M/S Nareshchandra & Co.Nagpur vs Assistant Commissioner Of Income ...
2017 Latest Caselaw 764 Bom

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             IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                       NAGPUR BENCH AT NAGPUR

                         INCOME TAX APPEAL NO.17/2001

      M/s. Nareshchandra & Co.
      a partnership firm, having place
      of business at Dhanwate Chambers,
      Sitabuldi, Nagpur, through its partner                      .....APPELLANT

                                 ...V E R S U S...

      Assistant Commissioner of Income Tax
      Circle 2 (1) Nagpur, Saraf Chambers,
      Sadar, Nagpur.                                              ...RESPONDENT

 ---------------------------------------------------------------------------------------------------
 Shri N. S. Bhattad, Advocate for appellant.
 Shri B.Mohta, Advocate h/f Shri A. Parchure, Advocate for respondent
 ---------------------------------------------------------------------------------------------------
                                   CORAM:-      SMT. VASANTI A. NAIK AND
                                                  V. M. DESHPANDE, JJ.

DATED :- MARCH 16, 2017

ORAL JUDGMENT (Per : Smt. Vasanti A Naik, J.)

The penalty proceeding under Section 271B of the Income

Tax Act being penal in nature, whether penalty could be imposed by

rejecting the explanation furnished by the assessee, particularly when

heavy burden is on the department to establish the guilt of the assessee,

is the question that falls for decision in this income tax appeal.

The appellant-assessee is a partnership firm engaged in the

business of trading in goods. The return was filed by the assessee on

27.06.1996 along with the audit report in Form 3CB and 3CD of the

Income Tax Act declaring the income of Rs.5180/-. Since the assessee

has failed to audit the account in respect of the previous year as

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required under Section 44AB of the Act before the due date on

31.10.1994, penalty proceedings were initiated against the assessee

under Section 271B of the Act. The assessee tendered the explanation

for the delay in auditing the accounts. The assessee pointed out that

the accounts of the firm were maintained manually and the firm was

facing shortage of staff due to the serious illness of its accountant,

resulting in his resignation after suffering a paralytic attack. It was

pointed out by the assessee that there was huge difference in the trial

balance and substantial time was lost in locating the same. The

assessee stated that the difference in the trial balance was Rs.86,000/-

and the staff could not reconcile the same. It was stated by the assessee

that the accounts were completed by use of computers on 12.04.1996

and penalty should not be imposed upon the assessee under Section

271B of the Act. The assessing officer did not accept the explanation of

the assessee and imposed the penalty under section 271B. The

assessee filed an appeal against the said order before the Commissioner

of Income Tax (Appeals). The appeal filed by the assessee was allowed

and the appellate authority held, on a perusal of the original trial

balance and the ledger that there were arrears in the accounts, which

required reconciliation. It was also noticed by the appellate authority

that the accountant of the assessee was ill in the month of September-

1994 and later on he had left the job due to his illness. The

Commissioner of Income Tax (Appeals) found favour with the

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explanation of the assessee that the difference of Rs.88,277/- could not

be reconciled due to the accountant's absence. Being aggrieved by the

order of the Commissioner (Appeals), the revenue filed an appeal

before the Income Tax Appellate Tribunal. On 15.02.2001, the appeal

was listed before the tribunal for the first time and though the clerk

working in the office of Rao & Yadav Chartered Accountants sought an

adjournment of the matter on the ground that the chartered accountant

of the firm was ill and the matter be adjourned, the tribunal refused to

grant the adjournment and allowed the appeal filed by the revenue.

Shri Bhattad, the learned counsel for the appellant-assessee

submitted that on the first date of hearing, the tribunal erroneously

rejected the request of the assessee for adjournment and decided the

appeal filed by the revenue without granting an opportunity to the

appellant. It is submitted that it is casually observed by the tribunal in

its order that the illness of the accountant, the resignation of the

employee and difference in the trial balance, are casual and routine

excuses which did not affect the financing of the accounts and the

ultimate audit by the chartered accountant under Section 44AT of the

Act. It is stated that it is wrongfully observed by the tribunal that the

explanation of the assessee for the delay in auditing the accounts was

not substantiated and proved. It is stated that the resignation letter of

the employees as well as the original trial balance and the ledgers were

produced before the authorities in support of the explanation. It is

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submitted that without considering the material on record, the tribunal

has arrived at a conclusion that the explanation of the assessee was not

satisfactory.

Shri Mohta, the learned counsel for the revenue, has

supported the order of the tribunal. It is stated that though an

adjournment was not granted to the assessee, the tribunal has rightly

observed that the cause of illness of the accountant, resignation of the

employees and the difference in trial balance are casual and routine

excuses. It is submitted that the finding of fact recorded by the tribunal

may not be interfered with in this appeal.

It appears from the orders of the authorities that the

assessee had satisfactorily explained the reason for the delay in auditing

the accounts. The assessee had pointed out that the accounts of the

firm were maintained manually and the staff of the firm namely; the

accountant and some employees that had resigned, had a key role to

play in maintaining the accounts. The assessee had pointed out that the

accountant remained absent throughout September-1994 due to his

illness and thereafter he suffered a paralytic attack as a result of which,

he was forced to resign the job. The assessee had placed the copies of

the resignation letters before the authorities to point out that the

accountant and some other employees had left the job at the relevant

time. The assessee had pointed out that since the accounts of the firm

were maintained by the accountant and he was ill, the same could not

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be maintained, specially when there was a huge difference of

Rs.86,000/- in the trial balance and it could not be reconciled. For

proving the said fact, the assessee had produced the original trial

balance and ledger before the authorities. The Commissioner (Appeals),

rightly considered the documents placed by the assessee on record to

hold that the explanation tendered by the assessee sufficiently

explained the delay in not auditing the accounts before the specified

date. It appears that on the first date of hearing when time was sought

by the assessee as the chartered accountant was ill, the tribunal went in

to the niceties of the matter to observe that there was no written

authority from the assessee for seeking the adjournment and the

adjournment application was not signed by the chartered accountant

and was signed by the clerk working in the firm of the chartered

accountant. At least on the first date of hearing, the tribunal could not

have rejected the application of the assessee for an adjournment by

recording the aforesaid reasons. The tribunal has casually observed that

the cause of illness of the accountant, resignation of the employees of

the firm and the difference in trial balance are casual and routine

excuses and the assessee had not substantiated or proved the cause as

aforesaid. We find that the assessee had produced documents on record

to show that the accountant and the other employees had resigned

during the relevant period and had also produced the original trial

balance and ledger to point out that there was a huge difference in the

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trial balance and the same could not be reconciled. Though there were

documents on record to substantiate the cause for the delay, the

tribunal has erroneously held that the cause were not substantiated or

proved. In the circumstances of the case, the explanation tendered by

the assessee should have been accepted as was rightly accepted by the

Commissioner (Appeals) by considering the material on record. In the

facts and circumstances of the case, in our view, penalty could not have

been imposed on the assessee by rejecting the explanation of the

assessee. Since the tribunal has wrongly observed that no material was

placed by the assessee for substantiating the cause for the delay, the

order of the tribunal cannot be sustained.

Hence, by answering the substantial question of law in

favour of the assessee, we allow this appeal by setting aside the order of

the Income Tax Appellate Tribunal and upholding the order of the

Commissioner (Appeals). In the circumstances of the case, no costs.

                (V. M. Deshpande, J.)        (Smt. Vasanti A. Naik, J.)



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