P.Senthil Kumar Vs PCIT-5 (Madras High Court)
The Madras High Court considered an appeal filed by the assessee under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal for the assessment year 2012-13. The appeal raised questions regarding the interpretation and application of Sections 271B and 273B of the Act, particularly whether the Tribunal had correctly applied the provision exempting an assessee from penalty upon establishing reasonable cause for failure and whether filing the audit report along with the return constituted only a technical or venial breach.
The principal issue before the Court was whether the assessee had shown sufficient cause for not furnishing the tax audit report before the prescribed due date of 30 September 2012.
The assessee, an individual engaged in the granite business, filed the audit report along with the return of income on 31 March 2013. The assessment was completed under Section 143(3) on 29 March 2015. Since the audit report had not been furnished by the due date, the Assessing Officer levied a penalty of ₹1.5 lakhs under Section 271B by order dated 29 September 2015. The Commissioner of Income Tax (Appeals) dismissed the assessee’s appeal on 20 October 2016, and the Income Tax Appellate Tribunal also upheld the penalty.
The High Court noted that Section 273B empowers the authorities not to levy penalty where the assessee establishes reasonable cause for the failure.
The assessee explained that the accountant had suddenly resigned without notice in August 2012, requiring engagement of a new accountant. According to the assessee, accounting records had to be reorganised because several files were in disarray, resulting in the delay in completing and filing the audit report.
The Revenue opposed the appeal by contending that the assessee had a history of belated filing of tax audit reports and referred to proceedings for the assessment year 2011-12.
The assessee submitted that during assessment year 2011-12, both his father and mother had passed away, which caused the earlier delay. He further pointed out that the Tribunal had accepted that explanation and deleted the penalty by its order dated 23 November 2016 in ITA No.1222/Mds/2016.
The High Court observed that the reasons advanced by the assessee had not been found to be false or motivated by any mala fide intention. Accordingly, the Court held that the explanation constituted a reasonable cause for the delay in filing the audit report within the meaning of Section 273B.
The Court also noted that when the assessment was completed under Section 143(3) on 29 March 2015, the audit report was already available on the record of the Assessing Officer.
The High Court referred to the Supreme Court decision in Hindustan Steel Limited Vs. State of Orissa, wherein it was held that penalty does not automatically follow every statutory default. The Supreme Court had observed that penalty proceedings are quasi-criminal in nature and that penalty should ordinarily not be imposed unless the person acted deliberately in defiance of law, acted dishonestly, or consciously disregarded statutory obligations. The Supreme Court further held that even where a minimum penalty is prescribed, the competent authority may decline to impose penalty where the breach is merely technical or venial or arises from a bona fide belief.
Applying that principle, the High Court held that although the Supreme Court decision arose under the Orissa Sales Tax Act, the ratio could be applied to the present case. It found that the delay in filing the tax audit report before 30 September 2012 constituted a technical breach. Since the audit report had been filed along with the return on 31 March 2013 and was available with the Assessing Officer well before completion of the assessment, the explanation offered by the assessee was accepted as reasonable cause, and the case was held not to warrant imposition of penalty.
Accordingly, the High Court allowed the tax case appeal, answered the substantial questions of law in favour of the assessee, and deleted the penalty imposed under Section 271B by order dated 29 September 2015.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
This appeal by the assessee under Section 260A of the Income Tax Act, 1961 (hereinafter called the Act) is directed against the order passed by the Income Tax Appellate Tribunal (for short, the Tribunal), Madras ‘D’ Bench dated 28.2.2017 made in ITA.No.3398/Mds/2016 for the assessment year 2012-13.
2. The above appeal has been filed raising the following substantial questions of law :
“i. Whether the interpretation and application of Section 271B read with Section 273B was correctly made by the Income Tax Appellate Tribunal?
ii. Whether the Tribunal had rightly considered and applied the provisions of Section 273B providing for no penalty to be levied if reasonable cause is explained by the assessee ? And
iii. Whether the Tribunal was correct in law in confirming the penalty levied when the audit report was filed along with the return and hence constitutes only a venial breach?”
3. We have heard Mr.T.Vasudevan, learned counsel for the appellant and Mrs.R. Hemalatha, learned Senior Standing Counsel appearing for the respondent – Revenue.
4. The short issue, which falls for consideration, is as to whether the appellant had shown sufficient cause for not filing the audit report before the last date for filing the same namely 30.9.2012.
5. The assessee filed the audit report along with the return of income on 31.3.2013. The assessment was completed by the Assessing Officer under Section 143(3) of the Act vide order dated 29.3.2015. Since the audit report was not filed before the last date namely 30.9.2012, penalty has been levied on the assessee under Section 271B of the Act vide order dated 29.9.2015 to the tune of Rs.1.5 lakhs. Aggrieved by that, the assessee carried the matter by way of appeal to the Commissioner of Income Tax (Appeals)-4, Chennai [hereinafter called the CIT(A)], who dismissed the appeal by order dated 20.10.2016. The assessee moved the Tribunal by way of further appeal and it was also dismissed by the impugned order.
6. Admittedly, under Section 273B of the Act, there is power to condone the delay in filing the audit report provided the assessee shows reasonable cause for the failure to file the audit report.
7. The assessee is an individual carrying on business of dealing in granites. His case was that the accountant suddenly resigned and left without notice in the month of August 2012, that the assessee had to engage a new accountant and compile all the accounting data and that many files were in disarray, which led to the delay in filing the audit report.
8. The Department opposed the appeal before the Tribunal by contending that the appellant was habitual in filing the tax audit reports belatedly and referred to the proceedings for the assessment year 2011-12.
9. The learned counsel for the appellant would submit that during the said assessment year namely 2011-12, the assessee’s father and mother passed away, as a result of which, the audit report could not be filed and ultimately, the explanation given by the assessee was accepted and the Tribunal deleted the penalty by order dated 23.11.2016 in ITA.No.1222/Mds/ 2016.
10. Admittedly, the reasons assigned by the assessee have not been found to be false nor with any mala fide intention, the reasons were assigned. Therefore, this Court is of the view that the explanation offered by the assessee can be taken as a reasonable cause for his failure to file the audit report within time. We are also aware that the assessment was completed under Section 143(3) of the Act only on 29.3.2015 and on that date, the audit report was very much available with the Assessing Officer.
11. The Hon’ble Apex Court, in the case of Hindustan Steel Limited Vs. State of Orissa [reported in (1972) 83 ITR 26], considered the validity of levy of penalty under the provisions of the Orissa Sales Tax Act, 1947. One of the questions, which was framed for consideration was as to whether imposition of penalty for failure to register as a dealer was justified. The Hon’ble Apex Court pointed out that the liability to pay penalty does not arise merely upon proof of default in registering as a dealer, that an order imposing penalty for failure to carry out a statutory obligation is the result of quasi criminal proceeding and that penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. It was further held that whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances and that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
12. Though the above decision arises under the Orissa Sales Tax Act, 1947, the ratio decidendi of the said decision could very well be applied to the assessee’s case. We find that the non filing of the tax audit report before 30.9.2012 is a technical breach and admittedly, the assessee filed the audit report along with the return of income on 31.3.2013 and that the assessment was framed by the Assessing Officer only on 29.3.2015, on which date, the audit report was very much on the file of the Assessing Officer. Thus, we are of the view that the explanation offered by the assessee can be accepted as a reasonable cause for his failure to file the audit report within time and the case on hand is not a fit case for imposing penalty on the appellant.
13. For the above reasons, the above tax case appeal filed by the assessee is allowed and the substantial questions of law raised are answered in favour of the assessee. The penalty imposed on the assessee vide order dated 29.9.2015 shall stand deleted. No costs.
