Shri Swastik Steels (P) Ltd. vs Assistant Commissioner Of Income ...
2003 Latest Caselaw 487 Bom

JUDGMENT

S.H. Kapadia, J.

1. Being aggrieved by the decision of the Tribunal imposing a penalty under Section 271B of the IT Act, the assessee has come by way of appeals under Section 260A of the IT Act, 1961. Appeal No. 238 of 2001 is in respect of not obtaining tax audit report under Section 44AB in time for asst. yr. 1993-94 whereas Appeal No. 257 of 2001 is in the matter of imposition of penalty under Section 271B of the IT Act for not obtaining tax audit report under Section 44AB in time for asst. yr. 1992-93. For the sake of convenience, we would refer to the facts in ITA No. 257 of 2001.

Facts

2. Shri Swastik Steels (P) Ltd. was incorporated in 1986. It manufactures steel ingots from steel scraps. The assessee filed its return of income for the year ending 31st March, 1992, relevant to the asst. yr. 1992-93 on 31st March, 1994, along with the accounts and the audit report dt, 29th March, 1994, under Section 44AB of the Act. The due date for obtaining the audit report was 21st Dec., 1992. However, it was obtained on 29th March, 1994. Accordingly, there was a delay in obtaining the report of about 14 months, Consequently, a notice under Section 274 r/w Section 271B was issued to the assessee on 6th Feb., 1995, by the ITO fixing the hearing on 14th Feb., 1995, and requiring the assessee to show-cause why penalty under Section 271B of the Act should not be imposed on the assessee for not obtaining the audit report within the prescribed time. The assessee sought an adjournment on 14th Feb., 1995. The matter was thereafter fixed on 20th Feb., 1995. On that date also, the assessee remained absent. A fresh notice was thereafter issued on 17th April, 1995, by which hearing was fixed on 10th May, 1995. On 8th May, 1995, the assessee sought an adjournment for two weeks on the ground that its director and its tax consultant were out of town. The ITO rejected the adjournment application and passed an order under Section 271B of the Act on 8th May, 1995, itself although the hearing was fixed on 10th May, 1995, imposing a penalty of Rs. 1 lac for not obtaining the audit report within the stipulated time. Being aggrieved by the order, dt. 8th May, 1995, passed by the ITO under Section 271B of the Act, the assessee preferred an appeal before CIT(A) on 2nd June, 1995, on the ground that the order imposing penalty was passed before the date of hearing and, therefore, the impugned order imposing penalty was void ab initio. That, the impugned order was arbitrary as it was passed without giving opportunity of hearing. That, the company was managed by two family groups namely, Gandhi group and Jaju group and there were differences amongst the directors after November, 1991, and on account of these differences, Shri Pukharaj Gandhi has served a legal notice on 20th Aug., 1992, raising various issues. That, Pukharaj Gandhi had also written a letter to the United Western Bank complaining against mismanagement of the company in June/July, 1993. That Pukharaj Gandhi had withdrawn his personal guarantee in respect of facilities granted to the assessee. That, on 22nd July, 1993, the United Western Bank had addressed a letter to the assessee seeking explanation regarding the alleged mismanagement of the company which allegations were refuted by the assessee-company vide letter dt. 31st July, 1993. That, under Section 215(3) of the Companies Act, before submitting the accounts for auditors signature, the same were required to be approved by the Board of Directors and the accounts could not be approved as Shri Pukharaj Gandhi was non-cooperative. For the aforestated reasons, the penalty imposed under Section 271B came to be set aside by the CIT(A). Being aggrieved the matter was carried in appeal to the Tribunal by the Department. The Tribunal took the view that before the ITO, numerous opportunities were given to the assessee to show-cause why penalty should not be imposed. That, despite such opportunities being given to the assessee, no explanation was given regarding inter se disputes between the directors. That, time was sought repeatedly by the assessee. In the circumstances, the Tribunal came to the conclusion that the disputes inter se between the directors cannot be termed as a reasonable cause for waiving the penalty. Accordingly, the Tribunal has confirmed the penalty for not obtaining the report in time in each of the two assessment years. Against the order of the Tribunal, assessee has come by way of appeal to this Court under Section 260A of the IT Act.

Findings

3. At the outset, it may be mentioned that the impugned order was passed on 8th May, 1995, i.e., two days prior to the hearing which was fixed on 10th May, 1995. However, one has to examine this matter in the light of totality of the facts and circumstances of this case. The assessee filed its return of income for the year ending 31st March, 1992, along with the accounts and the audit report dt. 29th March, -1994, obtained under Section 44AB of the Act. The audit report was obtained after a lapse of 14 months. The ITO was, therefore, justified in issuing show-cause notice to the assessee on 6th Feb., 1995, calling upon the assessee as to why penalty should not be imposed under Section 271B. As per the said show-cause notice, the hearing was fixed on 14th Feb., 1995. On that date, the assessee sought an adjournment. The adjournment was granted. The matter was adjourned to 20th Feb., 1995, on which date the assessee remained absent. Consequently, a fresh notice was issued on 17th April, 1995, calling upon the assessee to give explanation in writing as to why penalty should not be imposed. No such explanation about inter se disputes between the directors and the family groups was given to the ITO. In the circumstances, merely because an order was passed under Section 271B two days prior to 10th May, 1995, will not render the said order as void ab initio. In this case, we have to examine the conduct of the assessee. In this case, the conduct of the assessee indicates delay in filing the audit report by 14 months and when the show-cause notice is given on 6th Feb., 1995, adjournments were taken without giving the above reasons of alleged inter se disputes. Nothing prevented the assessee from writing a letter to ITO giving the above explanation. In the circumstances, we do not see any reason to interfere with the order of the Tribunal. At one stage, it was submitted that the matter may be remanded back to the ITO. We are not inclined to do so particularly looking to the conduct of the assessee. We have ourselves examined the resolution and the minutes of the meetings produced before us. From the minutes, it appears that Shri Gandhi had objected to the holding of meetings on Sundays and at places outside the city limits. Secondly, the reasons given before the CIT(A) show that there was an inter se fight between the Gandhi group and the Jaju group. That, the Jaju group was keen to acquire the controlling stakes in the shareholding of the Gandhi group. In the circumstances, the Tribunal was right in holding that such disputes cannot be termed as a reasonable cause for waiving or dispensing with the penalty under Section 271B of the IT Act.

4. In the circumstances, we uphold the imposing of penalty of Rs. 1 lac under Section 271B for the asst. yr. 1992-93. However, since penalty is being imposed for 1992-93 at Rs. 1 lac, in the facts and circumstances of the case, there will be no penalty for delay in not obtaining the report in time for 1993-94 as the assessee could not have obtained the report for asst. yr. 1993-94 without completing the accounts for the earlier asst. yr. 1992-93.

Conclusion

5. Accordingly, we uphold the order of the Tribunal for asst. yr. 1992-93 vide IT Appeal No. 257 of 2001 imposing penalty of Rs. 1 lac. However, for asst. yr. 1993-94, we set aside the order of the Tribunal imposing penalty vide IT Appeal No. 238 of 2001.

6. Accordingly, both the above appeals are disposed of with no order as to costs.