TaxTMI 
TaxTMI 
1997 (6) TMI 76
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....nts could not be audited in due time due to illness of the assessee's Authorised Representative, who was also employed as auditor, and because the Accountant of the firm left for a long time. The explanation was not considered satisfactory and the above-mentioned penalties were levied. 4. It was submitted before the CIT(A) that accounts were not kept in proper shape by the Accountant and in support of this submission, submitted the following chart showing delays in filing of returns of income from A.Ys. 1983-84 to 1991-92: Asst. yr. Due date Date of filing Delay of return 1983-84 30-6-83 12-7-85 24 months 1984-85 30-6-84 12-7-85 12 months 1985-86 30-6-85 6-9-86 14 months 1986-87 30-7-86 11-9-87&....
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....bmitted that the main partner expired on 16-11-84 and due to his death, the whole management was upset and the statutory formalities had been delayed. 9. The CIT(A) found merit in the contention and held that there was a reasonable cause for the delay in completion of the Audit Reports and, accordingly, cancelled the penalties for both the years. The Department is now in appeal before us. 10. The ld. D.R. relied on the assessment order and emphasised that if the Auditor was unwell, the assessee could have employed any other auditor or Accountant. 11. On the other hand, the ld. counsel for the assessee reiterated the submissions made before the CIT(A) and emphasised that it was not easy to change the auditor and, therefore, he was retained. Ultimately he died in 1990-91. Further, the main partner, Shri Mahesh Chandra had died on 16-11-84 and the troubles of the Company had started during his illness and after his death. 12. It was further submitted by the ld. counsel that for assessment year 1986-87, the Audit Report had been signed on 11-9-89 but no penalty proceedings had been initiated under section 271B. Thus, even, according to the Department, there was reasonable c....
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.... me, the penalties levied under section 271B of the Act for both the years require to be confirmed and the appeals of the revenue to be allowed. With respect to my ld. Brother, I am unable to agree with the view taken by him. I am, therefore, passing this separate dissenting order. 2. The provisions of section 271B are absolute and in clear terms lay down that no sooner a default or contravention occurs in complying with the mandate contained in section 44AB of the Act then the defaulter or the offender has to be penalised in the manner laid down therein. 3. When the provisions of section 271B were first enacted and brought on the statute book through Finance Act, 1984 w.e.f. 1-4-1985 the Legislature laid down that if there existed "reasonable cause" for contravention of the provisions of section 44AB, then a person need not be penalised. Thus, the existence of "reasonable cause" exonerated the assessee from the clutches of the penal provisions of section 271B of the Act. But these words "without reasonable cause" occurring in section 271B and several other penal provisions of the IT Act, 1961 and which came for interpretation before several Courts holding that when causes ar....
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....the causes but has miserably failed to prove the existence of the same by tendering or placing cogent and reliable legal evidence on the strength of which any prudent or reasonable person could get satisfied and conclude that yes, there were reasonable causes supported by firm legal evidence which prevented the assessee-firm from complying with the statutory obligations cast upon it under section 44AB of the Act and it should, therefore, not be penalised under section 271B of the Act. During the course of hearing of this appeal on 4-8-1995, the assessee's counsel Shri S.K. Poddar, advocate filed before us a xerox copy of an undated letter stated to have been filed before the Assessing Officer by one Shri H.P. Lala under his signature and who is stated to be the Chartered Accountant cum-authorised representative of the assessee-firm. In the said undated letter which is for the assessment year 1987-88, the said Chartered Accountant had submitted the reasons for the contravention of section 44AB alleged to have been committed by the assessee-firm. The assessee's counsel assured us that for both the years under appeal same reasons were given though he had filed xerox copy of the undate....
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....tant stated in the said letter, which I have extracted above, is that he could not make compliance on 17-1-1989 to the show-cause notice dated 14-12-1988 of the Assessing Officer in connection with the imposition of penalty under section 271B of the Act. This mention of illness was taken by the Assessing Officer mistakenly as one of the causes for non-compliance of the mandatory provisions of section 44AB of the Act. This cause of the illness of the said Chartered Accountant, Shri H.P. Lala was even misunderstood by the A/C and taking this as one of the reasonable cause penalties for both the years in appeal were cancelled by him (A/C). 6. As is evident from the contents of the letter of Shri H.P. Lala, Chartered Accountant as extracted by me above the cause shown was a solitary one, and that was the death of one of the partners of the assessee-firm on 16-11-1984 on account of which the whole management was upset and accounting got delayed. 7. In law by no standard, this cause or explanation can be considered as a reasonable one or even a plausible one or even come nearer to reasonableness. Such an abnormal and enormous delay for two years consecutively cannot be explained aw....
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....ce and guidance of an Accountant of the assessee-firm. This is not an onerous, laborious or burdensome task incapable of compliance by the assessee-firm within the time prescribed by law, viz., 44AB of the Act. 9. My ld. Brother and I as per order in the case of ITO v. G.S. Relan [IT Appeal No. 492 (Pat.) of 1992 dated 3-5-1995] relating to assessment year 1987-88 have confirmed the imposition of penalty under section 271B of the Act where the cause shown was that the managing partner of the assessee-firm had to face lot of trouble owing to disturbances arising out of assassination of the then Prime Minister, Smt. Indira Gandhi and the house of the said partner was attacked by miscreants and, therefore, the Managing Partner had to take shelter in the Gurunanak School with his family and after this incident, the Managing Partner was mentally disturbed and left Ranchi along with his family to Punjab for security reasons and, therefore, on account of these reasons, the work relating to preparation of accounts and submissions of the returns was delayed and, therefore, accounts of the firm could only be finalised in February 1990-and sent for auditing. We have in that case considered....
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....asts a duty on the assessee for submission of the return in time then the assessee cannot escape the liability by merely saying that employee of the assessee did not complete the accounts in time because it was for the assessee to manage the affairs as he likes. The Rajasthan High Court has further emphasised that the burden is ultimately on the assessee to plead and prove reasonable cause. The Judgment of the Rajasthan High Court, Jaipur Bench supports my view that non-finalisation of accounts in time cannot be considered as a reasonable cause on the strength of which the assessee can be exonerated from the penal action under section 271B of the Act. 12. The Gujarat High Court while dealing with the case of R.J. Goenka v. CIT [1994] 207 ITR 824 have accepted as correct the decision of the Tribunal in confirming the levy of penalty under section 271(1)(a) holding that the assessee failed to tender any material to substantiate the assessee's explanation that his Munim had fallen ill and, therefore, could not finalise the accounts in time. I am quoting and relying on this judgment to support my view that mere making submission or repetitive submission that the finalisation of acco....
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....er how callous, careless and irresponsible is the assessee-firm towards its statutory obligations under the IT Act, 1961. 17. The return for the assessment year 1983-84 though due on 30th June, 1983 (which is the date before the death of the said partner on 16-11-1984) was filed on 12th July, 1985 causing a long delay of 24 months. What excuse could the assessee-firm give for this long and inordinate delay particularly when the said partner was alive at that time? This goes to establish the contumacious conduct on the part of the assessee-firm. 18. Again the audit report for the assessment year 1988-89 was obtained on 20-10-1989, but the return was filed belatedly on 20-2-1990. I have brought these true facts in order to establish that the assessee-firm and its partners are not serious to obey and abide by the commands and mandate contained in the IT Law which other similarly placed assessees do. It also further shows that scant respect by the assessee-firm for the law. Deliberateness and contumacious conduct according to me is writ large on the face of this case on the basis of facts as contained on record. The A/C in my view has not judicially considered that too in a right....
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....erse the impugned order of the Appellate Commissioner. 24. Revenue's appeals for both the assessment years are allowed. REFERENCE FOR THIRD MEMBER CASE UNDER SECTION 255(4) OF THE IT ACT, 1961, IN THE ABOVE MATTER As we have differed in our views in the above-mentioned IT Appeal Nos., we request the Hon'ble President to kindly refer the matter to the 3rd Member on the following point: "Whether, on the facts and circumstances of the case, the assessee has proved under section 273B existence of reasonable cause for failure to get the accounts audited for the two years under appeal as required by the provisions of section 44AB of the Act and, therefore, not liable for penalties for both the years under section 271B of the Act?" THIRD MEMBER ORDER 1. The point of difference referred to the Third Member in this case involving two appeals is the following:- "Whether, on the facts and circumstances of the case, the assessee has proved under section 273B existence of reasonable cause for failure to get the accounts audited for the two years under appeal as required by the provisions of section 44AB of the Act and, therefore, not liable for penalties for both the years ....
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....ble to obtain audit report by 31st July, 1987 which has been obtained in the firm on 2nd August, 1988. That there was a death of partner in the firm on 16-11-84 and due to the death the whole management was upset and thereafter all the statutory formalities were delayed and this year also the delay was due to the same reason because the accounting was delayed and, hence, the audit report could not be obtained in time." I presume that in the absence of any specific reply being available on record for assessment year 1988-89, a reply on similar lines as was submitted for assessment year 1987-88 was also submitted for assessment year 1988-89. In the penalty proceedings, explanations offered are not felt satisfactory and, therefore, the ITO levied a penalty of Rs. 56,072 for assessment year 1987-88 and Rs. 74,951 for assessment year 1988-89 under section 271B of the IT Act. 5. The assessee appealed against the penalty imposed for each of these two assessment years before the CIT(Appeals), Jamshedpur. The ld. CIT(A), Jamshedpur, by his impugned order dated 22-4-91, which is common for assessment years 1987-88 and 1988-89, cancelled the penalties and allowed the appeal filed by the....
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....n finalization of the audit report for the two years under consideration. The learned Judicial Member, Shri Abdul Razack, did not agree with this finding of the ld. Accountant Member. According to him, the penalties levied under section 271B for both the years require to be confirmed and the appeals of the revenue are to be allowed. Firstly, he held that the provisions of section 271B are absolute and no sooner a default or contravention occurs in complying with the provisions of section 44AB, then the defaulter has to be penalised in the manner laid down therein. Then he went on tracing the development of section 271B and the amendments which occurred in that section. He came to the conclusion that after 10-9-86, it is for the assessee to prove the existence of reasonable cause which is said to have prevented him from discharging the statutory obligations cast on him under section 44AB. The ld. Judicial Member held that the assessee-firm did not discharge the onus or burden of proof which lay upon it under section 273B of the I.T. Act. Commenting upon the letter filed by Shri H.P. Lala, the late Chartered Accountant of the assessee-firm, after extracting the same inextenso, the ld....
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....quest to excuse delay pertains only to the late submission of the explanation to the show-cause notice and it does not pertain to obtaining the audit report itself under section 44AB. Further, even according to the Assessing Officer, in the penalty proceedings, Shri H.P. Lala through his letter put forward his own illness as constituting reasonable cause for the delay in obtaining the audit rapport. In the penalty order for assessment year 1987-88, the following is stated: "In response to the show-cause notice the assessee submitted written explanation stating that the Accountant of the assessee could not be audited in due time due to illness of the assessee's AR who was also employed as auditor and the Accountant of the firm also left for a long time." Therefore, the fact that the auditor of the assessee was also his Authorised Representative who was laid up with illness, and it was the main cause for not getting the accounts audited in due time, was put forward even in the explanation submitted by the assessee. When that was the understanding of the Assessing Officer himself about the explanation of the assessee, I do not know as to what is the reason for the ld. Judicial M....
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.... of section 271B provides that if any person fails to get his accounts audited or obtain a report as required under section 44AB, 'the Assessing Officer may direct that such person shall pay by way of penalty' .... The use of the words 'may direct' clearly indicates that the Assessing Officer is vested with the discretion either to impose or not to impose penalty depending upon the facts and circumstances of the case. The words 'without reasonable cause' that existed in section 271B as applicable to the assessment years under consideration are important. If the assessee is able to show a reasonable cause for his failure to comply with the requirements of section 44AB before the due date, no penalty is leviable under section 271B." Therefore, penalty under section 271B is not automatic but would depend upon the assessee's failure to furnish any reasonable cause for not obtaining the audit report within the specified date under section 44AB. Now, the question would be what is the reasonable cause in not securing the audit report within the specified dates. In this connection, I feel I can safely rely upon the explanation submitted by the assessee even before the CIT(A) as one whic....
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....ths 1991-92 31-10-91 4-10-91 No delay From the above table, it can be seen that the date of filing the income-tax return of assessment year 1987-88 was 16-8-88 and for assessment year 1988-89 it was 20-2-90. Another table is also furnished before the CIT(A) on behalf of the assessee stating the due dates as well as the actual dates of obtaining the audit reports for asst. years 1986-87 to 1991-92 and it is as follows: Details of Audit report: Asst. year Due date Date of report 1986-87 31-7-86 11-9-87 1987-88 31-7-87 2-8-88 1988-89 &....
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....mpleted before the accounts for the subsequent year could be taken up. It is on these facts that the Tribunal further found that the delay in completing the accounts for this year shows reasonable cause. Hence, the penalty imposed by the assessing authority was cancelled. We find no error in the order." After going through the decision and after applying the same to the facts of the present case, I am unable to find how the ratio of this decision comes to the rescue of the assessee. In my understanding, the decision would come to the rescue of the assessee only when the accounts of the earlier assessment, year are finalised, and soon thereafter if the accounts of the impugned assessment year are also finalized, then it may perhaps come to the rescue of the assessee. But, in the facts of this case, the return for assessment year 1986-87 was filed on 11-9-87, long before the return for assessment year 1987-88 was filed. Similarly; for asst. year 1987-88, the return was filed on 16-8-88, whereas the return for assessment year 1988-89 was filed on 20-2-90, long after the return for assessment year 1987-88 was filed. So, there is no question of the accounts of assessment year 1987-88....