TMI Blog1985 (4) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... B provides the penalty for non-compliance of s. 44AB. Rule 6G prescribes the manner in which the report of the audit of accounts is required to be furnished under s. 44AB and Forms Nos. 3CB to 3CE prescribe the particulars to be furnished in that connection. The amendments were made in the Act and the Rules with effect from April 1, 1985, and apply from the assessment year 1985-86 corresponding to the relevant accounting year of the assessee. A batch of petitions have been filed to challenge the constitutional validity of the aforesaid amendments made in the Act and the Rules and they have all been heard together. All of them are being disposed of simultaneously and this order shall govern the disposal of the remaining petitions which were heard at the same time. These two petitions relate to the categories of businessmen and professionals who claim to be aggrieved by these amendments and together cover all the contentions urged in support of these petitions. The challenge to the constitutional validity of the aforesaid provisions has been made by persons who can be classified broadly as businessmen and professionals, since the impugned provisions relate only to businessmen a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accountant and setting forth such particulars as may be prescribed: Provided that in a case where such person is required by or under any other law to get his accounts audited by an accountant, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and obtains before that date the report of the audit as required under such other law and a further report in the form prescribed under this section. Explanation.-For the purposes of this section, (i) accountant shall have the same meaning as in the Explanation below sub-section (2) of section 288 ; (ii) 'specified date', in relation to the accounts of the previous year or years relevant to an assessment year, means the date of the expiry of four months from the end of the previous year or, where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or the 30th day of June of the assessment year, whichever is later. 271B. Failure to get accounts audited.-If any person fails, without reasonable cause, to get his accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erified by the " accountant " setting forth the prescribed particulars. Explanation to this section says that " accountant " shall have the same meaning as in the Explanation below sub-s. (2) of s. 288, which means a "Chartered Accountant" within the meaning of the Chartered Accountant Act, 1949, and includes in relation to any State any person who is entitled to be appointed to act as an auditor of companies registered in that State by virtue of s. 226(2) of the Companies Act, 1956. The " specified date " means the date of the expiry of four months from the end of the relevant accounting year or 30th day of June of the assessment year, whichever is later. In short, by this provision, every businessman whose " total sales, turnover or gross receipts " exceed Rs. 40 lakhs ; and every person carrying on a profession whose " gross receipts in profession " exceed Rs. 10 lakhs in the relevant year, is required to get his accounts for the relevant year audited by an " accountant " as defined in the Explanation below sub-s. (2) of s. 288 ; this audit has to be completed and a report obtained within four months from the expiry of the accounting period or 30th day of June of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot available for the work of compulsory audit of such assessees; and the " specified period " of four months from the end of the accounting year is not adequate for the purpose; (iii) the provisions directing audit in accordance with s. 142(2A), in s. 142(1) to call for books of accounts, etc., and in s. 143(2) to call for evidence, are sufficient to serve the purpose of compulsory audit and, therefore, the additional burden of compulsory audit in s. 44AB is too onerous; (iv) the provision for recovery of interest under s. 139(8)(a) in case of delay in filing the return and in s. 271B for penalty for non-compliance of s. 44AB are unduly harsh, since the " specified period " of four months from the end of the accounting period is inadequate to obtain the audit report and to file the return ; and (v) the object sought to be achieved by the impugned provision is not likely to be served by it. In reply, the learned Advocate-General contended that the presumption of the constitutional validity of the impugned provisions has not been rebutted in any manner; and that there is neither any hostile discrimination infringing art. 14 of the Constitution nor any unreasonable restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their accounts by audit has been considered necessary to check tax evasion and to locate and prevent the growth of black money. It may be mentioned that the initial proposal in the bill was to specify a minimum amount as Rs. 20 lakhs in the case of businessmen, but the same was later raised to Rs. 40 lakhs at the time of making the enactment, resulting in a further reduction in the number of assessees covered by the provision. It is settled that in taxing statute, classification of assessees on the basis of turnover is reasonable classification ; and greater latitude is available to the legislature for classification. [British India Corporation Ltd. v. Collector of Central Excise, Allahabad, AIR 1963 SC 104 and Anant Mills v. State of Gujarat, AIR 1975 SC 1234]. The intelligible differentia on which the classification is based is obvious in the present case, since the requirement of compulsory audit is confined only to the accounts of bigger assessees whose annual turnover or gross receipts exceed the specified amount and who are allowed deductions under several heads making their accounts more complicated. The object of enacting the impuged provisions mentioned in the budget s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, perform the function of an " accountant " on account of the special qualification they have for this purpose and the legal practitioners obviously do not belong to that category. It is, therefore, not a case where the legal practitioners, who are qualified to perform the duty of an " accountant ", have been restrained from doing so. As for representation of the assessee before the assessing authority, the legal practitioner as well as the " accountant " appear for the assessee, since both are included in the category of persons entitled to represent the assessee as an " authorised representative " in accordance with s. 288 of the Act. It is for the purpose of s. 288 of the Act that a legal practitioner and an " accountant" are equals and not for the purpose of compulsory audit of the assessee's account, for which the "accountant" alone is qualified. Admittedly, there is no discrimination made between a legal practitioner and an " accountant " for the purpose of appearance as an " authorised representative " of the assessee in accordance with s. 288 of the Act. If a person clubbed with others in s. 288 possesses some further qualification enabling him to perform a function in add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts from non-Govt. Servants for the purpose of the exemption. That decision is, therefore, clearly distinguishable and has no application to the facts of the present case. The other decision relied on is Basu v. Mukherji, AIR 1957 Cal 449. That decision too is of no assistance for the present purpose. However, the decision indicates that it is merely for the purpose of appearing as an " authorised representative" of the assessee that the "chartered accountant" as an " accountant " belongs to the same class as a legal practitioner and not for any other purpose. The principles relating to the applicability of art. 14 of the Constitution are well settled by a series of decisions of the Supreme Court. It is sufficient to refer only to a recent decision in Air India v. Nergesh Meerza, AIR 1981 SC 1829, wherein the propositions based on the Supreme Court decisions have been summarised in para 37 of the decision. No case of violation of art. 14 of the Constitution has been made out by the petitioners. The second contention based on art. 14 of the Constitution is also, therefore, rejected. Art. 19(1)(g) of the Constitution: In short, the argument based on art. 19(1)(g) of the Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts is unnecessary for the purpose of assessment. On the other hand, their relevance for the purpose of making the assessment is obvious. It was argued that some of these particulars require the " accountant " to give his opinion about the correctness of accounts and the permissible deductions, etc., amounting to delegation of the assessing authority's function to the " accountant ". There is no basis for this apprehension and this is not the result of the required audit report. The decision has to be given by the assessing authority while making the assessment with the aid of the audit report and not merely on that basis. There is no delegation to the " accountant " or abdication of the assessing authority's function. This enables the assessing authority to, utilise the available time for the more important work of assessment of the bigger assessees instead of spending the same for the purpose of scrutinising the accounts, which can be safely entrusted to an " accountant" who is quite well versed in the task. The requirement of compulsory audit cannot be treated as an unreasonable burden placed on the bigger assessees to whom alone these provisions apply. It was then argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking such an order. The result of the compulsory audit is that the audit report is available to the assessing authority along with the return to enable the assessing authority to proceed on that basis. The existing provisions would be available even now in such cases, if any further scrutiny is considered necessary by the assessing authority. The existing provisions and the impugned provisions are not mutually exclusive and they can co-exist. This argument also is of no avail. The next argument is that the provision for automatic recovery of interest under s. 139(8)(a) in the case of delay in filing the return and in s. 271B for penalty for non-compliance of s. 44AB is unduly harsh. It is urged that delay in filing the return on account of liability in getting the audit report within the " specified period " renders the assessee liable for interest and penalty automatically. A bare perusal of s. 139(8)(a) and s. 271B indicates that liability for interest as well as penalty is not automatic in case of delay. The proviso to s. 139(8)(a) enables the ITO to reduce or even waive the interest payable by the assessee in the prescribed circumstances. Rule 117A of the I.T. Rules, 1962, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Supreme Court in Mc Dowell and Co. Lid v. CTO [1985] 154 ITR 148, wherein the shift towards emphasis on frowning at tax avoidance has been indicated. In view of this later decision of the Supreme Court, reference made by the Finance Minister in his budget speech to discouraging " tax avoidance " cannot be objected to. It follows from the above discussion that challenge to the impugned provisions on all the aforesaid grounds based on art. 14 and art. 19(1)(g) of the Constitution has no merit and must be rejected. We may at this stage also refer to a decision of the Karnataka High Court in Nataraj v. Union of India [1985] 155 ITR 81, wherein a similar challenge to the constitutional validity of these provisions based on arts. 14 and 19(1)(g) was rejected. With respect, we are in agreement with the conclusion reached therein. We may also add that the time available this year for compulsory audit has been extended up to September 30, 1985 by Circular No. 422 [F. No. 201/156185-IT (A-II)] dated June 19, 1985, issued by the CBDT. However, counsel for the petitioners urged that in view of the stay order made in these petitions, no steps were taken for getting the accounts aud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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