TMI Blog1998 (12) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer passed order under section 271B of the Income-tax Act, 1961 and imposed penalty of Rs. 1,00,000 upon the assessee. The assessee got his accounts audited and obtained the audit report on 28-8-1986 for the previous year ending on 31-3-1986. The assessee was to get his accounting audited on or before 31-7-1986. The Assessing Officer issued show cause notice to explain the reason for delay in obtaining audit report. The assessee took plea before the Assessing Officer that the difference in trial balance in the accounts could not be reconciled and as a result delay of one month was caused for finalising the accounts which is established from the fact that the appellant filed an extension application in Form No. 6 on 30-7-1986 for extension of filing of his return of income. In absence of any communication granted by the department, the appellant presumed that his request has been granted. For this the appellant relied on the decision of Bombay High Court in the case of Lachman Chaturbhuj Java vs R. G. Nitsure [1981] 132 ITR 631 / 6 Taxman 198. He also relied on the decision of Madras Bench of I.T.A.T in the case of K. Ravikumar Co. vs Income-tax Officer [1989] 29 ITD 537 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Ctk) 644. He also relied on the case of Commissioner of Income-tax vs Rajinder Kumar Somani [1980] 125 ITR 756 / 4 Taxman 549 (Delhi) and D. M. Menasvi vs Commissioner of Income-tax [1969] 72 ITR 17 (Guj). This issue has been discussed by us while deciding penalty in the case of Gokalchand Shammi Kumar Kapoor vs Income-tax Officer [IT Appeal No. 1012 (Asr.) of 1991 dated 19-2-1998]. The legal ground taken by the appellant that the penalty is barred by limitation is not acceptable to us. The findings given in the case of Gokal Chand Shammi Kumar Kapoor (supra) are reproduced as follows : "The Id. counsel has relied on the decision of ITAT in the case of H. Ajitbhai Co. vs ACIT 45 ITD 262. The Id. counsel of the appellant has submitted that the Hon'ble ITAT has interpreted section 273, giving the meaning to section 275 to the extent that the impact of the interpretation will lead to holding the view that the Assessing Officer could not have validly initiated the penalty proceedings under section 271B after completion of the assessment proceedings. The Id. counsel has also drawn our attention to the interpretation of 'word' 'may direct' that such person shall pay by way of penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for initiation of penalty proceedings under section 271B. However, they are interpreting the section 271B. That the period is to be calculated from the end of financial year in which proceedings in the course of which action for imposition of penalty has been initiated. 11. Section 271 of the Income-tax Act is reproduced as follows :- '(1) No order imposing a penalty under this Chapter shall be passed - (a) in a case where the relevant assessment or other order is the subject matter of an appeal to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) under section 246 or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the (Deputy Commissioner (Appeals) or) the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; (b) in a case where the relevant assessment or other order is the subject matter of revision under section 263, alter t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings that the AO came to know that the appellant violated the provisions of section 44AV and consequently after the assessment proceedings, a show cause notice was issued. Even for arguments sake, any authority working the AO or supporting authority to AO can also point out that the appellant has violated the provisions of law. In any case, there is no time limit as admitted by the Hon'ble Tribunal in Ajithhai Co. (supra), still for either framing the opinion or initiation of the penalty, the opinion has to be framed in any proceeding. 13. The Hon'ble Delhi High Court decided this issue in the case of Addl. Commissioner of Income-tax vs J. K. D'Costa 133 ITR 7. The observations of Hon'ble Delhi High Court are reproduced as follows :- 'We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. As assessment cannot be said to be erroneous or prejudicial to the interest of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation will start from the two years or six months of such proceedings. In the instant case, proceedings were the assessment proceedings and penalty was imposed within the period prescribed under section 275. It has been held by various courts that section 275 docs not prescribe any requirement by commencement of proceedings for imposition of penalty. 15. The issue has come before the Hon'ble Supreme Court in the case of D. M. Manasvi vs Commissioner of Income-tax 86 ITR 557 whereby they have supported the contention that the section 275 does not prescribe requirement regarding the commencement of proceedings for imposition of penalty. The issue has also come before the various courts. The origin of the controversy stared from the decision of the Hon'ble Calcutta High Court in the case of Guru Prasad Shaw vs Commissioner of Income-tax 12 ITR 233 whereby the Hon'ble High Court has laid the law and held that in case Officer concerned was satisfied regarding the violation of law which envisages penalty during the course of proceedings, he might issue a notice even after completion of the assessment. This was followed by the Hon'ble Kerala High Court in the case of S. S. Venkatardi I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer or the Assistant Commissioner which are referred to in clauses (a), (b) and (c) of section 271(1) rather than to prescribe when a penalty proceedings may commence.'" 5. Section 44AB is a procedural section which is complete in itself and prescribes a procedure to be followed by a clause of cases where those type of cases have to get their accounts audited within a prescribed time and submit audit report in a proforma as prescribed by the Income-tax Rules, as per rule 6J of the said Rules. For violation and non-compliance of the procedure, the Income-tax Act provides penalty under section 271B. The section 271B is attracted on any person who fails to comply with the provisions of section 44AB. Both these sections read together are independent of assessment proceedings. These type of defaults in penalty chapter are not only independent of assessment proceedings but can be initiated at any stage by the Assessing Officer. However, Chapter XXI dealing with the penalties are controlled by section 274 which prescribes the procedure for imposing penalty to the extent that the appellant has to get a reasonable opportunity of being heard and section 275 which costs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the penalty was available upto 31-3-1990 or 30-9-1990 whichever is later. The Assessing Officer passed penalty order on 8-8-1990. This order is within time allowed. The plea of the Id. counsel on expiry of limitation is not accepted. 7. We have made discussion on initiation of penalty under section 271B and the flow of the discussion clarifies the position that 271B penalty proceedings can be initiated at any stage and the are totally independent of completion of the assessment proceedings. The offence or default under section 271B is linked with non-action on the part of the appellant regarding liability casted upon him under section 44AB. Once the Assessing Officer takes note of the default under section 271B by issuing show cause notice then section 275 comes into operation and penalty proceedings are to be completed within time prescribed under section 275 of the Income-tax Act. Section 275(1)(c) prescribes limit for completion of the penalty proceedings. So far as records are concerned, notice under section 271B is issued on 15-3-1990. The penalty proceedings are to be completed by end of Sept. 1990. The penalty order is passed on 8-8-1990. The penalty order is well wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he report as envisaged under section 44AB of the Income-tax Act before the specified date. The filing of an application in Form No. 6 docs not ipso-facto give a right to the assessee to obtain the audit report late. In any case, the reasons that the balance-sheet was under audit were correct as the application in Form 6 was filed on 30-7-1986 and from the photostat copies of the documents filed by M/s. B. D. Bansal Co.; it is evident that the audit was started at the assessee's premises on 25-7-1986, the difference in trial balance stated in reply to notice under section 271B is only an afterthought and could not be given any credence when the original Form No. 6 is placed on records stating that the balance-sheet was under audit-Under these circumstances, it is held that there was no reasonable cause for the assessee not to obtain the report before 31-7-1986, the specified date, since on account of laxity he had given the books of account only on 25-7-1986 to obtain the report which was not possible and the assessee knew it. The assessee had also not given any reasons as to why he had not got the books of accounts audited till 25-7-1986 when the books of accounts were closed on ..... 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