtaining report under section 44AB is less than two months and the final report was available before completion of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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