TMI Blog2005 (12) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992-93 being only finalized thereat] to be finalized is difficult to accept, specially with no material brought-forth to establish the same. Secondly, a further period of six months (October 1994 to March 1995) to obtain the audit report of accounts for 12 months (previous year 1993-94) and which was held up only for want of correct carry forward of opening balances, and which became available latest by (now) September 1994, and knowing that the matter stand already delayed, for the second year in running, is again, difficult to understand. Finally, the non-submission of the audit report dated 27-3-1995 immediately thereafter or upon the amendment in law, making the furnishing of the report mandatory, is nothing but a conscious disregard of its statutory obligations. In conclusion, we uphold the levy of penalty and the order of the CIT(A) is dismissed - In result, the appellant succeeds. Judicial Member - It is also not the case of revenue that the assessee has committed default of non-furnishing audit report as per amended provisions of section 44AB which stood amended by Finance Act, 1995 with effect from 1st July, 1995 as revenue did not base its penalty under amended provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report on or before the specified date. Therefore, any delay in furnishing the same as is made a requirement under the amended provisions with effect from 1-7-1995 by the Finance Act, 1995 would not be of any consideration. Thus, this is not a fit case for levying the penalty. In view of the majority opinion, the order of the CIT(A) is upheld and, accordingly, the levy of penalty is deleted. In the result, the Revenue's appeal is dismissed. - Member(s) : R. P. GARG., I. P. BANSAL. ORDER Per Shri Sanjay Arora, Accountant Member. - This is an appeal by the department against the order of the CIT(A)-XI, Ahmedabad dated 19-6-1998 for the assessment year 1994-95, deleting the penalty under section 271B of the Income-tax Act, 1961 (hereinafter referred to as the "Act") levied by the Assessing Officer vide his order dated 9-9-1997. 2. The facts of the case, in brief, are as follows: The assessee is an HUF dealing in textiles, and belonging to a group generally known as Raghubir Textile Group. It filed its return of income for the assessment year under question on 31-8-1995 at an income of Rs. 10,77,919, and enclosed along with an audit Report prescribed under section 44AB, in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. S.R. Parmanand Chichar [1995] 212 ITR 536 and also that of jurisdictional ITAT in the case of Kashiram Textile Mills (P.) Ltd. v. Asstt. CIT [1994] 48 TTJ (Ahd.) 226 wherein it had been held, in ratio, that the delay in audit for a subsequent year on account of delay in the audit for an earlier year constituted a reasonable cause saving the penalty imposed under section 271B of the Act. 4. Before us, the leaned A.R. for the assessee cited the case of CIT v. Tea King [2000] 158 CTR (Guj.) 413 of the jurisdictional High Court, which he stated to be covering the matter on all fours. The learned D.R., on the other hand, relied wholly on the order of the Assessing Officer, submitting that the maintenance of books of account, for the relevant previous year, and the subsequent audit, could not be impacted by the search conducted on 11-8-1992, which fell in the previous year 1992-93, i.e., relevant to the assessment year 1993-94, or the year preceding the assessment year under question. 5.1 The delay in obtaining of the Tax Audit Report, and the consequent breach of the provisions of section 44AB, is undisputed. However, the levy of penalty under section 271B is saved by section 273B o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition, and accepting its assertion, which related principally to the accounts of financial year 1992-93, would not, by any score, justify the time period of 21 months, i.e., from April 1993 to December 1994, that the assessee took to obtain the audit report for the financial year ending 31st March, 1993, having been already restored back the seized material as far back as in December 1992, i.e., well before the close of the previous year. (b) The account books for each year start with the carry forward of the closing balances of the various assets and liabilities as at the close of the preceding year, as the opening balances thereof. However, that apart, there is no link between the accounts of one year with another and the same can be written, being only a recording of the business transactions as they arise on the day-to-day basis, independent and irrespective of the opening balances. No doubt, the opening balances form an integral part of the accounts and which cannot be said to be complete, or be finalized, prior to their being recorded. But, to contend that the same, i.e., the opening balances, in the present case, could be made available only in December 1994, i.e., when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that year, which were presumably being recorded in the regular course. 6.1 Further, the assessee did not furnish the audit report under section 44AB of the Act immediately after 27-3-1995, i.e., the date on which it was obtained, and only five months later, on 31-8-1995, along with the return of income. On being specifically queried as to why did it hang on to a report for no apparent reason which it had already obtained late by five months, and of which default it was well aware, the learned A.R. submitted that there being no requirement in law for him to do so and that the default having already occurred, the same could not be reversed or undone by the furnishing thereof. 6.2 The argument of the learned A.R., though cannot be faulted with technically, is self-defeating, and also legally infirm. Firstly, proving one's bona fides is an essential ingredient in any legal proceedings, more so in penal ones, where a reasonable and bona fide conduct (action or non-action as the case may be) spares penalty for a default/breach which is otherwise undisputed. Secondly, the law stood amended by Finance Act, 1995 with effect from 1-7-1995, extending the scope of section 44AB, which herein b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities, the business being a continuous affair; the same being only subject to any adjustment in their respect, for example, valuation, etc., as the finalization/audit process ensues. The relevant question to be asked, therefore, is not whether the accounts of a subsequent year could possibly be finalized or audited prior to an anterior year's, but that whether the delay, given the fact of finalization of accounts of the earlier year belatedly, is reasonably explained, i.e., justified. And which, as also mentioned earlier, is a matter of judicial analysis (of the said explanation) under the facts and circumstances of the case, and which would necessarily vary from case to case, and further, subject to their being proved, so that no general proposition of law emanates to form a precedent. Going by the explanation in the present case a dislocation for some period, and which is a normal incidence of business, would cause delay not only for that year, irrespective of the fact that the delay is to be reckoned with reference to a date much later than the close of the year and well before which the dislocation occurred, but for a few subsequent years as well, while the law itself affo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j.) 413 it was held that no question of law arose in view of the concurrent finding of the CIT(A) and ITAT, and their exercise of discretion in favour of the assessee in view thereof. As such, the claim of the learned A.R. of the said decision as covering the specific case in all respects, is difficult to agree with. 9. The learned A.R. has further informed, in response to a specific query in this respect by the Bench, on consultation of assessment records, that the audit report under section 44AB, for assessment year 1993-94 is dated October 29, 1994, which means that the relevant date mentioned in impugned order (December, 1994) is not correct. 10. The onus to establish reasonable cause lies squarely on the assessee. However, we find that in the present case the assessee has completely failed to furnish any evidence apart from the seizure of its records in August, 1992, which it got back in December 1992. However, how could, the dislocation, or complete suspension, even if we were to presume so, by four months (August 1992 to November 1992), require 21 (twenty one) months [and not 24, i.e., from December 1992 to (now) September 1994 (and not November 1994) the accounts of financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted that the non-finalisation of earlier years account constituted reasonable cause. The revenue is aggrieved hence in appeal. 3. Before us, the ld. DR relied on the order of Assessing Officer. As against the submissions of ld. DR, ld. counsel of the assessee, Shri S.N. Soparkar relied on the decision of Jurisdictional High Court in the case of CIT v. Tea King [2000] 158 CTR (Guj.) 413. He also placed reliance on the order of CIT(A) and pleaded that the order of CIT(A) should be upheld. 4. The facts of the case are not in dispute. Before proceeding further it will be relevant to reproduce the following observations of Their Lordships of Hon. Jurisdictional High Court in the afore-cited case of Tea King. "4. No doubt section 44AB of the Act lays down that every person carrying on business shall, if his total sales, turnover or gross receipts as the case may be, in business exceed forty lakh rupees in any previous year or carrying on profession, shall if his gross receipts in profession exceed ten lakh rupees shall get the accounts of such previous year audited by an account before the specified date and obtain before the dale the report of such audit in the prescribed form. 5. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts audited for subsequent years. The order of CIT(A) was upheld by this Tribunal. Their Lordships of Jurisdictional High Court found that there was nothing wrong in the order of Tribunal vide which deletion of penalty was upheld. 6. Besides afore-cited case of Jurisdictional High Court, other courts have also considered non-completion of immediate preceding year's audit as "reasonable cause" for non-levy of penalty under section 271B. Some of these cases are as under:- 1. Rajasthan Rajya Vidyut Prasaran Nigam v. ITAT [2003] 262 ITR 262 (Raj.). 2. Shri Swastik Steel (P.) Ltd. v. Asstt. CIT [2003] 264 ITR 447 (Bom.). 3. ITO v. Arun Kumar Bhuwalka [1992] 40 ITD 373 (Cal). In the afore-cited case of Arun Kumar Bhuwalka a co-ordinate Bench has held that penalty proceedings under section 271B read with section 273B are not in the nature of criminal trial and the standard of proof required in such penalty proceedings is lower compared to criminal case. Evidence which can convince a reasonable man in a rationale way is sufficient and penalty is not eligible. 7. Now coming to the facts of the present case, the audit of immediate preceding year was completed on 29th October, 1994. It is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified. 10. Keeping in view the entirety of facts and above position of law, I am of the opinion that ld. CIT(A) has rightly deleted the penalty and his order should be upheld. The departmental appeal is, therefore, liable to be dismissed and is dismissed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT Per Shri R.P. Garg, Vice President. - As there is a difference of opinion, the matter is being referred to the Hon'ble President of ITAT with a request that following question may be referred to a Third Member or pass such order as the Hon'ble President may think fit. "Whether, on the facts and in the circumstances of the case, penalty in the present case is saved under section 273B of the Income-tax Act, 1961?" ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT As there is a difference of opinion, the matter is being referred to the Hon'ble President of ITAT with a request that following question may be referred to a Third Member or pass such order as the Hon'ble President may think fit. "Whether, on the facts and in the circumstances of the case, ld. CIT(A) was justified in cancelling the penalty levied under section 271B of the Income-tax Act, 1961 holding that there was a 'rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and the decisions of the court cited before him. He held that due to search at the premises of the assessee and consequent seizure of the accounts caused the delay in the finalisation of accounts and getting the accounts audited under section 44AB. According to him the Assessing Officer was not correct in saying that each year is independent for the finalisation of accounts for obtaining the audit report under section 44AB, as according to him it is only after the finalisation of account for earlier year an assessee can carry forward the accounts and finalise the books for the subsequent year. The accounts were audited in steps, i.e., first, the accounts for 1992-93 were audited, then the accounts for assessment year 1993-94 were audited and then finally accounts for assessment year 1994-95 were audited. Therefore, according to him, there was a reasonable cause for delay in getting the accounts audited. He accordingly directed the Assessing Officer to cancel the penalty levied under section 271B of the Income-tax Act. 4. When the matter came up before the Tribunal, there struck a difference of opinion between the Members - (i) the Accountant Member holding that the assessee fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val contentions considered. A search and seizure action has taken place in the case of the assessee on 11-8-1992. That event fall in the assessment year 1993-94. Xerox copies of the accounts were given and made available to the assessee in December 1992. With the help of those accounts the assessee completed the audit of the earlier year 1993-94 on 29-10-1994. Apparently that was also late. As per the provisions of section 44AB, accounts for the immediately preceding year were also required to be completed on or before 31-10-1993. No action for levying any penalty has been taken for that year. In these circumstances, the period until the completion of audit of the earlier year would constitute a reasonable cause because the audit for the subsequent year under consideration cannot be completed without opening balances of the earlier year. It would be irrespective of the fact whether the delay in audit of earlier year was with reasonable cause or without a reasonable cause or whether penalty was levied in the earlier year or the assessee was exonerated for the levy thereof. Again if it was a reasonable cause in the earlier year it has to be a reasonable cause for the subsequent year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 262 (Raj.), the assessee had received the audit report for assessment year 1989-90 on August 28, 1990 and the process took time to adjust accounts of the assessment year 1990-91 in conformity with the audit report received for the assessment year 1989-90 for submission of the accounts Reassessment year 1990-91. The court held that the assessee had a reasonable cause for the delay in submission of the report for assessment year 1990-91 and also for assessment year 1991-92. 9. In the case of Shri Swastik Steel (P.) Ltd. the dispute amongst the directors for the delay in audit report was though held to be not reasonable for assessment year 1992-93, the delay in the audit of that year on that account was held by the Bombay High Court to a reasonable ground for delayed obtaining the audit report of assessment year 1993-94. 10. It is also to be kept in mind that after the audit of the earlier year's accounts on 29-10-1994, the assessee took about 4 to 5 months in getting the accounts audited for the year under consideration on 27-3-1995. This period also cannot be said lo be unreasonable as the audit for the whole year's account generally takes this much time and that is probably th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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