High Court Of Karnataka
CIT & ANR. vs. S.C. Naregal
Section 2(12A), 44AB, 271B, 275(1)(c)
Asst. Year 1990-91, 1991-92 to 2001-02
V.G. Sabhahit & S.N. Satyanarayana, JJ.
IT Appeal No. 362 of 2004
23rd September, 2008
Counsel Appeared :
Aravind Kumar, for the Appellants : B.S. Sangati & K.S. Hanumantha Rao, for the Respondent
JUDGMENT
V.G. Sabhahit, J. :
This appeal by the Revenue is filed under s. 260A of the IT Act, 1961 (hereinafter referred to as “the Act”) being aggrieved by the order passed by the Tribunal, Bangalore Bench “B” in ITA No. 441/Bang/2003 (asst. yrs. 1991- 92 to 2001-02) dt. 23rd Jan., 2004, wherein the appeal filed by the assessee is allowed by setting aside the order passed by the CIT(A), Hubli, dt. 17th Sept., 2003, confirming the order passed by the ITO, Ward-2(1), Hubli dt. 23rd Sept., 2002.
The essential facts of the case leading to the filing of this appeal are as follows : The assessee is a dealer in petroleum products of Bharath Petroleum Products (P) Ltd. and he has filed returns for the asst. yrs. 1990-91, 1991-92 to 2001-02. It was found during survey that in the returns filed by the assessee for the financial years 1990-91 to 2000-01 the sales declared to the ST Department exceeded to rupees forty lakhs. However, the accounts have not been audited as required under s. 44AB of the Act and audit report has not filed in Form No. 3CB along with the return filed by the assessee and since there was failure with the requirement of s. 44AB of the Act, show-cause notice was issued to the assessee on 13th March, 2002, as to why for the said failure on the part of the assessee, penalty of half per cent, of the gross receipts of one year, proposed penalty of rupees one lakh should not be levied for each year. The said show-cause notice was served upon the assessee. The assessee filed reply stating that selling price of petroleum products is administered by the Government and it is applicable to all petroleum dealers in India. The petroleum company authorises the assessee to deduct a fixed percentage as commission from the amounts payable for its purchase consideration and relation between the petroleum company and the assessee is of principal-agent.
It was contended by the assessee before the AO that no accounts have been maintained since only commission was paid to the assessee by the BPCL and he was under the bona fide impression that since the amount of commission paid did not exceed rupees forty lakhs, the accounts were not required to be audited and wherefore, penalty could not be imposed under s. 271E of the Act and not under s. 271A and even if the penalty is imposable under s. 271B of the Act, the assessee was under the bona fide impression that having regard to the fact that he has only shown the commission in the returns filed by him rupees forty lakhs, he would not require to get the accounts audited.
It was also contended that in view of the provisions of s. 271B of the Act, no penalty could be imposed as proposed and wherefore, no penalty could be imposed under s. 271B as proposed in the show-cause notice.
The assessing authority by order dt. 23rd Sept., 2002 negatived the contentions raised by the assessee and held that the penalty was leviable under s. 271B of the Act as s. 44AB of the Act require, auditing of the accounts where the total turn over exceeded rupees forty lakhs and further held that the assessee has no bona fide reasons for not getting the accounts audited and the assessee has admitted that he was maintaining account books containing of party-wise register for credit sales pucca book of cash sales and purchase register and since those books of account maintained by the assessee had not been audited as required under s. 44AB, penalty under s. 271B of the Act was leviable and the assessee has no sufficient cause for not getting the accounts audited and accordingly, held that half per cent, of gross receipt for the asst. yr. 1999-2000 would come to Rs. 3,07,502. However, in view of the maximum penalty that could be imposed under s. 271B of the Act, imposed penalty of Rs. 1,00,000. Being aggrieved by the said order passed by the AO dt. 23rd Sept., 2002, appeal was preferred before the CIT(A), Hubli, numbered as ITA No. 155/HBL/CIT(A)/02-03 and the first appellate authority by order dt. 17th Feb., 2003 dismissed, the appeal filed by the assessee. Being aggrieved by the said order passed by the CIT(A), the assessee preferred appeal before the Tribunal, Bangalore Bench “B” in ITA No. 441/Bang/2003, which was clubbed with other appeals arising out of the common order passed by the CIT(A), Hubli under the same impugned order and the Tribunal by order dt. 23rd Jan., 2004 held that the proceedings initiated for imposition of penalty and the order imposing penalty was barred by time and since the assessee has not maintained any account, no penalty could be imposed under s. 271B of the Act and proceedings could be initiated for imposing penalty under s. 271A of the Act. The Tribunal further held that the assessee has reasonable cause for not getting the accounts audited as he was only collecting commission and the commission received by him did not exceed rupees forty lakhs and the return filed by the assessee has been accepted for ten years and accordingly, allowed the appeal and set aside the order passed by the CIT(A), Hubli. Being aggrieved by the said order passed by the Tribunal dt. 23rd Jan., 2004, the Revenue has preferred this appeal.
The appeal was admitted on 30th Sept., 2004 for consideration of the following substantial questions of law as set out in para 14(1) to (5) in the memorandum of appeal as follows :
“1. Whether the Tribunal was correct in holding that the penalty under s. 271B for the asst. yr. 1991-92 are barred by limitation as per the provisions of s. 275(1)(c) of the IT Act, 1961 ?
Whether the Tribunal was correct in holding that only penalty under s. 271A is leviable and penalty under s. 27IB is not attracted ?
Whether the Tribunal was correct in holding that the assessee had reasonable cause for not getting his accounts audited as per s. 44AB of the IT Act, 1961 ?
Whether the Tribunal was correct in not holding that the receipt of money by the assessee from BPCL was not commission and profit ?
Whether the Tribunal was correct in applying the ratio laid down in H. Ajitbhai & Co. vs. Asstt. CIT (1993) 47 TTJ (Ahd) 22 : (1993) 45 ITD 262 (Ahd) which is per contra to the decision of the Madhya Pradesh High Court in the case of Bharat Construction Company vs. ITO (1999) 153 CTR (MP) 414, 417 ?”
Before considering the substantial questions of law, it is necessary to consider the contentions raised by the learned counsel for the respondent that in view of the circular issued by the Department which prescribes that no appeal shall be filed where the amount of penalty imposed does not exceed two lakhs, the appeal is not maintainable. In support of this contention he has relied upon a number of decisions wherein it is held that in view of the said circular issued by the Department, which is binding upon the Department. However, the learned counsel for the appellant has relied upon a number of decisions wherein it is held that the High Court or the appellate authority is not bound by the circulars issued by the Revenue. However, it is unnecessary to go into the said question as the very circular prescribes pecuniary limit for preferring the appeal itself has been amended w.e.f. 1st April, 1999 and s. 268A of the Act has been inserted by the Finance Act, 2008 w.e.f. 1st April, 1999, wherein, where a circular has been issued by the Department fixing the monetary limits for filing the appeal stated in s. 268A of the Act. Filing an appeal or application for reference shall be deemed to have been issued under sub-s. (1) and the provisions of sub-ss. (2), (3) and (4) of the section shall apply accordingly and under sub-ss. (2), (3) and (4) where the substantial question, of law is involved, the mere fact that monetary limit has been prescribed for filing the appeal would not be a bar for deciding the appeal. Even otherwise, we are satisfied that it is an exceptional case wherein the Revenue was justified in filing the appeal and wherefore, there is no merit in the contention of the learned counsel for the respondent that the appeal itself is not maintainable.
We have heard the learned counsel for the appellant-Revenue and the learned counsel for the respondent- assessee on the abovesaid substantial questions of law and we answer the abovesaid substantial questions of law as follows : (1) in the negative(2) in the negative (3) in the negative (4) does not survive for consideration (5) in the negative for the following reasons. Substantial questions of law 1, 2 and 5.
These substantial questions of law relate to the finding given by the Tribunal holding that the penalty could not be imposed under s. 271B of the Act and if at all proceedings could not initiated under s. 271A of the Act as the assessee has not maintained any accounts and the question of limitation holding that the order imposing penalty was barred by time.
The learned counsel for the appellant submitted that the assessee has admitted in its statement and the reply given to the show-cause notice that he is maintaining the party-wise register for credit sales pucca book of cash sales and purchase register and wherefore, it cannot be disputed that the assessee had maintained accounts though not all the accounts required to be maintained under the Act. The decisions relied upon by the learned counsel for the respondent would clearly show that only where no books of account are maintained, no proceedings can be initiated for non-auditing of the books of account which are not maintained under s. 271B of the Act and penalty can be imposed only under s. 271A of the Act.
12. The following decisions are relied upon by the learned counsel for the respondent : Sheraton Apparels vs. Asstt. CIT (2002) 175 CTR (Bom) 651 : (2002) 256 ITR 20 (Bom); Surajmal Parsuram Todi vs. CIT (1997) 142 CTR (Gau) 209 : (1996) 222 ITR 691 (Gau); ITO vs. Nanak Singh Guliani (2001) 171 CTR (MP) 195 : (2002) 257 ITR 677 (MP); and CIT vs. Heros Publicity Services (2001) 168 CTR (Bom) 64 : (2001) 248 ITR 256 (Bom).It is clear from the principle laid down in the decisions relied upon by the learned counsel for the respondent that only where no accounts are maintained the question of auditing the accounts does not arise and wherefore, no proceedings can be initiated for imposing penalty under s. 271B of the Act. However, where accounts are maintained though not all the accounts as prescribed under the Act, it is clear that the auditing of the accounts is necessary under s. 44AB of the Act.
It is clear from the provisions of s. 44AB of the Act that where the turnover exceeds rupees forty lakhs, accounts are required to be audited. There is no merit in the contention of the learned counsel for the respondent that the books referred to in the order of the assessment and stated by the assessee in the statement and in the reply to the show-cause notice comprising of party-wise register for credit sales, pucca book of cash sales and purchase register are not books of account as defined under s. 2(12A) of the Act as it cannot be disputed that pucca book and purchase register are the accounts maintained by the assessee.
It is clear from the definition that “books or books of account” includes ledgers, day books, cash books, account books and other books, whether, kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magentic data storage device and wherefore, it cannot be denied that the assessee has maintained account books as defined, under s. 2(12A) of the Act though not all the books prescribed under the Act as it cannot be disputed that the pacca book of cash sales and purchase register are the account books as defined under s. 2 (12A) of the Act. The AO and the CIT(A) had confirmed the order of the AO to the effect that the notice initiating proceedings for imposing of penalty under s. 271B of the Act was justified as the assessee has maintained account books. The finding of the Tribunal that the assessee has not maintained any books of account is perverse and arbitrary as it is clear from the reply given by the assessee as also the answer to question 7, the statement given before the authority that the assessee has maintained pucca books of cash sales and purchase registers which are books of account as defined under s. 2(12A) of the Act and wherefore the finding of the Tribunal that the initiation of proceedings for imposing of penalty under s. 271B of the Act is not justified cannot be sustained.
16. Similarly the finding given by the Tribunal on the question of limitation is also erroneous and not based upon the material on record and the provisions of ss. 275(1)(b) and 275(1)(c) of the Act. The reasons assigned by the Tribunal is that the commencement of proceedings for imposition of penalty under s. 275(1)(c) of the Act would be within one year from the end of the financial year in which the order of the CIT(A) is received and in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed. The said findings of the Tribunal is erroneous.
17. The Tribunal having regard to the said contents of s. 275(1) of the Act held that in respect of asst. yrs. 1991-
92 till 1999-2000, the assessment could have been completed within one year from the end of the relevant assessment year and therefore, initiation of proceedings by issuing show-cause notice on 13th March, 2002 and imposing penalty by order dt. 23rd Sept., 2002, is barred by time. This finding of the Tribunal is clearly erroneous. It has not looked into the provisions of s. 275 (1) of the Act applicable to the facts and circumstances of the case wherein it is clearly stated that the period of limitation is till the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the CIT (A) or the Tribunal is received by the CIT whichever period expires later.
18. In the present case, the returns filed by the assessee for the asst. yrs. 1991-92 to 2000 have been accepted. However, during the survey of the reports it was found that there was turnover exceeding rupees forty lakhs and therefore, proceedings for initiation of penalty was initiated on 13th March, 2002 and wherefore, the commencement period for the period limitation would not be one year after the filing of the return and the period of limitation would be six months from the date of commencement of the proceedings for initiation of penalty and in view of the wording of s. 271(1) of the Act the limitation would be end of the month in which action for imposition of penalty is initiated and wherefore, it would be 31st Sept., 2002 for imposing penalty has been passed by the assessing authority on 23rd Sept., 2002 and wherefore, the order imposing penalty is not barred by limitation and the finding of the Tribunal is clearly erroneous and contrary to the provisions of s. 275(1) of the Act and hence, unsustainable and hence we answer substantial questions of law 1, 2 and 5 in the negative in favour of the Revenue and against the assessee. Substantial question of law No. 3.
19. This substantial question relates to the question as to whether the finding of the Tribunal that the assessee had reasonable cause for not getting the accounts audited under s. 273B of the Act is justified. The Tribunal has proceeded on the basis that since the return filed by the assessee had been accepted for ten years and the assessee was under the bona fide impression that he was only earning commission which did not exceed forty lakhs, account books were not required to be audited, is required to be accepted as sufficient cause as provided under s. 273B of the Act. The said finding of the Tribunal is clearly erroneous. It is clear from the returns filed by the assessee that for the financial year 1990-91, asst. yr. 1991-92, the total sales is shown as Rs. 2,23,80,902. Under s. 44AB of the Act, when the turnover exceeds rupees forty lakhs, the account books maintained by the assessee is required to be audited. What was pleaded by the assessee is ignorance of law which is no excuse in answering of violation of s. 44AB of the Act, as s. 44AB of the Act clearly state that where the turnover exceeds rupees forty lakhs, the account books are required to be audited and wherefore, it is not open for the assessee to contend that he has sufficient cause for not getting the accounts audited on account of exemption received by him did not exceed forty lakhs. The finding of the Tribunal is contrary to the contents of s. 44AB of the Act. The Tribunal has not taken into consideration s. 44AB of the Act while considering the contention of the assessee and wherefore, the said finding is also erroneous and cannot be sustained and we hold that the finding of the Tribunal that the assessee has reasonable cause for not getting his accounts audited as required under s. 44AB of the Act. The decision relied upon by the learned counsel for the respondent in ITO vs. Nanak Singh Guliani (2001) 171 CTR (MP) 195 : (2002) 257 ITR 677 (MP) is not helpful to him in the present case as the assessee himself has shown the total sales for the asst. yrs. 1990-91 up to 2000-01 and wherefore, the finding of the Tribunal holding that the assessee has sufficient cause for getting his income audited is perverse and arbitrary and cannot be sustained and accordingly, answer the substantial question of law No. 3.
20. The learned counsel for the respondent submitted that the word “may” used in s. 271A of the Act shows that penalty imposable under s. 271B of the Act is discretionary and wherefore, the Tribunal has rightly exercised discretion in holding that the assessee has reasonable cause for not getting the accounts audited under s. 44AB of the Act. We hold that there is no merit in the contention as we have held that the assessee cannot plead ignorance of contents of s. 44AB of the Act which requires that if the turnover exceeds rupees forty lakhs, the accounts are required to be audited and not where commission received by him exceeds forty lakhs and in view of our finding that the order passed by the Tribunal holding that the assessee has reasonable cause in not getting his accounts audited is contrary to s. 44AB of the Act and hence, we hold that the discretion exercised by the Tribunal is not judicious and the same is liable to’ be set aside.
The only other substantial question of law which is required to be considered is, i.e., framed at the time of admission, whether the Tribunal was justified in holding that the receipt of money by the assessee from BPCL was commission and not profit ? (substantial question of law No. 4). This substantial question of law does not arise for consideration in this appeal as it is clear from the provisions of s. 44AB of the Act that whenever the turnover exceeds rupees forty lakhs, the accounts are required to be audited and the question as to whether the assessee was receiving commission and not profit would not in any way affect the liability of the assessee in getting the accounts audited under s. 44AB of the Act. Accordingly, we answer all the substantial questions of law in favour of the appellant and against the assessee.
In view of our answer to the substantial questions of law, we hold that the appeal is entitled to be allowed by setting aside the order passed by the Tribunal in ITA No. 441/Bang/2003 and restoring the order passed by the CIT(A), Hubli and accordingly, we pass the following order : (i) The appeal is allowed ; (ii) The order passed by the Tribunal Bangalore Bench “B” in IT Appeal No. 441/Bang/2003 is set aside and the order passed by the CIT(A) Hubli, confirming the order passed by the AO dt. 23rd Sept., 2002 is restored.
[Citation : 329 ITR 615]
