TaxTMI 
TaxTMI 
2005 (12) TMI 204
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....ame leading to a contravention of section 44AB of the Act, resulting in levy of penalty under section 271B. Before the Assessing Officer, the assessee, on being given an opportunity to submit its case in the said penalty proceedings vide its letter dated 30-7-1997, explained that its premises, as also those belonging to the group above referred, were searched by the Department under section 132 of the Act on 11-8-1992. All the records for the current as well as past years, including vouchers and related documents, were seized by the department and it was only much later, i.e., in December 1992, that the assessee's request for copies of the seized material was granted. There, thus, occurred considerable delay, in firstly, the preparation of accounts for the financial year 1992-93 (relevant to the assessment year 1993-94) and then their audit which was completed only in the month of December 1994. The said delay ipso facto led to the delay in the compiling of accounts for the financial year 1993-94 (relevant to the assessment year 1994-95) and their audit which was completed on 27-3-1995. He thus pleaded reasonable cause for the delay, which, reckoned with reference to the due date w....
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....its plausibility, so that an inference as to its constituting a reasonable cause, in respect of the failure under question, or otherwise, can be made. As such, the application of section 273B, which spares penalty has two components: (a) the offering of an explanation as the reason for its default by the assessee; and (b) the judicial interpretation of the same as reasonable under the given facts and circumstances of the case. 5.2 In the present case, we find that the sole ground for the impugned delay has been attributed by the assessee to the delay in the finalization of its accounts for the immediately preceding previous year, i.e., financial year 1992-93, the Tax Audit Report for which could only be obtained in December 1994. And where after only the audit report for the assessment year under question, i.e., 1994-95, could be obtained, being so done on 27-3-1995, i.e., within a period of three months, so that the same cannot be considered as excessive or unreasonable. We find, for the reasons discussed hereafter, the assessee's explanation as being not tenable so as to satisfy the test of a judicial scrutiny. 5.3(a) The seizure of the assessee's records by the department on 1....
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....l year 1992-93, so that it fell in step with the time, i.e., became current thereat, the balances as at the close of 31-3-1993, therefore, should have been available in the beginning of April, 1993 itself, or soon thereafter assuming that some time lag still persisted. Any delay thereafter, if contended, would need to be proved or positively shown for it to be accepted. (c) In view of the above, the time period availed by the assessee in obtaining the report after the close of the relevant previous year, i.e., 31st March, 1994, or one full year, is again highly excessive considering the time period already afforded by the Act. To contend otherwise, as the assessee does, of not availing such time, in view of the non-finalisation of books of account for the preceding year would not hold, as firstly that would imply that its processes had not normalized even up to as late as March 1994 and which under the circumstances is a very exaggerated claim, and for which no explanation has been offered or material brought-forth. Secondly, if that were to be the case, the audit report for each year being obtained, by far, only by the month of October of the following year, would delay the accou....
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.... effective from the said date. This amendment was made specifically to check the tendency of obtention of audit reports dated back in time, and thus, ostensibly complying with the provisions of section 44AB; the furnishing being done only with the return of income as required under section 139(9), and thus, effectively circumventing the rigor of the provision. 6.3 The amendment is applicable to any assessment year for which audit report is required to be obtained, and as such, to any audit report which had been obtained but not already furnished. Though, no doubt, it would apply with more force to audit reports the due date for which had not elapsed, yet it is equally applicable to audit reports for which it had. For, if, as the assessee contends, the audit report was not furnished on 27-3-1995 or immediately thereafter only as it was not obliged in law to do so (other than along with the return of income), the argument becomes invalid for the period commencing 1-7-1995. Rather, the Finance Act, prior to its being legislated, is widely circulated and debated (as a Finance Bill). As such, the assessee, even if not aware of the malpractice (which arises only through the natural tend....
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....places on the auditing profession. 7.2 We are aware that the Courts have generally adopted a liberal approach in the matter so that where the delay in the audit for the first year has attracted penalty, a similar default for the following year(s) would be construed as being reasonably explained to that extent, and the subsequent default reckoned only with reference to the delay beyond that of the previous years, as it would, otherwise, amount to penalizing essentially the same delay twice. However, in the present case, no penalty has been levied in respect of assessment year 1993-94, so that the said ratio is not strictly applicable, and secondly, the 'explanation' of the delay, even for a moment granting the earlier delay, has to be examined on merits, i.e., with reference to the reasons cited, and considering the remaining/impending work that was required to be performed (for compliance), while we find that none exists in the present case. 8. The word 'reasonable' is not amenable to a clear definition, much less a precise one. The Courts have explained reasonable cause as one that can be reasonably said to be a cause which prevents a man of average intelligence and ordinary pru....
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....nths (October 1994 to March 1995) to obtain the audit report of accounts for 12 months (previous year 1993-94) and which was held up only for want of correct carry forward of opening balances, and which became available latest by (now) September 1994, and knowing that the matter stand already delayed, for the second year in running, is again, difficult to understand. Finally, the non-submission of the audit report dated 27-3-1995 immediately thereafter or upon the amendment in law, making the furnishing of the report mandatory, is nothing but a conscious disregard of its statutory obligations. 11. In conclusion, we uphold the levy of penalty and the order of the CIT(A) is dismissed. 12. In result, the appellant succeeds. Per IP. Bansal, Judicial Member. -I have carefully gone through the draft order passed by my ld. brother and I find myself in respectful disagreement with the view taken by ld. brother. I, therefore, proceed to write separate and dissenting order. 2. The assessee is an HUF. Its turnover for the year under consideration exceeded Rs. 40 lakhs, therefore, according to section 44AB of the Income-tax Act, the assessee was required to get its account audited by 31st ....
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....nder: '... the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover of gross receipts, as the case may be in business or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less.' 6. Section 273B indicates that no penalty shall be imposed on the person or assessee as the case may be for any failure as referred to in the said section if he proves that there was reasonable cause for the said failure. Thus, reading of section 273B of the Act, it is clear that onus is on the assessee. Looking to the provisions of section 271B of the Act where the word 'may' is used and as per the provisions contained in section 273B whether the explanation offered by the assessee can be said to be the reasonable explanation or not is the only aspect required to be considered. The CIT(A) has found that for the first year there was no reasonable explanation, but for the subsequent years, there was existence of reasonable cause. Can it be said that an error is committed more particularly when the Tribunal in its elaborate judgment has dealt with the a....
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....rovided he will take his own time to complete the audit. For the year under consideration the assessee has got its account audited on 27th March, 1995 which is within the period of 5 months from the date of audit of immediate preceding year. The period of 5 months cannot be said to be unreasonable period as the period should be seen from the angle of reasonable common man. Even the statute in the cases of audit has given a period of seven months to compile the account and file the return of income along with audit report as in the case that like of assessee the prescribed date is 31st October which constitutes a period of seven months from the end of financial year. Thus it cannot be said that assessee took unreasonable time to get its account audited for the year under consideration. 8. The levy of penalty or otherwise for immediate preceding year has no much relevance in the year under consideration as each year is an independent year. The default of late audit for assessment year 1993-94 is a separate default for which the penalty is leviable separately. There is nothing on record to say that whether or not the penalty was levied for assessment year 1993-94. If the penalty was ....
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....he two Members, the following question has been referred by the President, ITAT for my opinion as Third Member under section 255(4) of the Income-tax Act, 1961:- "Whether, on the facts and in the circumstances of the case, ld. CIT(A) was justified in cancelling the penalty levied under section 271B of the Income-tax Act, 1961 holding that there was a 'reasonable cause' within the meaning of section 273B of the Act?" 2. The assessee was required to get the accounts audited and obtain a report thereon as per the provisions of section 44AB on or before the specified date, i.e., on or before 31-10-1994. It, however, obtained the report on 27-3-1995. It was thus late by four months and 27 days. The return was filed by the assessee on 31-8-1995. Finding no reasonable cause for the delay in obtaining the report, the Assessing Officer treated the assessee in default and levied a penalty of Rs. 64,521. He rejected the contention of the assessee that delay of audit of accounts for earlier previous year relevant to assessment year 1993-94 was reasonable cause because the accounts of each assessment year are independent and it is possible to get the accounts audited for a particular assessme....
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....slocation or complete suspension after the said period four months required 21 months to finalise the accounts specially when no material was brought fourth to establish the same and that a period of six months from October, 1994 to March, 1995 to obtain the audit report of accounts which was held to be only for want of correct carry forward of opening balance and which became available latest by September, 1994 and knowing that matter stands already delayed for the second year in running was again difficult to understand. According to him, the submission of audit report dated 27-3-1995 immediately thereafter and upon amendment in law, making the furnishing of the report mandatory, is nothing but a conscious disregard of its statutory obligation; (ii) the Judicial Member, on the other hand, opining that when the audit of the preceding year was completed on 28th October, 1994, it was difficult to presume the auditors proceeding with audit in absence of authenticated closing figures of the immediately preceding year and that even thereafter when the same are provided the auditors would be taking their own time to complete the audit. According to him, the assessee got his accounts aud....
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....in the absence of audit of the earlier year the opening balances of the accounts would not be available and without which no audit can be completed validly. The audit without consideration of opening balance would be incomplete and would have no sanctity. To this extent, therefore, the assessee cannot be said to be in default. 6. The reason that there was a search and seizure action in the earlier year whether could be a reasonable cause for delayed audit, need not be discussed in detail while considering the delay of audit of this year as that would be a valid reason for non-completion of accounts for the earlier year. In so far as this year is concerned, the fact that audit of the earlier year was completed late the delay of period until the date of that audit would be a reasonable and sufficient cause for delay in getting the accounts audited for the year under consideration. 7. In my opinion, it is also not necessary to examine as to whether that was a valid cause for getting the accounts audited in the earlier year or not because in considering the delay in the year under consideration, one need not go into that aspect as the fact that the earlier year's audit was delayed by....