2004 (8) TMI 340 - AT - Income Tax

Tribunal cancels penalties for Chit Fund Companies, ruling chit subscriptions not turnover.

Deputy Commissioner Of Income-Tax. Versus Mangal Dayak Chit Fund (P.) Ltd.

Deputy Commissioner Of Income-Tax. Versus Mangal Dayak Chit Fund (P.) Ltd. - ITD 092, 258, TTJ 092, 889, Issues Involved:1. Whether the penalty levied under section 271B by the Assessing Officer on Chit Fund Companies for not getting accounts audited under section 44AB was justified.2. Whether the chit subscriptions collected by Chit Fund Companies should be considered as turnover for the purpose of section 44AB.3. Applicability of CBDT Instruction No. 1979 regarding the monetary limits for filing appeals.4. Whether the assessee had reasonable cause for not getting accounts audited under section 44AB.Detailed Analysis:1. Penalty under Section 271B:The primary issue was whether the penalty under section 271B for not getting accounts audited under section 44AB was rightly imposed by the Assessing Officer. The Tribunal noted that all the assessees were Chit Fund Companies governed by the Chit Funds Act, 1982 and the A.P. Chit Funds Act, 1971. The assessees disclosed their turnover based on the foreman's commission, interest, and dividends, not including chit subscriptions as part of the turnover. The Assessing Officer argued that the chit amounts collected should be included in the turnover, thus exceeding the Rs. 40 lakhs threshold, making the audit under section 44AB mandatory. The Tribunal found that the first appellate authority had rightly canceled the penalties, citing a bona fide difference of opinion on what constitutes turnover and reasonable cause for non-compliance.2. Chit Subscriptions as Turnover:The Tribunal examined whether chit subscriptions should be considered as turnover. The Department argued that the gross subscriptions collected should be routed through the profit and loss account of the assessee, thus forming part of the turnover. The Tribunal disagreed, emphasizing that the method of accounting followed by the Chit Fund Companies, as mandated by the Chit Funds Act, 1982 and the A.P. Chit Funds Act, 1971, does not include chit subscriptions as part of the turnover. The Tribunal cited the Guidance Note from the Institute of Chartered Accountants of India, which states that only the foreman's commission represents turnover. The Tribunal concluded that chit subscriptions are on capital account and not part of the turnover/gross receipts/sales for the purposes of section 44AB.3. Applicability of CBDT Instruction No. 1979:The Tribunal addressed whether the CBDT's Instruction No. 1979, which sets monetary limits for filing appeals, applied to penalty cases. The Department argued that the term 'tax' in the instruction does not include 'penalty.' The Tribunal referred to various judicial pronouncements and a CBDT circular from 1967, concluding that 'tax' does not include penalties. Thus, the preliminary objections regarding the applicability of Instruction No. 1979 were dismissed.4. Reasonable Cause for Non-Compliance:The Tribunal considered whether the assessees had a reasonable cause for not getting their accounts audited under section 44AB. The Tribunal noted that the assessees relied on the Guidance Note from the Institute of Chartered Accountants of India and the statutory requirements under the Chit Funds Act, 1982. The Tribunal found that the assessees' belief that their turnover did not exceed Rs. 40 lakhs was bona fide and reasonable. The Tribunal also noted that the returns were accepted without objection in previous years, and the Assessing Officer did not treat the returns as defective under section 139(9). Thus, the failure to file the audit report was due to a reasonable cause, and no penalty was imposable under section 273B.Conclusion:The Tribunal dismissed the Revenue's appeals, upholding the first appellate authority's decision to cancel the penalties. The Tribunal held that the chit subscriptions do not form part of the turnover for the purposes of section 44AB, and the assessees had a reasonable cause for not getting their accounts audited under section 44AB.