High Court Of Madhya Pradesh : Indore Bench
Biaora Constructions (P) Ltd. vs. CIT & Anr.
Sections 44AB, 271B
Asst. Year 1995-96
A.K. Patnaik, C.J. & N.K. Mody, J.
IT Appeal No. 42 of 2004
17th July, 2006
G.M. Chaphekar with R. Sarda, for the Appellant : R.L. Jain with Ku. Veena Mandlik, for the Respondents
A.K. Patnaik, C.J. :
This is an appeal under s. 260A of IT Act, 1961 (in short the Act).
2. The appellant carries on the business of construction of roads and bridges. For the asst. yr. 1995-96, the AO found that the appellant filed its return of income on 19th Feb., 1996 and the P&L a/c of the appellant disclosed that its contract receipts exceeded Rs. 40 lacs, during the previous year, relevant to the asst. yr. 1995-96, but the appellant had failed to furnish by 30th of November, 1995, a report of audit of the accounts, as required under s. 44AB of the Act and accordingly the AO served show-cause notices dt. 30th Sept., 1996 and 28th Feb., 1997, on the appellant to show cause as to why penalty under s. 271B would not be imposed. In its reply dt. 10th March, 1997 the appellant contended that it had got its accounts audited by 29th of November, 1995 and the same were sent by registered post on 30th of November, 1995 and as an evidence attached a copy of receipt issued from Rajgarh Town Post Office and therefore the appellant had complied with the provisions of s. 44AB of the Act and was not liable for penalty under s. 271B of the Act. The AO rejected the said contention of the appellant and held that assessee has not been able to produce any cogent evidence as proof of furnishing of the audit report by the specified period and accordingly levied the penalty of Rs. 1,00,000 (Rs. one lac only) under s. 271B of the Act, on the appellant. Aggrieved, the appellant filed Appeal No. IT-36/9798/397, before the CIT(A)-I, Indore, but by order dt. 6th Oct., 1997, the CIT(A) dismissed the appeal of the appellant. Being aggrieved, the appellant filed Appeal No. ITA 1102/Ind/1997 before the Tribunal, Indore, but the Tribunal also dismissed the appeal of the appellant, vide order dt. 30th Dec., 2003. Aggrieved by the said order dt. 30th Dec., 2003 of the Tribunal, the appellant has filed this appeal before this Court.
3. On 21st June, 2004, while admitting the appeal, the Court formulated the following substantial questions of law :
“Whether the Tribunal was justified in confirming the penalty levied under s. 271B of the Act ?
Whether the taxing authorities were justified in the facts of this case in properly interpreting the requirement of s. 271B when they upheld the penalty of Rs. 1,00,000 (Rs. one lac) on the assessee for delayed filing of audit account, as required under s. 44AB ?”
4. Mr. Chaphekar, learned counsel for the appellant submitted that in this case, the assessment year in question is the asst. yr. 1995-96 and, therefore, the law that was applicable was the law, which was prevalent on 1st April, 1995. He submitted that the provisions of s. 44AB as they stood on 1st April, 1995 did not provide that the assessee has to âfurnishâ by the specified date the audit report to the Department and all that it provided was that by the specified date the assessee was to âobtainâ the report of the audit of his accounts. He submitted that in this case the report of the audit of the accounts had been obtained by the appellant by 30th of November, 1995, which was then the specified date. He submitted that the change in s. 44AB casting the obligation on the assessee to âfurnishâ the report of the audit by the specified date was brought in by the Finance Act, 1995 w.e.f. 1st July, 1995 and the said change of the law would not be applicable to the asst. yr. 1995-96. In support of the aforesaid contention, Mr. Chapekhar cited the decision of Supreme Court in CIT vs. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC). He also relied on the decision of Andhra Pradesh High Court in Andhra Cements Co. Ltd. vs. CIT (1999) 152 CTR (AP) 270 : (1998) 232 ITR 364 (AP), and the decision of Madras High Court in CIT vs. S. Palaniswamy (1996) 134 CTR (Mad) 507 : (1996) 219 ITR 380 (Mad).
Mr. Chapekar further submitted that in any case s. 271B of the Act provides that, “If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under s. 44AB, the AO may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or 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.” He submitted that the word âmayâ shows that a discretion is conferred on the AO to impose the penalty or not to impose the penalty and in case he imposes the penalty then discretion has been further vested on the AO to determine the quantum of penalty. He submitted that this discretion has to be exercised by the AO judicially, considering the facts and circumstances of each case. He submitted that in this case the appellant had in fact had its accounts audited and has also obtained report of the audit of its accounts from the auditor, but the said report was required to be signed by the directors of the company as provided under s. 215 of the Companies Act, 1956. He further submitted that in case the Court holds that the amendment to s. 44AB that in case the turnover of the assessee exceeds Rs. 40 lacs, he has to furnish such report of audit to the Department before the specified date will apply to the asst. yr. 1995-96, the assessee could raise a bona fide plea that it was not aware of such change in law made w.e.f. 1st July, 1995. He submitted that this is the first assessment year in which change had been brought about and the AO should have considered this aspect of the matter before deciding whether or not to impose the penalty under s. 271B of the Act in the facts and circumstances of the case. He submitted that impugned order of the Tribunal shows that all the contentions raised on behalf of the appellant have been brushed aside and imposition of penalty at the highest rate of Rs. 1 lac (one hundred thousand rupees) has been upheld by the Tribunal.
Mr. Chaphekar cited the decision of Supreme Court in Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC), for the proposition that, “any order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation.” He also relied on the observations of the Supreme Court in the said case that, “even if minimum penalty is prescribed, the competent authority who is to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act, where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”
In reply Mr. R.L. Jain, learned counsel for the respondent, referred to the Circular No. 117 dt. 14th of August, 1991 of the board of directors (sicâCBDT), in which the scope and effect of the amendments in s. 271B by the Finance Act, 1995, w.e.f. 1st July, 1995 have been explained. He pointed out that in para 29.5 of the said circular it is stated that the amendments take effect from 1st of July, 1995. He submitted that contention of Mr. Chaphekar that amendment to s. 44AB of the Act casting an obligation on an assessee having turnover of more than Rs. 40 lacs to furnish a report of audit to the Department by the specified date, would not apply to the assessment year of 1995-96, therefore, is not correct. He submitted that the appellant was required to furnish a report of audit of his business with turnover exceeding Rs. 40 lacs by 30th of November, 1995 and hence the AO has rightly exercised his discretion and imposed a penalty of Rs. 1 lac, under s. 271B of the Act, after having found the explanation of the assessee in the show-cause reply for not furnishing the audit report by 30th of November, 1995, not at all believable.
The findings of the Tribunal in the impugned order upholding the levied penalty of Rs. 1 lac, on appellant under s. 271B of the Act are in para 6 of the impugned order, which is quoted hereunder : “After considering the arguments advanced by the parties, averments of auditor Shri Dinesh Kasat, in affidavit, orders of the lower authorities and the decisions relied upon by the learned Authorised Representative, we are of the view that the explanation that the audit report after preparing of it on 29th Nov., 1995 at Indore by the auditor was sent through the representative of the assessee to Biora for the signature of both the directors residing there and after their signatures on it the same was posted on 30th Nov., 1995 through registered post from the post office of Rajgarh i.e., around 20 kms. away from Biora, does not appear to be convincing one on several aspects. Firstly, there was no need of signatures of directors on the audit report specially when the auditor being professional and conversant with the provisions of the law was very much aware that 30th Nov., 1995 was the last date of furnishing of the audit report to the Department and he should have furnished the audit report to the Department at Indore to comply (with) the provisions of law instead of sending it for signatures of the directors residing at Biora with instruction to post it from there. And secondly if at all the auditor was of the view that signatures of the directors also should have been there on the audit report, he should have instructed the representative of the assessee that after obtaining signatures of both the directors on the audit report of Biora he must have returned to Indore for furnishing the report on the due date 30th Nov., 1995 to the Department. The explanation of the assessee and affirmation of the same by its auditor in his affidavit thus does not match with common behaviour of a prudent man. The statute does not permit to condone the delay even if the delay is not satisfactorily explained by the assessee. The delay is condoned only in those cases where some bona fide reason is there to establish that due to those reason, it was beyond power and control of the assessee to furnish the audit report in time. The law does not allow a delay to be condoned caused by lapse on the part of the assessee itself. In the present case there is no such situation beyond the power and control of the assessee and auditor under which a prudent assessee or auditor who is well conversant with the provisions of the law, could not have furnished the audit report in time. It is also not convincing as to why return has been filed only on 19th Feb., 1996 when audit report was ready with the assessee on 29th Nov., 1995 especially when there was no tax liability and return was ready for filing on 24th Oct., 1995 as evident from page No. 2 of the paper book. It is not material that delay is of one day or inordinate in furnishing the audit report but material is to see as to whether the delay has been properly explained or not to show that some bona fide reason was there with the assessee for not furnishing the audit report in time. Unfortunately, in the present case the behaviours of auditor and assessee do not reflect bona fide reason that they had made all the expected efforts to furnish the audit report in time. The judgments relied upon by the learned Authorised Representative are thus not relevant as the assessee has failed to furnish a bona fide reason which constitutes a reasonable cause for the delay. We thus, find no reason to interfere with the first appellate order upholding the penalty against the assessee. The same is affirmed.
In result, appeal is dismissed.”
From a reading of the aforesaid findings of the Tribunal, it appears that the Tribunal has not found the explanation of the appellant that the audit report after being prepared on 29th Nov., 1995 at Indore by the auditor had been sent to Biora for signatures of both the directors residing there, to be so convincing because there was no need of signatures of the directors on the audit report, when the auditor being professional and conversant with the provisions of the law was very much aware that 30th Nov., 1995 was the last date for furnishing the audit report. The Tribunal has taken a view that instead of sending the audit report to Biora for signatures of the directors, he should have furnished that report to the Department at Indore, to comply with the provisions of law. The Tribunal in our view was oblivious of the provisions of s. 215 of the Companies Act, 1956, which provides that, “Every balance sheet and every P&L a/c of a company shall be signed on behalf of the board of directors, by not less than two directors of the company.” If the appellant has taken a stand that the audit report which included the balance sheet and the P&L a/c of the company had to be sent to the two directors at Biora for signature, the Tribunal was required to apply its mind to the aforesaid explanation given by the appellant consistently with the requirement of s. 215 of the Companies Act, and thereafter record its finding whether the explanation was bona fide or not. Moreover, it will appear from the findings of the Tribunal quoted above that the whole approach of the Tribunal was as if penalty has to be imposed for non-compliance of the provisions of s. 44AB of the Act, unless the assessee shows that some good reason as to why such penalty should not be imposed. In Hindustan Steel Ltd. vs. State of Orissa (supra) the company Hindustan Steel Ltd., had failed to register itself as dealer under the Orissa Sales-tax Act, 1947 and for such failure to register itself as a dealer, the Sales-tax Officer imposed a penalty.
The Supreme Court held :
“But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.” Since the aforesaid decision of the Supreme Court had been cited before the Tribunal by the appellant, the Tribunal should have applied its mind to the aforesaid law as well as the facts and circumstances of the case and should have recorded a finding whether the appellant had acted deliberately in defiance of the provisions of s. 44AB of the Act and was guilty of conduct contumacious or dishonest, warranting imposition of penalty by the AO under s. 271B.
For the aforesaid reasons, we set aside the impugned order dt. 31st Dec., 2003 of the Tribunal. We find that the appellant had not raised the contention before the Tribunal that the amendment to s. 44AB requiring the assessee with a business turnover of more than Rs. 40 lacs to âfurnishâ a report of audit of its accounts by the specified date came into force on 1st July, 1995 and was not applicable to the asst. yr. 1995-96, and therefore we have not considered this contention in this appeal. Since, the matter is now remanded back to the Tribunal, it will be open for the appellant to raise this contention before the Tribunal and if the same is raised, the Tribunal shall decide the same, in accordance with law. The appeal is allowed.
Considering the facts and circumstances of the case, the parties shall bear their own costs.
[Citation : 287 ITR 112]