TMI Blog1998 (12) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... with audit report in Form 3CA which was based on unaudited accounts for the asst. yr. 1989-90 was filed on 29th Dec, 1989 but audited balance sheet, trading account and P L A/c etc. were not furnished. Original assessment under s. 143(3) was completed on 14th Jan., 1992 when the penalty proceedings under s. 271B were also initiated but as a result of appeal by the assessee, the said assessment was set aside for making a de novo assessment as per CIT(A) order dt. 17th May, 1993. The fresh assessment in consequence upon setting aside of the original assessment by the CIT(A) was completed on 19th Dec, 1995 but in the meantime the AO, as per his order dt., 22nd Jan., 1993, imposed the penalty under s. 271B which was confirmed by the CIT(A) also. 4. We have heard the assessee's counsel as well as the learned Departmental Representative. The various pleas advanced by the assessee's counsel are listed as under: (a)(i) The first plea of the assessee's counsel was that since the original assessment order, dt. 14th Jan., 1992, in which the penalty proceedings under s. 271B were initiated, was set aside by the CIT(A) for making a de novo assessment, the penalty proceedings under s. 271B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r imposing the penalty. (d) The fourth plea advanced was that the imposition of penalty is neither mandatory nor automatic and it is the Revenue which should prove the existence of mens rea or mala fide intention on the part of the assessee. Since Revenue has failed to prove it and the assessee had tried to comply with the requirement by furnishing a Form 3CA, it cannot be said that there was guilty intention or mala fide act on the part of the assessee. In view of these facts, he pleaded that levy of penalty is not proper. In support of this plea, the assessee's counsel has relied on the decision in following cases: (1) Imran-ur Rahman Kidwai vs. ITO (1997) 58 TTJ (Del) 537 : (1997) 62 ITD 33 (Del); (ii) Prabhu Sahu vs. ITO (1995) 83 Taxman 177 (Jp)(Mag); and (iii) Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC). (e) The first argument advanced by the assessee's counsel was that if the return was without audit report, then it was to be considered as defective one and the AO should have issued a notice under s. 139(9) allowing the assessee an opportunity to rectify the defect of non-furnishing of audit report or audited accounts. The Revenue has not allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , because the audit report in that case would have been of a date later than the time prescribed under s. 44AB. (b) Since the accounts were not audited either under the Companies Act or under the IT Act by the end of specified date, the default was well established and the penalty was justified. (c) Since the assessee was not barred or prohibited from appointing a private auditor, when in fact it had done so but only for the purpose of seeking report in Form 3CA and that too based on unaudited accounts, had the assessee bona fide intention to meet his obligation towards the requirement of the income-tax, procured an audit report and furnished the same in time after engaging private auditor. Assessee's failure to meet the requirement of s. 44AB cannot be saved on the ground that there was delay on the part of the Government in appointing the Government auditors. (d) Government failure to appoint statutory auditor cannot be reasonable ground because the assessee was not barred from engaging a private auditor. (e) In the light of the above submissions, the learned Departmental Representative submitted that the assessee's failure to comply with the provisions of s. 44AB was wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties which are based on assessed income/tax cannot be imposed till completion of the de novo assessment. In view of this legal position, we are of the opinion that the penalty proceedings having been once properly initiated not only remain in force even after the setting aside of the assessment for de novo purpose but excepting the penalties which are based on assessed income/tax, can be finalised also. 9. As far as assessee's case is concerned, admittedly, the penalty proceedings under s. 271B, which are not based on assessed income/tax were properly initiated at the time of completion of original assessment on 19th Dec, 1989 and, therefore, in our opinion, the same, in view of foregoing discussions and the provisions of law, validly remained in force even after the order of CIT(A), setting aside the assessment for de novo completion and, therefore, the assessee's contention fails. 10. Without prejudice to the above, even if for the sake of argument it is assumed (not admitted) that these type of penalty proceedings also get set aside or cancelled, as soon as the assessment is set aside, then also as far as assessee's case is concerned, the contention cannot be accepted becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch; which may show that the assessee was forbidden or debarred or prohibited from appointing a private auditor. On the contrary, when in actual it had appointed a private auditor but only for the purpose of securing a Form 3CA and not for getting the accounts audited, we are surprised as to how an audit report in Form 3CA was given by the private auditor without audited accounts. Why the assessee did so is best known to it as it has not spelt out any circumstances for engaging the private auditor for a limited purpose. On one hand the assessee is taking the plea that it was difficult for the assessee to engage a private auditor but, on the other hand, has secured Form 3CA from a private CA. 18. Since the assessee has failed to bring any evidence in support of its claim that it was barred from appointing a private auditor, we are unable to accept the assessee's plea that failure on the part of the Government to appoint statutory Government auditors may be taken as reasonable and sufficient cause for not complying with the provisions of s. 44AB. Contrarily, the assessee's action itself for having appointed a private auditor leads to the inevitable conclusion that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad the assessee no guilty mind, then what prevented it from getting the accounts audited by the private auditor? The assessee's action for appointing a private auditor only to procure Form 3CA and that too based on unaudited accounts clearly confirms that the assessee was well aware of its obligation under the Income-tax law and it was intentionally and knowingly that the assessee preferred to befool the Revenue Department by furnishing Form 3CA without getting the accounts audited. Had the assessee no knowledge or not aware of its obligation, then it should not have appointed the private auditor at all. As far as the case laws relied upon by the assessee are concerned, we are of the opinion that in the peculiar facts and circumstances, of the present case, those decisions do not advance the assessee's case and are not applicable. 21. As regards to the assessee's submission relating to the non-issue of a notice under s. 139(9), we are of the opinion that the assessee's failure to get the accounts audited, to obtain the audit report before the specified date and not furnishing of the audit report do not render a return of income, which otherwise is complete in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the question of omission for furnishing the audit report could not have been entertained by the AO and the return could not be considered as defective. Consequently, the circular relied upon by the assessee is also of no use to it. Even otherwise, it is now settled that a circular which is contrary to the main provisions of law is neither binding on the IT authorities nor can be taken note of by the Tribunal or the Courts and since, as stated above, there was no such provision which may entail a return based on estimate and not accompanied by the audit report as defective, the circular cannot make such a return as defective. We, therefore, are of the opinion that there was no necessity of issuing a notice under s. 139(9) of the Act. 23. Without prejudice to the above, even if for the sake of argument, we assume that there was such a requirement, then also the failure on the part of the AO to issue a notice under s. 139(9) has caused no prejudice to the assessee because the assessee, admittedly, had neither got the accounts audited nor had procured a tax audit report before the specified date and, therefore, what at the best the assessee could do after issuance of a notice unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of penalty had been initiated or six months from the end of the month in which the order of Dy. CIT(A) or Tribunal was received by the Chief CIT or CIT, whichever was later. As far as assessee's case is concerned, penalty proceedings were initiated in the assessment order passed on 14th Jan., 1992, and the assessment was a subject-matter of appeal before the CIT(A), who decided the assessee's appeal on 17th April, 1993. So the penalty could be imposed either before 31st March, 1992 or six months from the end of the month in which the order of CIT(A) dt. 17th May, 1993, was received by the Chief CIT or CIT. The order of the CIT(A) could not, in any case, be received before May, 1993 and even if it is taken to have been received in May 1993, then also the latest date, as provided under s. 275B by which the penalty could be imposed, comes to 30th Nov., 1993, as against which penalty has been imposed on 22nd Jan., 1993, itself. In view of these facts, we are unable to accept the assessee's plea that the penalty is barred by time. 27. Similarly, the plea that since the assessment could be completed without audit report, there is no justification in levying the penalty, cannot be acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction." Similarly, the Hon'ble Supreme Court in the case of K.P. Varghese at pp. 505-606 has held as under: "It is now a well settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result, which could never have been intended by the legislature, the Court may modify the language used by the legislature or even "do some violence" to it, so as to achieve the obvious intention of the legislature and produce a rational construction: Vide Luke vs. IRC (1963) AC 557 : (1964) 54 ITR 692 (HL). The Court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basis assumption underlying the statutory provision." 28. In view of the above facts and circumstances and the decisions of Hon'ble Supreme Court as well as of the Tribunal, we are unable to agree with the interpretation derived by the assessee's counsel which, in our opinion, leads to injustice and absurdity. Asse ..... 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