IN THE ITAT LUCKNOW BENCH ‘A’
Cane Development Union
Assistant Commissioner of Income-tax
IT APPEAL NOS. 508 & 509 (LUCK.) OF 2011
[ASSESSMENT YEARS 2006-07 & 2007-08]
SEPTEMBER 19, 2012
Sanjay Arora, Accountant Member
This is a set of two Appeals by the Assessee, contesting the confirmation of the levy of penalty u/s. 271B of the Income Tax Act, 1961 (‘the Act’ hereinafter) for two consecutive years, being the assessment years (AYs) 2006-2007 and 2007-2008, by the Commissioner of Income Tax (Appeals)-II, Lucknow (‘CIT(A)’ for short) vide his separate orders of even date, i.e., 21/12/2010.
2. The only issue arising in the present appeals is the validity in law of the levy of penalty under the given facts and circumstances of the relevant year/s.
2.1 The brief facts are that the Assessing Officer (AO), during the course of assessment proceedings for assessment year 2006-07, observed that the assessee’s final accounts for the relevant year, being the balance-sheet and the profit & loss account, were not audited under section 44AB of the Act, and no report there-under was furnished along with the return of income (which was filed in time – on 07/09/2006), even as the assessee’s turnover exceeded the threshold limit of Rs. 40 lakhs, as prescribed under the said section. There was, thus, a contravention of section 44AB, so that the assessee was liable to penalty u/s. 271B of the Act, and was accordingly show caused in the matter vide notice dated 13/06/2007. After seeking several adjournments; the assessee not attending on each date, the assessee finally submitted its reply on 12/03/2008, stating that there was no provision in its regulations for audit of its accounts by a private firm of Chartered Accountants, so that the same were audited only by its statutory auditors, namely, the District Audit Officer. The same was found not acceptable by the Assessing Officer and penalty u/s. 271B levied at Rs. 33,438/-vide order dated 28/03/2008. The facts for the following year, i.e., assessment year 2007-2008, are much the same, and the penalty stood levied at Rs. 44,458/- vide order dated 28/05/2008.
2.2 In appeal, the assessee raised several contentions. Firstly, that the penalty order was invalid as the penalty proceedings were initiated prior to the completion of the assessment. Secondly, that due to the delayed finalization of its accounts for the immediately preceding year, it could not get its accounts audited by a firm of Chartered Accountants u/s. 44AB, i.e., besides the statutory audit, and hence the filing of its return without an audit report there-under. Further, that its entire income was exempt u/s. 80P(2)(a) of the Act and, as such, there was no loss to the Revenue. The same did not find favour with the first appellate authority, who also observed lack of bona fides on the assessee’s part. The assessee’s legal contention was not maintainable as the penalty proceedings can be initiated at any time before the closure of the assessment proceedings. The penalty order was also passed within the prescribed time. The pleas raised by the assessee, i.e., on facts, were unsubstantiated and, in any case, would not absolve the assessee from statutory compliance. Accordingly, he confirmed the levy of penalty. Likewise, for the assessment year 2007-08.
3.1 Before us, the learned A.R. relied on the decision in the case of U.P. Co-operative Cane Development Union Ltd. v. Dy. CIT [I.T.A. Nos. 166 to 170/Lkw/2011, dated 07/07/2011], copy on record) wherein similar issue stood decided by the Tribunal in the assessee’s favor following the decision in the case of CIT v. Iqbalpur Co-operative Cane Development Union Ltd.  179 Taxman 27 (Uttarakhand), and penalty u/s. 271B cancelled.
3.2 The learned D.R., on the other hand, would submit that the law does not put any restriction or place any condition as regards the assessee having taxable income for the applicability of section 44AB. As such, it was improper to read such a condition in to the section. The courts do not, and could not, legislate, but only interpret the law as legislated, applying the recognized interpretative processes. Reliance stood placed on the decision by the hon’ble apex court in the case of CBI v. Keshub Mahindra [in Curative Petition Nos. 39-42 of 2010 in Criminal Appeal Nos. 1672-1675 of 1996], adverting our attention to the following sentence occurring at para 4 of the said decision dated 11/5/2011:
‘No decision by any court, this court not excluded, can be read in the manner as to nullify the express provisions of an Act or the Code and the 1996 judgment never intended to do so.’
The view taken by the tribunal was thus inconsistent with the express language of section 44AB read with section 271B of the Act, so that no plea to that effect could be sustained in law.
4. We have heard the parties, and perused the material on record.
4.1 Our first observation in the matter is that the several pleas raised by the assessee before the authorities below toward non-audit u/s. 44AB, and the consequent levy of penalty u/s. 271B, both qua facts or on law, viz. non-finalization of accounts for the immediately preceding year; statutory audit by the District Audit Officer [DAO] in terms of section 64 of the U.P Co-operative Societies Act; the earlier initiation of penalty proceedings, et. al., are without basis and/or of no moment, and rightly rejected by them. Each of the said contentions, which though were not raised before us, stand suitably addressed and met by the authorities below; the ld. CIT(A) in particular. The statutory audit for the first year (A.Y. 2006-07) stood completed well before the due date of the filing of the return for that year. Where, then, does the question of non-finalization of accounts for the preceding year (f.y. 2004-05) arise, much less for the following year – the assessee having raised this plea for both the years under reference. The U.P Co-operative Societies Act, under which the assessee is purportedly constituted, does not bar or in any manner prevent the assessee, a society registered there-under, from getting its accounts audited u/s. 44AB of the Act, and obtaining a report there-under. In fact, section 44AB itself contemplates such a situation, i.e., of the accounts of the assessee being required to be statutorily audited under its governing Act/Rules and, accordingly, prescribes obtaining an additional report u/s. 44AB in such cases, submitting both these reports, i.e., the statutory audit report under the governing Act and the additional audit report u/s. 44AB of the Act, by the due date of furnishing the return of income, in compliance with the statutory obligation cast by it. If the DAO qualifies as an ‘Accountant’ u/s. 44AB r.w.s. 288, the assessee shall obtain the additional report u/s. 44AB from its statutory auditor, else from an Accountant.
4.2 The only issue, thus, as we understand, that arises in the instant case is the validity of the assessee’s plea of the non-audit of its accounts u/s. 44AB as being guided by the fact of its entire income being tax exempt u/s.80P and, accordingly, of there being no loss to the Revenue. That is, whether such a plea would constitute ‘a reasonable cause’ within the meaning of section 273B of the Act, which would, where so, operate to save penalty, inter-alia, u/s. 271B. ‘Reasonable cause’ is a matter of fact, and would therefore require a finding of fact by us as an appellate authority called upon to adjudicate the matter. The assessee has not stated any basis for entertaining the belief that its income being exempt u/s. 80P, it is not obliged to get its accounts audited u/s. 44AB; the terms of the provision, reproduced here-under, are abundantly clear, admitting of no scope for such a view:
‘S. 44AB. Every person,-
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year; or
(b) to (d) ** ** **
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:
Provided that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later:
Provided further that in a case where such person is required by or under any other law to get his accounts audited, 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 furnishes by that date the report of the audit as required under such other law and a further report by an accountant 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 assessee of the previous year relevant to an assessment year, means the 30th day of September of the assessment year.’
Section 271B of the Act reads as under:
‘If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less.’
So, however, we could still understand and admit such a plea, where such a view is shown to have been advanced by its counsel, or such a plea is raised with reference to an existing (at the relevant time) judgment by a court or order by the tribunal expressing such a view, i.e., that section 44AB may not apply to person(s) who do not have taxable income under the Act.
4.3 Coming to the precedents, the tribunal in the case of Iqbalpur Co-operative Cane Development Union Ltd. (supra) found it justifiable not to levy penalty u/s. 271B of the Act despite the fact – which was duly noted by it – that there was nothing in the provision of section 44AB of the Act, requiring the assessee to get its accounts audited and furnish audit report in its respect (by the due date of furnishing the return of income), which made the said obligation relatable to the assessee having taxable income for the relevant year. In so deciding, it went into a rationale of the provision for audit, i.e., preparation of a proper return of income. As the assessee’s entire was exempt u/s. 80P of the Act, no motive to conceal the income or deprive the Government of its revenue could be attributed to the non-audit accounts u/s. 44AB of the Act. The same found approval by the hon’ble court in further appeal by the Revenue. The tribunal had recorded a satisfaction, a finding of fact, that the assessee had no intention to cause any loss to the Revenue, so that the AO would be justified in not levying the impugned penalty. The view of the tribunal was, accordingly, upheld. In U.P. Co-operative Cane Development Union Ltd’s case (supra), the tribunal found that the decision in the case of Iqbalpur Co-operative Cane Development Union Ltd. (supra) was squarely applicable, and there was no occasion to levy penalty u/s. 271B of the Act.
4.4 A combined reading of the decisions in the case of Iqbalpur Co-operative Cane Development Union Ltd. (supra) and by the tribunal in the case of U.P. Co-operative Cane Development Union Ltd. (supra) would show that an exemption of income from tax has been considered a valid cause for holding a bona fide belief that the assessee was not liable to get its accounts audited u/s. 44AB of the Act, i.e., for the purpose of filing its return of income, which the assessee, irrespective of the exemption of its income, is obliged to and indeed does.
Holding or otherwise of a belief, and a bona fide one at that, is a matter of fact, and which would depend upon a number of factors, including circumstantial, viz. the past conduct; the degree of general and legal awareness; the knowledge of the concerned person/s as also those in the assessee’s ambit, et. al. It is thus difficult to state of the afore-going, by way of a general proposition or as a ratio or a matter of rule. In a given case, an assessee may well be aware of the legal requirement (as apparent from its own past conduct or otherwise), so that the said proposition or ratio would be to no consequence. At the same time, however, there does not appear to be much difference in the facts and circumstances of the present case vis-a-vis those under reference. Further, though a reasonable cause, which mitigates penalty (section 273B), is to be proved by the assessee, and which it has not in the instant case, i.e., by leading any positive evidence, we have no reason to doubt the assessee when it states that it was under a bona fide belief that it was not required to get its accounts audited u/s. 44AB in view of its entire income being exempt u/s. 80P of the Act. Its’ statutory audit was completed well in time, so that it was definitely in a position to obtain an additional report u/s. 44AB from a firm of Chartered Accountants, i.e., were it to be in its knowledge or been so advised. In fact, had its statutory auditors qualified to be Accountants under the Act, they would have themselves guided the assessee properly in this regard. The same, nevertheless, shows the assessee’s bona fides in the matter; it getting its accounts audited as well as filing the return of income in time. We are, therefore, of the view that in the facts and circumstances of the case, there was sufficient cause for the AO not to levy penalty u/s. 271B of the Act for the first year (i.e., A.Y. 2006-07) in spite of the default in complying with the provision of s. 44AB, which the said (former) section seeks to penalize, and accordingly direct its deletion. We decide accordingly.
4.5 Coming to the decision cited by the Revenue, it needs to be appreciated that the issue under reference is not a matter of law but of fact, i.e., whether in the facts and circumstances of the case, the assessee can be said to have been prevented by a reasonable cause from complying with the relevant provision. In fact, this is precisely what we have stated in the foregoing para (# 4.4) when confronted with the decisions in other cases at the assessee’s instance. As such, though what the Honorable apex court holds in, and the assessee seek to impress upon us by relying on the decision in, the case of Keshub Mahindra (supra), is a truism, the same in our view is not in conflict with our decision afore-stated. We are not in any manner saying or trying to say that the assessee’s interpretation of the provision of section 44AB is valid. In fact, neither the tribunal nor the Honorable Uttrakhand high court have or could say so. Rather, if and where so, there would be no contravention of law in the first place, so that the question of levy of penalty would not arise at the threshold. It is trite law that there is no maxim in law that everyone knows the law. As such, where circumstances are shown to exist that the tribunal comes to a finding of fact that the assessee did indeed held a bona fide belief that its accounts were not required to be audited, i.e., held in good faith, penalty for violation of the provision ought not to be levied. It is and was, we may clarify, well within the powers of the AO to require the assessee, during the course of assessment proceedings, to get its accounts audited u/s. 44AB of the Act and furnish a report there-under to him within a reasonable time. The assessee cannot take a stand that it shall not, for that would be a contravention of law, and a deliberate one at that, making it liable to penalty u/s. 271B of the Act. That, however, is not the same thing, or equivalent to stating that where audit u/s. 44AB has not been caused and audit report consequently not obtained, penalty for the said contravention, irrespective of circumstances, has to be necessarily levied. In other words, our reason for directing the deletion of penalty is not a legal one but purely one of fact. As clarified by the Honorable apex court in the case of Hindustan Steel Ltd. v. State of Orissa  83 ITR 26, penalty for a failure to carry out a statutory obligation will not ordinarily be imposed even where it is legal to do so, unless the defaulter acts in conscious disregard of its obligations. Further, this is precisely why we have accepted the assessee’s case only for first year, i.e., A.Y. 2006-07. The return for the second year (i.e., A.Y. 2007-08) was filed on 24-09-2007, even as, as afore-stated, the show-cause notice for the levy of penalty u/s. 271B for the first year (A.Y. 2006-07) stood issued to it on 13-06-2007. As such, ignorance of law, i.e., of it being required to get its accounts audited u/s. 44AB irrespective of the quantum and nature of its income, including the tax status, tax-exempt or otherwise, thereof, which forms the edifice of the assessee’s case, completely breaks down for the second year, i.e., A.Y. 2007-08. Having been served with a legal notice for the levy of penalty u/s. 271B, it was incumbent on the assessee to cause to comply with the provision, at least for the second year and, in any case, seek legal opinion in its respect. Rather, it could have, on its own, requested the AO not levy the penalty for that year (i.e., A.Y. 2006-07), explaining that the non-audit of its accounts u/s. 44AB stood caused only due to its ignorance of law, acting though in good faith, and for allowing it reasonable time to furnish the report there-under before the completion of assessment. Not only does it do nothing of the sort, it goes ahead to file the return of income for the following year, after over three months, again in the same manner, i.e., without getting its accounts audited and obtaining a report u/s. 44AB of the Act, which it was mandatorily required to furnish. That is, the assessee deliberately adopts a legal stand, which is without basis, so that it cannot claim to have acted in good faith or under a bona fide belief. The plea of ‘reasonable cause’ would thus not obtain for the second year, and the levy of penalty u/s. 271B of the Act for the assessment year 2007-08 is accordingly upheld. We decide accordingly.
5. In the result, the assessee’s appeal for AY 2006-07 (in ITA No. 508/Lkw/2011) is allowed, while that for A.Y. 2007-08 (in ITA No. 509/Lkw/2011) is dismissed.