TMI Blog1990 (7) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment was completed on 14-7-1986 u/s 143(1) of the Income-tax Act, 1961. In response to show-cause notice for default u/s 44AB, the assessee explained that the assessee's financial year starts by Chaitra Shudha Padwa which some falls in the last days of March or sometimes in the beginning of April and therefore, the assessee felt that the provisions were not applicable for the assessment year 1985-86 under consideration. The explanation offered by the assessee was not accepted by the ITO as the deed of partnership provided that the year ending 3rd April was the previous year. As regards merits of the case, he observed that the assessee belongs to a large group of business houses and enjoys the benefit of expert advice on taxation and legal matters and therefore, there was no reasonable cause for the failure to get the account books audited and obtaining a report of such audit in the prescribed form. Therefore, he imposed a penalty of Rs. 47,846 in accordance with law. 3. On appeal, it was contended by the assessee that it was not liable to get the books of accounts audited as the accounting year ended only on 3-4-1984, i.e., only three days in the financial year relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO and the assessment completed u/s 143(1) as presumptuous attitude on the part of the assessee. According to him, the manner of assessment was nothing to do with the default of the assessee and what was material was the discharge of the obligation on the part of the assessee imposed by the statute. For all these reasons, he totally rejected the contentions taken by the assessee and came to the conclusion that there was no valid reason for not getting the accounts audited. Consequently, he confirmed the penalty imposed by the ITO. 4. Shri S.N. Doshi, the learned chartered accountant, besides reiterating the grounds and the contentions taken before the authorities filed a small paper compilation and submitted that the assessee did apply for extension of time in Form No. 8 on 25-7-1985 seeking time till 31-8-1985 on the ground that the necessary details and information are to be completed. However, the request for extension of time was rejected by the ITO. The assessee could file the return of income only on 29-3-1986, i.e., nearly after nine months delay and therefore the assessee could not have been in a position to get the accounts audited and the audit report submitted on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid circular, he would contend that in the absence of any finding in the assessee's case as to the existence of any fraudulent practice or malpractice, the assessee could be said to have reasonable cause for the default. In view of the above submissions, the learned counsel for the assessee urged that the authorities were not justified in imposing penalty which should be cancelled. 5. The learned departmental representative, on the other hand, submitted, that the assessee belongs to the famous Navalakha Family consisting of two dozen entities having advice of eminent expert and the parties themselves were highly knowledgeable and therefore, there was no reason why the accounts could not be completed. He also could not subscribe to the view that non-corporate assessees found it difficult to switch over to the proper maintenance of accounts which was required for the purpose of audit. He would submit that section 44AA with effect from 1-4-1976 enjoined maintenance of accounts by business and professional people and while section 44AB enjoined submission of audit report in the prescribed form even while books of accounts were maintained in normal course. As regards non-issue of pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee that accounts could not be completed for want of necessary details and information. It is in this background we consider that the observations made by the Lordships of the Gujarat High Court in the case of Rajkot Engg. Association at pages 66 to 68 are very much relevant and would go to support the stand taken by the assessee. The relevant portion of the judgment reads as under : " 4.20.1. Most of the difficulties arising on account of non-maintenance of accounts or maintenance of incomplete or incorrect records as per (sic) of the accounts would be to the disadvantage of the firm and it is in his interest that he takes every care to see that all his transactions on capital as well as revenue accounts related to the business or profession carried on are properly recorded in the relevant books of accounts and adequate documents, vouchers and other records are also maintained. It does not require much of knowledge of accountancy (sic) that the books of account of non-corporate assessees are not maintained in the manner in which the accounts are maintained by corporate assessees and required by auditors for purposes of commercial audit much less for tax audit. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the assessment year 1985-86 and will not be unmindful of the hardships of the assessee in not complying with this provision for some time to come particularly with reference to the assessment year 1985-86. In that view of the matter, therefore, the second limb of the contention, though no doubt it has some force in it insofar as it causes hardship to the assessee, particularly for the assessment year 1985-86 it cannot be said that the provision is unreasonable because it does not expose him ipso facto to the penalty nor to the consequences flowing from the return being treated as incomplete for reasons beyond control. The power to levy penalty is only when the ITO is satisfied that there was no reasonable cause for the default and the return can be treated as defective only if the defect is not removed within the stipulated time which cannot, therefore, be said to be the inevitable consequence of the default and, in any case, would not make the provision unreasonable. In order to mitigate the inconvenience and hardship to the assessee, particularly in relation to the assessment year 1985-86, the Board of Direct Taxes may consider as to the advisability of issuing directions on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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