TaxTMI 
TaxTMI 
2024 (11) TMI 1272
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.... of assessment under the Income Tax Act [hereinafter referred to as the "I.T. Act"]. In breach of the provisions of Section 44AB of the I.T. Act, however, they did not file the audit report as mandated under the said provision within the time limit specified there under. However, the audit reports were made available before the Assessing Authority at the time of finalisation of the assessments. In fact, the Assessing Authority completed the assessments by relying on the said audit reports, but while passing the assessment orders, initiated penalty proposals under Section 271B of the I.T. Act for alleged breach of the procedure contemplated under Section 44AB of the I.T. Act. 3. In the penalty proceedings that ensued, the appellants/assessees were imposed with penalties of Rs.1.5 lakhs, which was the lesser of the two amounts mentioned in Section 271B of the I.T. Act, by rejecting the explanations offered by the assessees for the delay in producing the audit reports. The orders of the Assessing Authority imposing penalty were upheld by the First Appellate Authority and thereafter by the Appellate Tribunal in appeals preferred by the assessees. 4. In the appeals before us, the ....
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....t, and independent of an assessment of tax imposition of penalty is justified or not ? (iii) Whether on the facts and circumstances of the case the assesse's explanation for not furnishing the audit report ought to have been accepted and the penalty imposed is one liable to be interfered with ? (iv) Whether in the facts and circumstances of the case the Tribunal justified in holding that the imposition of penalty on the assesse is justified ? (v)Whether the Tribunal is correct in not following the binding judgments of the coordinate benches in ITA Nos.601/2018 & ITA No.504/2018 ? I.T.A.No.25 of 2023: (a) Whether on the facts and circumstances of the case, the imposition of penalty is justified or not ? (b) Whether the imposition of penalty upon the appellant is justified, when the claim for deduction under Section 80P stands allowed by the Tribunal ? (c) Whether the imposition of penalty upon appellant under Section 271B can be considered as an arbitrary exercise of power, especially in wake of the fact that the appellant had duly furnished the returns as audited by the department authorities under the domain of Ker....
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....Bank vs. Assessing Officer, Trivandrum & Ors (Judgment in Civil Appeal 5005-5007 of 2019), with respect to the entitlement of Appellant to claim deduction under Section 80P, whether the imposing of penalty upon appellant is justifiable ? 5. We have heard Sri.P.C.Sasidharan and Sri.Arjun Raghavan, the learned counsel appearing for the appellants/assessees in all these appeals and Sri.P.G.Jayashankar and Sri.Keerthivas Giri, the learned Standing Counsel for the Income Tax Department in the aforementioned cases. 6. The sole issue that arises for consideration in these appeals is the legality of the penalty that was imposed on the assessees Societies under Section 271B of the I.T. Act for the alleged breach of the procedural provisions under Section 44AB of the I.T. Act. Section 44AB of the I.T. Act prescribes a procedure of audit of accounts by certain categories of assessees and deals inter alia with the manner in which reports of such audit have to be submitted before the Assessing Authority under the I.T. Act. Section 44AB of the I.T. Act reads as under: "Audit of accounts of certain persons carrying on business or profession. 44AB.Every person,- (a....
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.... Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year: Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later: Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section." (emphasis supplied) It is significant to note that the phraseology used under Section 44AB of the I.T. Act, wh....
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.... 271GB, section 271H, section 271-I, section 271J, clause (c) or clause (d) of subsection (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or sub-section (1) or sub-section (1A) of section 272BB or sub-section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure." (emphasis supplied) It merits notice that the phraseology used in Section 273B of the I.T. Act is such that no penalty can be imposed on an assessee under Section 271B for breach of the provisions, if he proves that there was "reasonable cause" for the said failure. 9. The moot question that arises in these cases is whether the assessee Societies had demonstrated a reasonable cause for the delay in submitting audit reports as mandated under Section 44AB of the I.T. Act before the Assessing Authority ? If the assessees could demonstrate that there were valid reasons for the delay occasioned in submitting the audit repor....
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....he Kerala Co-operative Societies Act read with Section 64B of the Kerala Co-operative Societies Rules read as follows: The Kerala Co-operative Societies Act: 63. Director of Co-operative Audit.- (1)The Government shall, by notification in the official Gazette, appoint a person to be the Director of Co-operative Audit with jurisdiction over the whole of the State. (2) The qualification and the terms and conditions of the person to be appointed as the Director of Co-operative Audit shall be such, as may be prescribed. (3) The Government may by general or special order, delegate all or any of the powers of the Director of Co-operative Audit, in the Act to his subordinate officers or to the subordinate officers of the Registrar. (4) It shall be the duty of the managing committee cause to audit the accounts of every society at least once every year: Provided that the accounts of every society shall be audited within six months of the close of the financial year to which such accounts relate. Provided further that in the case of those societies which are liable to file income tax returns, financial statements for that purpose....
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.... forward the special report to the Vigilance Officer appointed under section 68A for detailed inquiry. (11) The audit report of the accounts of an apex co-operative society which includes the report on administrative matters, shall be laid by the Government before the Legislative Assembly, in the manner prescribed. (12) It is the responsibility of the managing committee to convene general body meeting or special general body meeting in order to appoint auditors or auditing firms within the stipulated time from among the panel approved by the Director of Co-operative Audit, failing which, the members of the managing committee shall cease to hold their office. In such cases to avoid administrative stalemate, the Registrar may suo motu or on application from the Director of Co-operative Audit or from any person authorized in this behalf, appoint an Administrator or an administrative committee consisting of not more than three persons, who shall be from among the members of the society, one among them as convener, to manage the affairs of the society, for a period not exceeding six months as may be specified in the order: Provided that administrator or admini....
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.... the office of any of his subordinate officers, as maybe specified by him; and (c) such other powers as may be prescribed. (3) Every person who is or has been, at any time, an officer or employee of the society and every member and past member of the society, who is in possession of any information and records in regard to the transaction and working of the society, shall furnish such information in regard to the transactions and working of the society, as the director or the person authorised by the Government under sub-section (3) of S.63, may require. (4) The financial statements and other statutory statements as required by auditors shall be prepared by the chief executive of the society within one month from the date of close of the financial year and submit it before managing committee and the fact shall be reported to the Director of Co-operative Audit or to the persons authorized by him in this behalf. (4A) It shall be the duty of the managing committee of every society to ensure the accuracy of financial and other statutory statements. It is the responsibility of the committee to submit the above statements for audit within fifteen days ....
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.... or cost shall be such, as may be prescribed. (9) If the result of the audit held under this section discloses any defect in the working of the society, the Committee shall take steps to rectify the defects and irregularities pointed out in the audit report, if any, and place the audit report alongwith the action taken report before the general body meeting to be held every year and explain therein the said defects or the irregularities. The Committee shall continue to take steps for rectification of all the defects and the irregularities in the audit report and appraise the general body meetings every year till all the defects and the irregularities are rectified. The Committee shall send a report of action taken to the Director of Co-operative Audit and to the Registrar within fifteen days from the date of the general body meeting. (9A) If the Director of Co-operative Audit or the person authorized by him to carry out the audit of a society is of the opinion that any person had attempted to destroy or to tamper with the records or document so as to evade legal action on the mischief committed in the society, he shall report the matter to his controlling officer ....
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....aging persons from among the panel of experienced persons in dairy industry, recommended by the apex society and approved by the Functional Registrar of Dairy Co-operatives. The Kerala Co-operative Societies Rules: Rule 64B: 64B. Audit Report.- (1) The auditor shall submit an audit memorandum in the form specified by the Director of Co-operative Audit on the accounts examined by him and on the balance sheet and final accounts as on the date for the period up to which the accounts have been audited and shall state whether in his opinion and to the best of his information and according to the explanations given to him, the said accounts give all the information required by the Act and give a true and fair view.- (i) in the case of the balance sheets of the state of society's affairs as at the end of the year or any other subsequent date to which the accounts are made up and examined by him; and (ii) in the case of the profit and loss account of the profit or loss for the year or the period covered by the audit, as the case may be. (2) The audit memorandum shall state: (a) whether the Auditor had obtained all the information....
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....ead out at the general body meeting of the society. (7) The Director of Co-operative Audit shall have powers to issue directions to the societies to prepare and submit any other statements and schedules and call for any details which are necessary for the conduct and completion of audit. (8) The Director of Co-operative Audit shall be an officer on deputation from the Indian Audit and Accounts Service not below the rank of Deputy Accountant General or an officer from Indian Administrative Service." It can be seen from a perusal of the statutory framework that the assessee Co-operative Societies had virtually no control over the completion of the audit by the statutory auditors. We also note that there is nothing on record that would suggest that the delay occasioned by the statutory auditors in finalising the audit reports was in any way attributable to the conduct of the assessees in these appeals. We make this observation at this stage because we notice that, unlike the findings of the Assessing Authority and the First Appellate Authority, the observations of the Tribunal in the orders impugned before us are suggestive of such lethargy on the part of the asse....
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....ned in the preparation of the final audit report. The statutory provisions under the Kerala Co-operative Societies Act and Rules noticed above would reveal that the auditors had time that extended to six months after expiry of the financial year in question to submit their audit report, and if they took more time than was allowed under the Statute, then the assessees Societies had no option but to await the audit report, for, they had no manner of control over the preparation of those reports. Thirdly, the statutory provisions under the Kerala Co-operative Societies Act and Rules clearly provide for penal action against those Societies who do not maintain proper accounts and failed to get their accounts audited by the statutory auditors. There is no material on record that would suggest that any of the assessee Societies had been subjected to such penal proceedings, and hence, the Appellate Tribunal was not justified in assuming that some part of the delay in submitting the audit reports can be attributed to the assessee Societies. Fourthly, we find from a perusal of the CBDT Circular No.3/2009 dated 21.05.2009 issued in exercise of the powers under Section 139C of the I.T. Act tha....