1997 (6) TMI 364 - AT - Income Tax

Tribunal rules in favor of assessee in penalty appeal case, emphasizing non-time-bound compliance

Deputy Commissioner of Income-tax Versus Rediffusion Advertising Ltd.

The Tribunal dismissed the Revenue's appeal against the cancellation of penalty under section 271B by the CIT(Appeals). It held that the assessee complied ... - ISSUES PRESENTED AND CONSIDERED 1. Whether, under the second proviso to section 44AB, a person whose accounts are required to be audited under any other law must obtain the further tax-audit report in the form prescribed under section 44AB (Form 3CA/3CD) before the specified date. 2. Whether the omission to furnish the prescribed Form 3CA/3CD before the specified date (where the accounts and statutory audit report under another law were obtained before that date) attracts penalty under section 271B. 3. Whether a delay in obtaining the prescribed tax-audit report constitutes a reasonable cause (technical/venial breach or bona fide belief) sufficient to negate imposition of penalty under section 271B. 4. Whether decisions and observations in other authorities (including a Special Bench decision and a High Court decision) govern the present question or are distinguishable on facts and point of law. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Time-limit for obtaining prescribed tax-audit report under second proviso to section 44AB Legal framework: Section 44AB required persons crossing specified turnover thresholds to get accounts audited and to furnish the audit report 'before the specified date.' The second proviso provided that where accounts are required to be audited under any other law, it is sufficient if the assessee (i) gets accounts audited under such other law before the specified date, (ii) furnishes the audit report as required under that other law before the specified date, and (iii) obtains a further report 'in the form prescribed under this section' (Forms 3CA/3CD under Rule 6G). Interpretation and reasoning: The Tribunal examined the language and structure of the second proviso. The proviso explicitly attaches temporal words ('before the specified date'/'by that date') to the first two requirements but omits any temporal qualification for the third requirement (the further report in the prescribed form). The differing phraseology was held to be deliberate and dispositive: had the legislature intended that the further report also be obtained before the specified date it would have used the same temporal wording consistently. Further, the proviso requires the report 'in the form prescribed under this section' (i.e., Forms 3CA/3CD) and not 'as required under this section,' indicating a focus on form rather than timing. Precedent treatment: Reliance placed by Revenue on a Special Bench decision and a High Court decision was considered but found inapplicable on the facts: the Special Bench had not considered the applicability of the second proviso; the High Court decision did not control the present construction. The Tribunal treated those authorities as distinguishable rather than followed. Ratio v. Obiter: The holding that the second proviso imposes a time limit for statutory audit and statutory audit report but imposes no time limit for furnishing the further report in Forms 3CA/3CD is ratio decidendi on the point of statutory construction of section 44AB. Conclusion: Where accounts and the audit report under another law were obtained before the specified date, the further report in Forms 3CA/3CD need not be obtained before the specified date; no temporal limitation applies to obtaining the Form 3CA/3CD report under the second proviso. Issue 2 - Applicability of penalty under section 271B for delay in furnishing Form 3CA/3CD where statutory audit was completed in time Legal framework: Section 271B empowers levy of penalty for failure to get accounts audited and furnish the audit report as required by section 44AB. Interpretation and reasoning: Applying the construction reached on Issue 1, the Tribunal concluded that an assessee who complied with the temporal requirements for audit under the other law and furnished that statutory audit report before the specified date had complied with section 44AB by obtaining the further report in Forms 3CA/3CD subsequently. Consequently, there was no contravention that could attract penalty under section 271B. Precedent treatment: The Tribunal distinguished authorities relied upon by Revenue as addressing different fact patterns or not considering the second proviso; those authorities therefore were not followed as controlling precedent. Ratio v. Obiter: The conclusion that late filing of Forms 3CA/3CD (after the specified date) does not, by itself, attract penalty under section 271B where the statutory audit and statutory audit report were obtained before the specified date is ratio with respect to the facts before the Tribunal. Conclusion: No penalty under section 271B is leviable where the assessee obtained accounts audited and the statutory audit report under another law before the specified date even though the prescribed Form 3CA/3CD was obtained after that date. Issue 3 - Nature of default: technical/venial breach and bona fide belief as a bar to penalty Legal framework: Principles allowing refusal to impose penalty where the breach is technical and venial or where it flows from bona fide belief are part of the jurisprudence on discretionary imposition of penalties. Interpretation and reasoning: Even if viewed as a default in respect of the prescribed Form (in alternative reasoning), the Tribunal accepted that the failure was technical/venial and flowed from a bona fide belief that compliance with the Companies Act audit and report satisfied section 44AB under the second proviso. Citing authority holding that where a breach is technical/venial or arises from bona fide belief the authority may legitimately refuse to impose penalty, the Tribunal found penalty inappropriate. Precedent treatment: The Tribunal relied on Supreme Court authority for the proposition permitting refusal of penalty for technical and venial breaches arising from bona fide belief; other lower-court decisions cited by appellant/assessees on similar factual contexts were considered supportive. Ratio v. Obiter: The observation that a technical and venial default or bona fide belief can justify refusal to impose penalty is applied as an alternative ratio supporting the outcome; it functions both as a legal principle and as applied ratio to facts. Conclusion: The delay in obtaining the prescribed Forms was of a technical/venial nature and flowed from a bona fide belief; imposition of penalty under section 271B was therefore not justified in the circumstances. Issue 4 - Treatment of other authorities relied upon by Revenue Interpretation and reasoning: The Tribunal examined the Special Bench and High Court decisions relied upon by Revenue and found them factually and legally distinguishable because they did not consider the applicability or construction of the second proviso in the same manner. Observations in those authorities were therefore not applicable to the core statutory question decided here. Ratio v. Obiter: The finding that those authorities are distinguishable is obiter as to their inapplicability to the present facts but is consequential to the Tribunal's reasoning in declining to follow them on the specific point. Conclusion: Observations and holdings in the other authorities relied upon by Revenue do not govern the present case and are distinguishable on the point of construction of the second proviso to section 44AB. Overall Conclusion Where an assessee required to have accounts audited under another law obtains that statutory audit and the statutory audit report before the specified date, the second proviso to section 44AB does not impose a time limit for obtaining the further tax-audit report in the prescribed Forms (3CA/3CD); consequently, delay in obtaining the prescribed Forms does not, on these facts, attract penalty under section 271B, and, alternatively, such delay constituted a technical and venial breach arising from a bona fide belief, further negating liability to penalty.