JUDGMENT
1. Heard the learned Counsel for the appellant, Sri D.D. Chopra, and Ms. Pushpila Bisht for the assessee.
2. This appeal under Section 260A of the IT Act, 1961, has been filed by the appellant on the following questions of law :
"(1) Whether an assessee can be treated as having discharged the obligation placed upon it as per provisions of Section 44AB of the IT Act, 1961, only by submitting provisional accounts on the ground that its accounts for the preceding year were still to be finalized ?
(2) Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in law in reversing the CIT(A)'s findings and in cancelling levy of penalty of Rs. one lakh under Section 271B of the IT Act, 1961, for the asst. yr. 1990-91 ?"
3. The assessment year, which is involved in the appeal, is the asst. yr. 1990-91. The assessee co-operative society has been constituted for safeguarding the interest of the cane growers and member unions. The activities of the assessee-society included printing and supply of the forms, registers and stationery, etc. for which it was maintaining Tress Account'. The assessee's main function was to provide credit facilities to its members. It did not deal in sale of goods. The activities of the society were spread over the whole of the State. The assessee filed the return on 30th Nov., 1990 declaring an income of Rs. 86,83,906 for the asst. yr. 1990-91. The gross turnover of the assessee was Rs. 6,38,00,000, as such, in view of the provisions contained in Section 44AB of the IT Act, the assessee was required to obtain the audit report before the specified date and to furnish it along with the return, before the specified date, but the assessee in this case failed to obtain the said report resulting in levy of penalty of Rs. one lakh under Section 271B of the Act by the assessing authority. The penalty imposed was affirmed in appeal by the appellate authority but in the second appeal preferred before the Tribunal, the Tribunal disagreeing with the findings recorded by the assessing authority as well as by the appellate authority allowed the appeal and set aside the penalty imposed under Section 271B.
4. It is not disputed by the learned Counsel for the appellant that on issuance of notice under Section 271B r/w Section 274 of the IT Act, proposing imposition of penalty, the assessee submitted his reply saying that as per the requirement of Section 44AB it had already furnished the copy of the documents, i.e., provisional tax audit report with the return and that since the accounts of the assessee-society were to be audited by the Chief Audit Officer, U.P. Co-operative Audit & Panchayati Raj Department, in whose appointment and working, the assessee has no role to play, therefore, the final audit report could not be submitted, though the provisional balance sheet and other documents were filed along with Form Nos. 3CA and 3CD within the extended time. Initially the specified date was 31st Oct., 1990, which was extended to 30th Nov., 1990, a fact which is not in dispute and that the assessee has submitted the aforesaid documents prior to 30th Nov., 1990, is also not in dispute.
The plea of the assessee that it was prevented by a reasonable cause in filing the final audit report as per the provisions of Section 44AB and that the filing of the provisional audit report along with balance sheet and other documents were sufficient compliance of the provisions of the Section 44AB was not accepted by the assessing authority and the first appellate authority. The plea that in the matter of appointment of the auditor who were to make the audit was not in the hands of the assessee and that it depended upon the Government, for making such appointment, was also rejected by the aforesaid authorities, not finding it to be a reasonable cause for not preparing and filing the statutory audit report in time.
5. In the second appeal filed before the Tribunal, the Tribunal found that the assessee had taken all steps for getting the audit report prepared within the time prescribed, but it was handicapped because it had no control either over the appointment of the auditor who were to be appointed by the Government nor on the functioning. The Tribunal took into account the various correspondence also in which the assessee had requested for the early completion of the audit of the accounts but failed to get the report within time. After finding that no fault can be attributed on the part of the assessee in not preparing and filing the report under Section 44AB, and that there was reasonable cause for doing so, the Tribunal intervened with the orders passed by the assessing authority and the appellate authority by allowing the appeal.
6. Before us it has been reiterated by the counsel for the appellant (Revenue) that Section 271B allowed the assessing authority to impose a penalty as admittedly the final audit report as required under Section 44AB was not filed within time and that the cause shown by the assessee could not have been treated to be a reasonable cause for the purpose, particularly when the amended provision of Section 271B does not give any discretion or liberty to the AO of not imposing the penalty in case of default, in compliance of the provisions of Section 44AB.
Learned Counsel , however, did not support his submission by any authority but placed reliance upon the very provision of Section 271B of the IT Act. He submitted that prior to the amendment in the aforesaid section, there was a discretion given to the assessing authority in the matter of imposing penalty when the words 'without reasonable cause' were in existence but after the amendment in the aforesaid clause there remains no discretion with the assessing authority in the matter of imposition of penalty.
7. In response, Ms. Pushpila Bisht appearing for the assessee, submitted that though Section 271B was amended in the year 1986 by excluding the words 'without reasonable cause' but by the same very amendment in the year 1986 itself, the said Section 271B was brought within the ambit of Section 273B and, therefore, urged that the Revenue authorities were fully competent to consider the explanation given by the assessee for not being able to comply with the provisions of Section 44AB in its strictest sense and for holding that there was a reasonable cause for the same or not.
She further submitted that the documents which were already filed by the assessee namely, provisional audit report as well as the balance sheet and other forms coupled with the correspondence which was filed to show that the assessee has taken all possible steps for getting the final audit report before the specified date, was sufficient to exonerate it and no penalty could have been imposed by the authority concerned under Section 271B of the Act.
Further submission made by her is that the question as to whether there was a reasonable cause for not complying with the provisions of Section 44AB of the Act would be a question of fact and if once the Tribunal exercises its discretion accepting the said plea and taking the cause shown by the assessee as reasonable, the view so taken would not constitute a substantial question of law so as to make the appeal maintainable under Section 260A of the IT Act.
8. In the instant case, since the total gross turnover of the assessee being more than Rs. 40 lakhs, it was under an obligation to comply with the provisions of Section 44AB by getting the audit report prepared within the time prescribed, and furnish the final audit report before the specified date along with the return but it did not do so though it had filed the provisional audit report. The explanation given by the assessee for proving that the assessee has a reasonable cause for not having and supplying the final audit report before the specified date, to the effect that the auditors were to be appointed by the Government and that the assessee had no control over State Government appointed auditors, it also filed the copies of various letters showing its correspondence as also various dates of audit reports ending for different years, which were made available late despite repeated reminders.
9. The accounts were to be audited by the Chief Audit Officer, U.P. Co-operative Audit & Panchayati Raj Department who was to take its own time to complete the audit of the co-operative societies of the State. The action thus, of the Chief Audit Officer, U.P., was not under the control of the assessee and it was not possible for the assessee to obtain statutory audit report within the prescribed time. For the year ending 30th June, 1987, the audit report of the accounts was received by the assessee on 30th March, 1990 from the Chief Audit Officer, U.P., and no further report from the auditors was received till date, i.e., 3rd May, 1991. The copy of the certificate of auditors dt. 31st March, 1992 was also filed to show that the audit of accounts for the year ending on 31st March, 1989 was completed on 31st March, 1992. The copy of the letter E(3) also shows that the audit work for the accounts year 1989-90 and the asst. yr. 1990-91 commenced on 14th May, 1991 and completed on 31st March, 1993. The letter of Jt. Chief Auditor dt. 29th March, 1990, also shows that the report of the asst. yr. 1986-87 was completed on 29th March, 1990.
The Tribunal also considered the plea that unless the accounts of the earlier assessment year is finalized it would neither be possible to finalize the accounts nor to obtain a tax audit report for the current assessment year.
The Tribunal also recorded a finding that the learned CIT(A) has not properly considered the circumstances for showing the existence of reasonable cause for non-compliance of Section 44AB and it has summarily rejected the grounds relating to reasonableness of the cause which prevented the assessee-society in obtaining the statutory audit report within time.
10. Section 273B reads as under :
"Penalty not to be imposed in certain cases.--Notwithstanding anything contained in the provisions of Clause (b) of Sub-section (1) of Section 271, Section 271A, Section 271AA, Section 271B, Section 271BA, Section 271BB, Section 271C, Section 271D, Section 271E, Clause (c) or Clause (d) of Sub-section (1) or Sub-section (2) of Section 272A, or Sub-section (1) of Section 272AA or Section 272B or Sub-section (1) 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."
The aforesaid section gives a discretion to the assessing authority which term shall include the appellate authority and the Tribunal also, in the matter of imposition of penalty under Section 271B and in case the assessee succeeds in proving that there was a reasonable cause for the failure in compliance of the provisions of Section 44AB, the penalty may not be imposed.
11. The argument of the learned Counsel for the appellant that since Section 271B of the Act, stood amended by deleting the words 'reasonable cause' on 8th Sept., 1986, therefore, such a discretion of not imposing any penalty could not have been exercised by the AO and that non-imposition of penalty under Section 271B would have been a violation of the said provision, has to be tested in the light of the relevant provisions of the Act.
12. Section 271B of the Act is a specific provision giving power to the AO to impose prescribed penalty, in case 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 Section 44AB; the maximum penalty which can be levied is one hundred thousand rupees. Section itself says that if any person fails to get his accounts audited or fails to furnish such audit report as required under Section 44AB, the AO 'may direct' that such person may pay the penalty in the given manner. The words 'may direct' themselves speak about the inherent discretion of the AO in the matter of imposing penalty. The provision, thus, does not make out obligatory for the AO to impose penalty for such failure but gives liberty to the AO either to impose or not to impose the penalty after considering the reasonable cause and moreso when this provision of Section 271B has to be r/w Section 273B.
13. Section 273B which starts with a non obstante clause deals with various provisions of the IT Act which prescribe for imposition of penalty including Section 271B and has the heading 'Penalty not be imposed with in certain cases'. The aforesaid provision has been enacted with a purpose viz., to give an opportunity to the assessee, to show any reasonable cause for failure of the compliance of the provisions, given therein and also the power to the AO to consider the said cause and if satisfied with the explanation given by the assessee, the penalty be not imposed. The provision clearly says that no penalty shall be imposed on the person or assessee, as the case may be, for any failure referred to in the said provision, if he proves that there was 'reasonable cause' for the said failure.
14. Section 271B was specifically included in Section 273B itself in the same very year, i.e., 1986 when from the section the words 'without reasonable cause' were deleted. The intention of such deletion from Section 271B was not to deprive the assessee from giving a reasonable excuse for not being able to comply with the provisions of Section 44AB, or to take away the power of the AO to consider the plea of reasonable cause but it conferred the said power by incorporating Section 271B into Section 273B.
15. Section 274 deals with the procedure in imposing penalty under Chapter XXI of the IT Act, which contains the provisions of penalty imposable including the provisions of Section 271B. Chapter XXI has the heading 'Penalties imposable' which naturally gives an inkling of the nature of the penalty which can be imposed but plain and simple meaning of the said term would be that penalties can be imposed but not necessarily that the same has to be imposed in all circumstances.
Section 274 prescribes a procedure for imposition of penalty under any of the provision of the said Chapter which necessarily requires of giving prior reasonable opportunity of hearing to the assessee before imposing any penalty. In case the penalty was a mandatory outcome of any penalty mentioned in various provisions of this Chapter including Section 271B viz., as in the instant case for non-compliance of the provisions of Section 44AB, there was no necessity of providing a mechanism for imposing penalty by issuing notice to the assessee and of giving a reasonable opportunity of hearing before imposing the penalty. The necessity of affording reasonable opportunity of being heard before imposition of penalty would naturally and reasonably mean that it is for the purpose of giving an opportunity to the assessee to put his defence or a reasonable cause for not being subjected to any penalty. If the cause is sufficient, the assessing authority may do away with the penalty but if the cause is not sufficient as per the decision of the assessment of the assessing authority, the penalty may be imposed.
The imperativeness of the provision of Section 274, requiring prior opportunity of being heard be given to the assessee before imposing penalty establishes that though the penalty can be imposed for violation of provisions of Section 44AB by invoking provisions of Section 271B but on reasonable explanation being given by the assessee, if the AO comes to the conclusion that the assessee has been able to prove that there was a reasonable cause for failure in compliance of the aforesaid provision, no penalty would be imposed on such an assessee in terms of Section 273B of the Act.
16. Section 275 is the power for imposition of penalty under Chapter XXI. The scheme of this Chapter and a combined reading of various provisions of penalties under this Chapter along with provisions of Sections 273B, 274, and 275 explicitly makes it clear that imposition of penalty under Section 271B is not compulsory, mandatory and that discretion vests with the AO, not to impose any penalty, if he finds that the assessee has proved that there was 'reasonable cause' for failure.
17. The question as to whether 'reasonable cause' has been shown by the assessee on the given facts and circumstances of the case would be a question of fact which would depend upon the facts of each case, independently, and such a question of fact would not normally make out a ground for raising any substantial question of law to be entertained in the appeal, unless the finding is perverse or is based on no material, or is contrary to law.
18. In the instant case, the assessee has proved that the Tribunal was satisfied that there was a 'reasonable cause' because of which the provisions of Section 44AB could not be complied with, within the specified date, and such cause having been found to be reasonable by the Tribunal on appreciation of material on record, the challenge to the said discretion cannot be made in this appeal, as it does not suffer from any perversity nor it raises any substantial question of law. The discretion having been exercised on sound judicial norms and on consideration of relevant circumstances and on finding that no fault can be attributed to the assessee in not being able to get the audit report prepared and, furnish before the prescribed date or specified time there is hardly any ground for this Court to interfere with the matter nor it can be said that any substantial question of law arises or needs to be decided.
19. In the case of Thanjavur Silk Handloom Weavers Co-operative Production & Sales Society Ltd. v. Union of India and Ors. , the Madras High Court took into consideration the interpretation given by the Tribunal, Bangalore, in the case of Bangalore Steel Distributors v. ITO (1994) 50 TTJ (Bang) 1 : (1994) Tax LR 2,54, 259 (Bang), wherein it was said that 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 judicially and on a consideration of all relevant circumstances. Learned Counsel for the petitioner rightly relied upon the decision of the apex Court in the case of Hindustan Steel Ltd. v. State of Orissa . The apex Court, in the case of Smt. Harbans Kaur Etc. v. CWT with respect to levy of penalty or waiver thereof by the CIT, observed that "...if the conditions stipulated in the section are satisfied, the CIT has a discretion in the matter. In exercise of that discretion, the CIT can either reduce the amount of the penalty or he may even waive the entire penalty. It is for the CIT to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted." The Madras High Court also observed that while considering the case of cooperative society in which it observed that it is true that there was no escape for the society but to file its audit report within time. But by mere failure alone, levy of penalty is not warranted nor justified.
20. Similar view was taken by the Rajasthan High Court in the case of Rajasthan Co-operative Dairy Federation Ltd. v. Dy. CIT wherein the Court observed that there were repeated requests but the Registrar did not appoint the auditor to get the accounts audited of the society and, therefore, in the absence of such appointment of auditor it was not possible to get its account audited before specified dates. The Court also took note of the fact that the delay in auditing the accounts took place because the appointment of the auditor was not made by the Registrar and for that the assessee should not be punished. The assessee thus, cannot be punished for the non-compliance of the provisions of Section 44AB, which is required under the statute.
21. In the case of CIT v. Capital Electronics , the question again was whether on the facts and circumstances of the case, the Tribunal is justified in cancelling the penalty imposed under Section 271B of the Act on the ground that there was no absolute default on the part of the assessee to get the accounts audited, wherein the Court observed as under :
"...We are of the view that there is no scope for finding out mens rea or compliance or substantial compliance to absolve the liability of the assessee from the penalty. There cannot be any proposition conceived of to the extent that if there was a substantial compliance or if there was no absolute default then the penalty cannot be imposed. But the statute had used the expression 'may' employed in Section 271B, which, in our view, cannot be treated to be mandatory. It has left a discretion with the taxing authority in given facts and circumstances that the penalty may not be imposed if they are satisfied that there was sufficient ground for not imposing the penalty. But it depends on the facts of each case and having regard to the materials placed before it or where the finding is such that it can conceive of two alternate meanings, then the meaning beneficial to the assessee is to be accepted."
22. The Tribunal has considered the matter in the facts and circumstances of the case, and has rightly held that the assessee has shown reasonable cause for not being able to file the statutory audit report within time. We do not find any error so as to interfere with the order passed by the Tribunal nor any substantial question of law arises so as to be determined in this appeal.
23. The appeal has no force and is hereby dismissed.