TMI Blog1996 (4) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... can be levied under section 271B for the mere delay in complying with the provisions of section 44AB of the Income-tax Act. On the other hand, the learned Departmental Representative tried to counter this argument by placing reliance on the decision of the ITAT, Bombay Bench-D (SMC) in the case of Kritkumar M. Muchhala v. ITO [1993] 46 ITD 363, wherein it was held that penalty under section 271B is leviable if the assessee fails to get his accounts audited and obtain a report of such audit within the 'specified date' prescribed under section 44AB, provided the said failure was not for any reasonable cause. Noticing this conflict in the interpretation placed on section 271B by various Benches of the Tribunal, the Division Bench felt that it is a fit case to be heard and decided by a Special Bench. 3. Accordingly on a reference made by the Division Bench, under section 255(3) of the Income-tax Act, the Honourable President of the ITAT has been pleased to constitute this Special Bench for resolving the following issue and disposing of these appeals: "Whether the provisions of section 271B of the Income-tax Act, 1961, provide for penalty only for the absolute failure of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted and that the penalty proceedings may be dropped. A similar explanation was filed for the assessment year 1986-87 also stating that its auditors were preoccupied with other professional commitments and as such they could not take up the audit work of the assessee in time, that the delay, if any, was in the auditor's office and that the penalty proceedings may be dropped. 6. The Assessing Officer rejected those explanations and levied penalty of Rs. 34,280 and Rs. 1,00,000 for the assessment years 1985-86 and 1986-87 respectively under section 271B by his separate orders both dated 23-3-1989. Aggrieved by it, the assessee filed appeals. 7. The assessee contended before the first appellate authority stating that it was prevented by a reasonable cause from obtaining the audit reports in time, that the Assessing Officer having been satisfied with the explanations of the assessee for the delay in filing the return of income chose to drop the penalty proceedings initiated under section 271(1)(a) also and, therefore, there was no justification for imposition of penalty under section 271B. The learned Commissioner of Income-tax (Appeals) accepted the aforementioned submissions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the report of such audit before the specified date, he is clearly liable for penalty under section 271B, even though he got his accounts audited and obtained a report of such audit subsequent to the 'specified date' and before the filing of the return of income. Thus, the learned Departmental Representative submits that the view that section 271B punishes only a total or absolute abstinence or failure on the part of the assessee to get his accounts audited at all and obtain a report of such audit at all, is not correct. He placed strong reliance on the decision of the ITAT Bombay Bench-D (SMC) in the case of Kritkumar M. Muchhala which fully supports the aforementioned submissions of the learned Departmental Representative. 9. On the other hand, Shri G.S. Madhavarao, the learned Authorised Representative of the assessee contended as follows : The time-frame ('specified date') mentioned in section 44AB is conspicuously absent in section 271B. Section 271B as it stood during the relevant time, envisaged penalty only for a total failure on the part of an assessee in getting his accounts audited and obtaining a report of audit. No penalty is exigible under section 271 B for a belated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation and that the ratio of the decisions of the Calcutta and Allahabad High Courts relied on by the assessee can have no application to the facts on hand since the provisions considered in the said cases are not in pari materia with the provisions of section 271B. 11. We have duly considered the rival submissions. Section 44AB was introduced into the statute book by the Finance Act, 1984 w.e.f. 1-4-1985. Relevant portion of section 44AB as it stood during the relevant period reads as follows: "44AB. Every person--- (a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year or years relevant to the assessment year commencing on or first day of April, 1985, or any subsequent assessment year; (b) get his accounts of such previous year or years audited by an accountant before the specified date and obtain before that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed;" Clause (ii) of the Explanation to section 44AB defines and explains 'specified date' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the 'specified date' on the basis of an audit conducted after the 'specified date' cannot be strictly said to be one obtained as required under section 44AB. 14. Non-compliance of the provisions of section 44AB renders an assessee liable for penalty under section 27 1 B. Section 271 B was introduced into the statute book along with section 44AB by the Finance Act, 1984 w.e.f. 1-4-1985. Section 271B as it stood during the relevant years read as follows: "271B. If any person fails, without reasonable cause to get his accounts audited in respect of any previous year or years relevant to an assessment year or obtain a report of such audit as required under section 44AB, the Income-tax Officer may direct that such person shall pay by way of penalty, a sum equal to one-half per cent of the total sales turnover or gross receipts, as the case may be, in business or of the gross receipts in profession in such previous year or years or a sum of one hundred thousand rupees, whichever is less." 15. Section 271B consists of two limbs and failure on the part of the assessee to comply with either of those two limbs renders him liable for penalty under section 271B unless he is able to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified date' in section 271B, it is not permissible to levy penalty under section 271B for the failure on the part of the assessee to get its accounts audited and obtain a report of such audit within the 'specified date', is not correct. It is true that there is no specific reference to 'specified date' made in section 271B. However, section 271B mentions in clear terms the nature of the violation punishable under it. The violations envisaged under section 271B are, failure to get the accounts audited or to obtain a report of such audit 'as required under section 44AB'. We have already held that the words 'as required under section 44AB' govern both the limbs viz., getting the accounts audited and obtaining a report. The requirements under section 44AB are to get the accounts audited within the 'specified date' and to obtain a report of such audit in the prescribed form within the 'specified date'. Thus, the time-frame is inherent, in-built and implicit in the words 'as required under section 44AB' appearing in section 271B. The expression 'as required under section 44AB' appearing in section 271B clearly means that what is penalised under section 271B is the failure on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily the intention of the Legislature must be gathered from the very words in the statute itself. A construction which will defeat the plain intention of the Legislature, even though there may be some inexactitude in the language used, should be rejected. It cannot be said that the object of introducing section 44AB and section 271B into the Statute Book stands fully achieved even by placing the limited construction which the Bangalore Bench had placed on the provisions of section 271B. The scope and effect of section 44AB was explained by the CBDT in its Circular No. 387 dated 6-7-1984. Para 17.2 of the said Circular, which is a contemporaneous exposition of the newly introduced provisions of section 44AB, runs as follows : "17.2 A proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction 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 considerably saving the time of Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 271B which in our opinion does not reasonably admit more than one interpretation. The section which casts the legal obligation and the section which punishes the violation of that legal obligation both should be read together as a whole and a sensible meaning should be given to them in a comprehensive and logical manner. Section 271B when read in conjunction with section 44AB, there can be no scope for any second interpretation to section 271B. A provision should not be looked in isolation but should be considered in the light of the relevant provisions and the context and setting in which it is placed. It is true, a penal provision in a Fiscal Statute shall be strictly construed and when two views are reasonably possible on the construction of that provision, the one which is more favourable to the assessee should be adopted as has been held by the Supreme Court in the case of Vegetable Products Ltd. That rule does not apply when the text of the statute is clear. The ratio of the Supreme Court ruling in the case of Vegetable Products Ltd. can have no application at all to the case on hand since in our view, the plain language of section 271B does not reasonably admit mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished its return under section 6 of the Super Profits Tax Act before the Income-tax Officer on 30-8-1967 in respect of the assessment year 1963-64 and assessment was made on 21-11-1967 on the basis of the return filed. Subsequently, the Income-tax Officer issued a penalty notice under section 10 of the Super Profits Tax Act requiring the petitioner-company to show cause as to why an order imposing a penalty under section 10 of the Super Profits Tax Act should not be made on the ground that the petitioner had without reasonable cause failed to furnish the return of chargeable profits which he was required to furnish under section 6(1) of the Super Profits Tax Act, 1963. Aggrieved by it, the petitioner-company filed a Writ Petition in the Calcutta High Court to quash the said notice. The Calcutta High Court quashed the show-cause notice holding as follows: 'In my opinion, under the relevant provisions of the Super Profits Tax Act, 1963, the Income-tax Officer is not entitled to impose a penalty on the petitioner on the ground of failure to file a return within the time prescribed under that section when the return is filed before the assessment is made and the Income-tax Officer co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons contained in sections 44AB and 271B, we are unable to agree with the construction placed by the ITAT Bangalore Bench on section 271B. In our considered opinion, the ITAT Bombay Bench-D (SMC) in the case of Kritkumar M. Muchhala, had correctly construed the provisions of section 271B when it held as follows: "On the aforesaid discussion I am of the opinion that the provisions of the Companies (Profits) Surtax Act and the Super Profits Tax Act are not in pari materia to the provisions of section 271B/44AB of the Income-tax Act. Here, the requirement is to obtain the audit report before a specified date and no relaxation is given to obtain it subsequently. Once it is found that the assessee has not obtained the said report within the specified date, the default is committed and the assessee can be said to have failed to obtain the report within the meaning of section 271B of the Act subject, however, to an exception of reasonable cause as provided in section 273B of the Act." The contention of the assessee that section 271B provides for penalty only for the total or absolute failure on the part of the assessee to get his accounts audited at all or obtain a report of such audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or capriciously. When there is a technical or minor breach of the law, the ends of justice require that the discretion should not be exercised in favour of punishing a venial default. Further, it is not as though the moment a default under section 44AB is committed, the levy of penalty under section 271B is automatic. The words 'without reasonable cause' that existed in section 271B as applicable to the assessment years under consideration are important. If the assessee is able to show a reasonable cause for his failure to comply with the requirements of section 44AB before the due date, no penalty is leviable under section 271B. 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 applying penal provisions. 26. Now let us take up the appeal relating to the assessment year 1985-86 and find out whether the appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have appointed M/s. G.S. Madhavarao Company as our auditors. They have informed us that they will commence the work in the second week of November 1985. We therefore request you to grant time for filing the return till the date of completion of the audit." Thus, the aforementioned reply gives us an indication that the assessee had already taken steps to get its accounts audited even before the specified date. We find a copy of the said reply of the assessee at page-5 and a copy of Form No. 6 at page-6 of the paper book compilation. 28. The Chartered Accountant to whom the assessee entrusted the audit work on 10-9-1985 sent the following reply dated 26-9-1985 to the assessee: 'With reference to your letter dated 10-9-1985, we hereby convey our acceptance to conduct audit under section 44AB of the Income-tax Act and give the required report. As we have informed that there is difference in trial balance of more than Rs. 12,000 we submit that presently we are not in a position to reconcile the difference in trial balance as we are busy in carrying out the audit work of other firms. As we are already engaged in the audit of the other firms, we will take up the audit of your firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of work on the auditors, the audit work of the assessee firm could not be taken up in time by the auditors. 29. It would appear that the Assessing Officer though initiated penalty proceedings under section 271(1)(a) for the delay in filing the return of income, ultimately chose to drop the said proceedings obviously having been satisfied with the explanation of the assessee for the delay in filing the return of income as it could not obtain the audit report till 30-1-1986. At this stage, it would be useful to refer to the decision of the ITAT Calcutta Bench-A in the case of Kumar Bros. v. ACIT [1993] 47 ITD 552. In that case relating to assessment year 1986-87, the assessee therein handed over its books of account to its auditors on 25-4-1986 itself for getting the accounts audited under section 44AB. Due to prior professional commitments the auditors could not complete the audit before the due date. At the instance of the auditors the assessee therein sought extension of time for filing the return along with the audit report. Finally the assessee obtained the audit report on 30-9-1986 and filed the return of income on 21-10-1986. Though the return was filed after the expiry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard of the statutory obligations cast on him and that the default was due to a reasonable cause. The specified date for the assessment year 1986-87 was 30-6-1986. The due date for the filing of the return of income was also 30-6-1986. Since the books of account could not be closed as there was a difference in trial balance the assessee filed an application in Form No. 6 on 26-6-1986 for extension of time for filing the return of income till 30-9-1986. The Assessing Officer having been satisfied with the genuineness of the said request chose to grant time up to 31-7-1986 for filing the return of income. Again on 26-7-1986 the assessee filed another application in Form No. 6 requesting for extension of time till 30-9-1986 on the ground that the books of account could not be closed since there is a difference in trial balance requiring to be reconciled. The Assessing Officer extended time till 31-8-1986 for filing the return of income. Thus, the Assessing Officer himself having been satisfied with the reason given by the assessee for its inability to close the accounts before 30-6-1986 and file the return of income, chose to extend time till 31-8-1986 for filing the return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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