Income Tax Officer vs Mohinder Kumar.
1992 Latest Caselaw 330 Del

ORDER

R. M. MEHTA, A.M. :

The Revenue is in appeal against the order passed by the CIT(A) cancelling a penalty of Rs. 43,265 imposed on the assessed by the ITO under S. 271B of the IT Act, 1961.

2. In this case, the return of income was filed on 21st Nov., 1989 as against due date of 31st Oct., 1989. The audit report in Form No. 3CB, dt. 26th Sept., 1989 was also filed along with the said return. Being of the view that the said report had not been filed along with the return of income vis-a-vis sub-s. (1) of S. 139 the ITO initiated penalty proceedings under S. 271B and issued a show cause notice to the assessed. In reply, it was contended that no default under S. 271B was committed, inasmuch as, the said section envisaged the audit of accounts to be completed and the audit report obtained prior to a particular date and that being 31st Oct., 1989 in the present case. The further requirement of law, according to the assessed was the filing of the said report along with the return of income and since both the aforesaid conditions had been satisfied there was no question of imposing any penalty.

3. The ITO considered the aforesaid reply of the assessed and thereafter set out the various conditions envisaged by S. 271B read with S. 44AB of the IT Act, 1961 and these being :

(i) failure to get the accounts audited;

(ii) failure to obtain the audit report before the specified date;

(iii) failure to furnish the said report along with the return of income filed under S. 139(1); and

(iv) failure to furnish the said report along with return of income filed in response to notice under S. 142(1)(i) of the IT Act, 1961.

On the ground that the assessed had failed to furnish the audit report along with the return filed under S. 139(1), the ITO proceeded to levy the impugned penalty.

4. Being aggrieved with the action of the ITO, the assessed came up in appeal before the CIT(A). During the course of hearing it was contended that the main obligation placed by S. 44AB was to get the accounts audited before a specified date and the mere delay in the filing of the return by the period of 21 days did not deserve to be visited with a heavy penalty of Rs. 43,265 when the returned income was only Rs. 28,420. It was further stated that the ITO had not appreciated the assesseds written explanation in a proper manner, inasmuch as, certain relevant portions had not been considered at all. It was also stated that the assessed had complied with all relevant provisions of law, such as, getting the accounts audited, obtaining the audit report prior to the specified date and handing over the papers to its counsel. The further submission was that there was a delay on the part of the counsel and the assessed was not required to be penalised for such default. A reference was also made to the fact that the self assessment tax amounting to Rs. 144 had also been deposited with the Advocate on 31st Oct., 1989. On the basis of the aforesaid arguments it was contended that no penalty be levied inasmuch as, there was a reasonable cause for the delay in the filing of the return.

5. The CIT(A) on a perusal of the record and after examining the aforesaid submissions proceeded to cancel the penalty. According to him, the delay attributable to the counsel could not be used to penalise the assessed. He also referred to the statement made before him during the course of hearing by the said counsel to the effect that the return had been handed over by the appellant in his office before 31st Oct., 1989 and the delay having occurred due to his fault and that of his staff.

6. The learned Departmental Representative at the outset supported the penalty order reiterating thereafter the reasons recorded in the said order in support of the penalty. According to him, the return having been filed late the levy of penalty was justified not only in law but on the facts of the case as well. He also referred to the further fact that the verification in the return bore the date 5th Nov., 1989. It was accordingly urged that the order passed by the ITO be restored.

7. The learned counsel for the respondent, on the other hand, supported the order passed by the CIT(A) and the subsequent arguments advanced by him were a reiteration of those tendered before the first appellate authority. He highlighted the fact that the delay in the filing of the return was entirely due to the counsel and his staff whereas the assessed duly complied with the provisions of S. 44AB. The further argument which was advanced was that the return filed by the assessed could not be treated as a return under S. 139(1) but the same was to be treated as a return filed under S. 139(4). This situation, according to him, should not attract penalty under S. 271B since the section spoke of a return filed under S. 139(1). In winding up his arguments he urged that the order passed by the CIT(A) be confirmed.

8. After examining the rival submissions, I am of the view that the penalty under S. 271B cannot be sustained either in law or on the facts of the case. It is not disputed between the parties that the audit report dt. 26th Sept., 1989 was available with the assessed prior to the "specified" date and that being 31st Oct., 1989. This was the requirement of S. 271B read with S. 44AB prior to the amendment brought about by the Finance Act, 1988, w.e.f. 1st April, 1989. The change in the law w.e.f. asst. yr. 1989-90 provided that the audit report was required to be appended along with the return of income filed under S. 139(1) or filed in response to a notice under cl. (i) of sub-s. (1) of S. 142. Under the aforesaid two situations a penalty under S. 271B was provided for any lapse. The other amendment which came about was the omission of the words "without reasonable cause" w.e.f. 10th Sept., 1986 by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. In other words the necessity to prove a reasonable cause did not arise vis-a-vis the levy of penalty under S. 271B. In the present order passed by the CIT(A) I find that he has proceeded to cancel the penalty by a reference to the facts of the case and opining thereafter "that there was reasonable cause for the failure in filing the return along with the audit report within the prescribed time". The CIT(A) has also overlooked the amended provisions of law made effective from asst. yr. 1989-90 and by this I refer to the stipulation that the audit report must accompany a return filed under S. 139(1) or a return filed under S. 142(1)(i). In spite of the aforesaid omissions on the part of the CIT(A) I am of the view that the penalty cannot be sustained, inasmuch as, the return filed by the assessed on 21st Nov., 1989 cannot be treated as a return filed under S. 139(1) and it is not the Departments case that notice under S. 142(1)(i) was issued to the assessed asking him to file a return. It is only under the aforesaid two situations that a penalty under S. 271B is attracted consequent to the non-filing of an audit report. This aspect by itself can lead to the cancellation of penalty and the examination of a "reasonable cause" is not at all necessary. In the final analysis the cancellation of penalty by the CIT(A) is upheld but on grounds different to those which had been considered by the learned first appellate authority. The appeal is dismissed.