1985 (4) TMI 44 - HC - Income Tax

Constitutional challenge to tax law sections dismissed, no penalty for delayed filing

The challenge to the constitutional validity of Sections 44AB and 271B of the Income Tax Act, 1961, and Rule 6G and Forms Nos. 3CB, 3CC, 3CD, and 3CE ... Parliament Issues Involved:1. Constitutional validity of Sections 44AB and 271B of the Income Tax Act, 1961.2. Constitutional validity of Rule 6G and Forms Nos. 3CB, 3CC, 3CD, and 3CE under the Income Tax Rules, 1962.Summary:Issue 1: Constitutional validity of Sections 44AB and 271B of the Income Tax Act, 1961Violation of Article 14:- Classification of Assessees: The classification based on 'total sales, turnover or gross receipts' exceeding Rs. 40 lakhs for businessmen and Rs. 10 lakhs for professionals is reasonable. It targets bigger assessees to ensure proper maintenance of accounts and to check tax evasion.- Unfair Advantage to Chartered Accountants: The requirement of audit by 'accountants' (chartered accountants) does not discriminate against legal practitioners. Chartered accountants are qualified for audit due to their special qualifications, whereas legal practitioners are not. Both can represent assessees as 'authorized representatives' under Section 288 of the Act.Violation of Article 19(1)(g):- Unreasonable Burden: The compulsory audit is necessary to scrutinize the assessee's accounts and facilitate the assessing authority. It is not an unreasonable burden.- Availability of Chartered Accountants: There are enough chartered accountants to cater to the needs of the assessees. As of March 31, 1984, there were 32,329 chartered accountants, with over 21,000 in active practice.- Existing Provisions: Sections 142(1), 142(2A), and 143(2) serve different purposes and can coexist with Section 44AB. They do not make the compulsory audit requirement unreasonable.- Automatic Recovery of Interest and Penalty: Liability for interest under Section 139(8)(a) and penalty under Section 271B is not automatic. The assessing authority can reduce or waive interest and penalty if reasonable cause is shown.- Objective of Legislation: The objective is to prevent tax evasion and plug loopholes for tax avoidance. The impugned provisions are a step towards achieving this objective.Issue 2: Constitutional validity of Rule 6G and Forms Nos. 3CB, 3CC, 3CD, and 3CE under the Income Tax Rules, 1962- The prescribed forms and particulars required for the audit report are necessary for proper scrutiny of accounts. They ensure that the books of account and other records are properly maintained and reflect the true income of the assessee.- The argument that some particulars require the accountant to give an opinion about the correctness of accounts and permissible deductions is unfounded. The decision is made by the assessing authority, not delegated to the accountant.Conclusion:- The challenge to the constitutional validity of Sections 44AB and 271B of the Income Tax Act, 1961, and Rule 6G and Forms Nos. 3CB, 3CC, 3CD, and 3CE under the Income Tax Rules, 1962, has no merit and is rejected.- No interest or penalty will be recovered from the petitioners for delay in filing the return if furnished within four months of this order.- All petitions are dismissed, and interim orders are vacated. No costs. The outstanding amount of security, if any, be refunded to the petitioners.