TaxTMI 
TaxTMI 
2001 (9) TMI 8
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....ner of Handlooms and Textiles, Government of Tamil Nadu, exercising powers of the Registrar of Societies. The object of the society being to promote the traditional and ancient art of weaving, a cottage industry. All the co-operative societies in the State are subject to audit as provided under the Tamil Nadu Co-operative Societies Act and separate set of auditors are appointed for each and every type of society separately. Under the statutory provisions of the Co-operative Societies Act, auditors are appointed by the Director of Co-operative Audit or the Registrar and not by the petitioner-society. Under section 44AB of the Income-tax Act, every assessee, whose turnover is more than Rs. 40 lakhs, is obliged to audit the accounts and file an audited report in the prescribed form. The said auditor's report could be under any other enactment and no separate audit need be carried out under the Income-tax Act. The petitioner-society, took up the matter with the Director 6f Cooperative Audit to appoint auditors at an early date so that the audit could be completed and necessary returns could be filed in time. For the financial year 1994-95 and the previous years and for the year 1995-....
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....had failed to obtain the audit report before the date prescribed and there is an obvious contravention of section 44AB. In terms of the provision as it stood, the audit report must be filed along with the return of income up to July 1, 1995, and after July 1, 1995, a report must be filed before the specified date even if the return of income is not filed, in which case a copy of the said report will have to be filed along with the return. There is no provision to file the audit report after the filing of the return. There is also no provision for granting any extension of time for obtaining the audit report after the due date. In terms of section 139(9) of the Act, if the Assessing Officer considers the return filed by the assessee as defective, he may intimate the defect and give the assessee an opportunity to rectify the defect within 15 days from the date of intimation or such further period as he may allow. If the defect is not rectified by the petitioner within the time allowed by the officer, the return will be treated as invalid. Further, in terms of the proviso to sub-section (9) of section 139, if the defect pointed out is rectified or the time is allowed before the asses....
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....t consideration for the levy of penalty under section 271B of the Act. When once section 44AB had been contravened, a levy of penalty under section 271B is automatic and it is not necessary to consider as to whether the contravention was deliberate or wilful or a bona fide one. The decision reported in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) relied upon by the petitioner is not relevant and it has no application to the facts of the present case. Merely because in the earlier years for such belated submission, no penalty had been imposed, or the petitioner is not in the habit of filing audit report belatedly that would not justify waiver of penalty for the assessment year. It is contended that no interference is called for with respect to the proceedings of the third respondent as affirmed by the second respondent. In this writ petition, the following points arise for consideration: "(A) Whether the belated completion of statutory audit and filing of audit report under section 44AB of the Act results in automatic levy of penalty under section 271B of the Income-tax Act? (B) Whether the assessing authority has the discretion to levy or not to levy penalty und....
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....mitting the audit report. Even assuming there is a delay, whether for such delay, a levy of penalty is automatic or a discretion is given to the assessing authority, is also an incidental contention advanced and it is required to be considered. To answer the said contention, it is essential to refer to the statutory provisions of the Income-tax Act. In this case, there is neither an attempt to evade income-tax nor is there a failure to furnish the return. It is the settled legal position that the element of mens rea is not required to be established or provided for imposition of penalty under section 271(1)(a) for failure to furnish return. The object of section 44AB is to prevent tax evasion and plug loopholes enabling tax avoidance. This provision was introduced by the Finance Act (No. 21 of 1984) as a measure in the drive to unearth black money. Section 44AB requires accounts of every person carrying on business and whose turnover or gross receipts exceeds Rs. 40 lakhs, to get his accounts audited by an accountant before the specified date and furnish by date, the report of such audit in the prescribed form duly signed and verified by such accountant. Specified date in relat....
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....to the show cause notice, and there is time to file the audit report till December 6, 1995, what is the occasion or reason for the third respondent to issue a notice on November 24, 1995, is not known. The very notice itself has been issued without application of mind and it cannot be accepted as a bona fide act. An explanation has been submitted by the petitioner on December 11, 1995, and on February 24, 1996. In the meantime, on December 11, 1995, an audit report had been filed. In the explanation, the petitioner-society had set out the reasons for the delay and has pleaded that it was beyond its control as the society is governed by the co-operative audit under the Tamil Nadu Co-operative Societies Act. It is also pleaded that the petitioner-society has no control over the said co-operative auditors and all their persuasion to issue an audit report had failed. The delay in filing the audit report, if any, is unintentional and not deliberate. Thereafter on March 29, 1996, the third respondent had passed an order levying a penalty under section 271B. In the said order dated March 29, 1996, the third respondent has set out that October 31, 1995, is the stipulated time to file the....
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....itors being appointed by the Registrar (Audit) and, consequently, there was delay in completing the audit as well. According to the rule, six months is the time before which audit has to be completed for every co-operative society. The expression "co-operative year" has been defined as the period commencing from the July 1 of any year ending with the June 30 of the succeeding year. Therefore, the audit as stipulated under the Co-operative Societies Act, has to be undertaken and completed before the expiry of six months reckoned from June 30 of that year. If the society itself is the authority to appoint an auditor to submit the report, things would have been different, but the society has no authority to appoint an auditor of its own. Therefore, the delay, if any, as rightly pointed out by the petitioner is attributable to the Registrar (Audit), a statutory authority, who has to appoint the auditor and the auditor has to audit the accounts of the society. As detailed in the affidavit filed by the petitioner, there was delay on the part of the Registrar (Audit) and this naturally lead to further delay in filing the audit report. It is not possible or it could even be stated that it....
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....on 44AB. It is a better clue and it does not exclude the use of discretion to drop the penalty proceedings if there is sufficient cause. The conspectus of the whole situation is that both the provisions, i.e., section 44AB along with section 271B and section 139(9), Explanation (e), can be read together and a harmonious construction is that the assessee has to file an audit report within the specified date, failing which he will have to pay the penalty if he fails to show reasonable cause for not doing so. However, if reasonable cause is shown, then it will be well open to the respondent to accept the reasonable cause and drop the proceedings. In this case, the tax return has been filed within time, but it is a defective return and it is only a partial failure on the part of the society in filing the audit report and such partial failure may not attract penalty. This is also an interpretation, which is permissible in law as has been held in Bangalore Steel Distributors v. ITO [1994] TLR 254, 259 (ITAT, Bangalore). Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority and such discretion should be exercised judic....