Hynoup Food & Oil Indus.Ltd., Ahmedabad V. The Income tax Officer, Ward-4(3), Ahmedabad

ITA 1634/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6468 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 23-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C
• Keywords: Reasonable cause
• Section: 2

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M HYNOUP FOOD & OIL INDUSTRIES LTD., MARUTI HOUSE, OPP. AIR INDIA, ASHRAM ROAD, AHMEDABAD. V/S . THE INCOME-TAX OFFICER, WARD-4(3), AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- NONE RESPONDENT BY:- SHRI M.C. PANDIT, SR. D.R. O R D E R PER D.C.AGRAWAL, ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) DATED 8.1.2007 WHEREIN HE HAS CONFIRMED LEV Y OF PENALTY UNDER SECTION 271B. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE FILED RE TURN OF INCOME ON 31.10.2004 DECLARING TOTAL INCOME AT RS.NIL. FROM T HE TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT FILED ALONG WITH THE RE TURN THE AO NOTICED THAT SALES OF THE COMPANY IS AT RS.196.72 CRORES. THE AO NOTICED THAT THE COMPANY DID NOT GET ITS ACCOUNTS AUDITED UNDER SECT ION 44AB BY THE DUE DATE I.E. 31.10.2004. ACCORDINGLY ASSESSEE WAS HELD LIABLE FOR PENALTY ITA NO. 1634/AHD/2007 ASST. YEAR :2004-05 2 UNDER SECTION 271B OF THE ACT. IN RESPONSE TO SHOW CAUSE NOTICE THE ASSESSEE FURNISHED FOLLOWING EXPLANATIONS :- (1) PENALTY U/S 271B CAN BE INITIATED/LEVIED ONLY IN THE COURSE OF ASSESSMENT PROCEEDINGS.AY 2004-05 IS SELECTED FOR S CRUTINY AND HENCE IN VIEW OF PROVISIONS OF SECTION 271B R.W.S. 271 & 275 (1)(C) THE PENALTY U/S 271B CAN BE INITIATED/LEVIED DURING COURSE OF ASSES SMENT PROCEEDINGS. AS ASSESSMENT PROCEEDING FOR ASST. YEAR 2004-05 HAVE Y ET NOT STARTED PENALTY IS PRE-MATURED AND CANNOT BE LEVIED. (2) AS PROVIDED U/S 271B THERE WAS REASONABLE CAUSE FOR NOT COMPLYING TAX AUDIT U/S 44AB MENTIONED BELOW. THOUG H THE TURNOVER OF THE COMPANY IS HUGE, IT HAS HEAVY C/F LOSSES OF RS. 298 LACS. THE COMPANY IS SICK COMPANY AND REGISTERED IN BIFR. THE ZEROX O F BIFR CERTIFICATE IS ENCLOSED HEREWITH. IT IS NOT ABLE TO KEEP/MAINTAIN STAFF. THE MAJORITY OF ACCOUNT STAFF IS REMOVED TO CONTROL COST/LOSSES. TH EREFORE, THE ACCOUNTS COULD NOT BE PREPARED IN TIME WHEREBY TAX AUDIT WAS NOT DONE U/S 44AB. (3) DUE TO FINANCIAL STRINGENCY THE FACTORY OF THE COMPANY REMAINED CLOSED FOR MANY DAYS DURING THE YEAR. THIS PARALYSE D THE ADMINISTRATION OF THE COMPANY; WHICH ALSO FUEL THE SICKNESS & REMO VED OF STAFF FURTHER. 3. THE AO REJECTED THE EXPLANATION FURNISHED BY THE ASSESSEE ON THE GROUND THAT - -1. PENALTY UNDER SECTION 271B CAN BE INITIATED EVE N AFTER COMPLETION OF THE ASSESSMENT PROCEEDINGS. THERE IS NO BAR TO I NITIATE PENALTY PROCEEDINGS AFTER CLOSURE OF THE ASSESSMENT; -2. THERE IS NO EXEMPTION FROM AUDIT IF A COMPANY G OES TO BIFR; & -3. ASSESSEE DID NOT HAVE ANY REASONABLE CAUSE. ACCORDINGLY HE LEVIED A PENALTY OF RS. 1 LAC. 4. THE LD. CIT(A) ALSO CONFIRMED THE PENALTY BY OBSERV ING AS UNDER :- 5. I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF T HE APPELLANT. AS RIGHTLY HELD BY THE AO THERE IS NO BA R IN INITIATING 3 PROCEEDINGS U/S 271B WHEN NO ASSESSMENT PROCEEDINGS ARE PENDING. THEREFORE, THIS ARGUMENT CANNOT BE ACCEPTED. AS REG ARDS THE CLAIM THAT THE PERSONS LOOKING AFTER ACCOUNTS OF THE COMP ANY HAD LEFT THE SERVICES THE APPELLANT HAS NOT PLACED ANY EVIDENCE ON RECORD BEFORE THE AO. THEREFORE, IN THE ABSENCE OF EVIDENCE THIS CLAIM TOO IS TO BE REJECTED. IT MAY ALSO BE NOTED THAT FOR THE YEAR EN DED 31.3.2004 RELEVANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATIO N THE APPELLANT HAD A TURNOVER OF RS.196.72 CRORES. THE APPELLANT I S IN THE BUSINESS OF EXTRACTING OIL AND SELLING THE SAME. THE HIGH LEVEL OF TURNOVER WOULD NOT BE ACHIEVED WITHOUT SUPPORTING STAFF. THEREFORE , ON THIS GROUND ALSO THE CLAIM THAT STAFF MEMBERS WERE NOT AVAILABL E IS ALSO BEING REJECTED. EVEN OTHERWISE THIS CLAIM HAS NO MERIT BE CAUSE IT IS THE DUTY OF THE APPELLANT COMPANY TO MAKE ARRANGEMENT TO COM PLY WITH THE PROVISIONS OF I.T. ACT. INABILITY TO PAY SALARY CAN NOT BE A SUFFICIENT CAUSE FOR FAILURE TO COMPLY WITH THE PROVISIONS OF THE ACT. 5.1 AS REGARDS THE RELIANCE PLACED ON SIC (SP) ACT , THE ARGUMENT OF THE AUTHORISED REPRESENTATIVE HAS NO FO RCE. A CLOSE READING OF SECTION 22 OF SIC (SP) ACT RELIED ON BY THE APPELLANT WOULD SHOW THAT THE CONSENT OF THE BIFR BOARD IS REQUIRED ONLY WHEN PROCEEDINGS ARE TAKEN UP FOR THE WINDING UP OF THE INDUSTRIAL COMPANY OR FOR EXECUTION, DISTRESS OR THE LIKE AGAINST ANY OF THE PROPERTIES OF THE INDUSTRIAL COMPANY OR FOR THE APPOINTMENT OF A RECEIVER IN RESPECT THEREOF. THE LEVY OF PENALTY U/S 271B DOES NOT COME UNDER ANY OF THE ABOVE SITUATION REFERRED TO IN SECTION 22. PERHAPS THE APPELLANT CAN ARGUE THAT ENFORCEMENT OF THE DEMAND RAISED BY PROC EEDING AGAINST ANY OF THE PROPERTIES OF THE APPELLANT WOULD REQUIR E CONSENT OF THE BIFR BOARD. CLEARLY THERE IS NO PROHIBITION IN LEVY ING PENALTY WHEN PROCEEDINGS ARE PENDING BEFORE BIFR BOARD. FURTHER, IT IS TO BE NOTED THAT THERE ARE UMPLEEN OCCASIONS WHERE COMPANIES RE FERRED TO BIFR AND DECLARED SICK HAD BOUNCED BACK TO LIFE AND HAD STARTED EARNING PROFITS. THE APPELLANT HAS NOT STOPPED THE BUSINESS . IT COULD COME OUT OF THE NET OF THE BIFR IF ITS PROSPECTS IMPROVED IN THE COMING YEARS. AT THAT TIME PROBABLY THE COMPANY WOULD BE IN A POSITI ON TO CLEAR ALL THE STATUTORY DUES UNDER VARIOUS ENACTMENTS. IN VIEW OF THE ABOVE, THE ARGUMENTS OF THE APPELLANT ARE NOT ACCEPTABLE. 5. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE HAVE HEARD THE LD. DR WHO MAINLY RELIED ON THE ORDER OF LD. CIT(A). IN OU R CONSIDERED VIEW, ONCE ASSESSEE HAS BEEN DECLARED AS A SICK UNIT BY B IFR AND IT IS ALSO HELD 4 THAT ENTIRE NET WORTH RS.2060.87 LACS AS ON 31.3.99 WAS ERODED ON ACCOUNT OF ACCUMULATED LOSSES OF RS.2415.23 LACS, THE ASSES SEE COULD NOT BE EXPECTED TO INCUR EXPENDITURE ON COMPULSORY AUDIT. EVEN THOUGH STATUTORILY IT IS REQUIRED THAT AN ASSESSEE, HAVING TURNOVER OF RS.40 LACS AND ABOVE SHOULD GET ITS ACCOUNTS AUDITED UNDER SEC TION 44AB AND IN THE EVENT OF NON-COMPLIANCE PENALTY UNDER SECTION 271B CAN BE IMPOSED, BUT BEFORE LEVY OF PENALTY IT HAS TO BE SEEN WHETHER AS SESSEE HAS A REASONABLE CAUSE OR NOT. LEVY OF PENALTY IS NOT AUTOMATIC AND CANNOT ALWAYS BE PRESUMED THAT ONCE TURNOVER IS ABOVE THE PRESCRIBED LIMIT COMPULSORY AUDIT HAS NECESSARILY TO BE GOT DONE AND ON FAILURE PENALTY WILL BE AUTOMATIC. PROVISIONS OF COMPULSORY AUDIT HAS BEEN INSERTED IN THE STATUTE SO AS TO SAVE THE TIME OF AO FROM EXAMINATION OF LA RGE NUMBER OF ACCOUNT BOOKS, VOUCHERS ETC. IN A CASE OF HEAVY TUR NOVER MADE BY THE ASSESSEE. IN FACT, COMPULSORY AUDIT IS ONLY AN ASSI STANCE OF AO. IT IS BY ITSELF NOT AN ASSESSMENT OF INCOME. WHETHER COMPULS ORY AUDIT IS DONE OR NOT DONE, THE AO IS ALWAYS AT LIBERTY AND IN LAW WI THIN HIS POWER TO CARRY OUT INVESTIGATION IN ADDITION TO COMPULSORY AUDIT . THUS IN A CASE SUCH COMPULSORY AUDIT IS NOT DONE AO HAS A STATUTORY DUT Y TO INVESTIGATE INTO THE ACCOUNTS AND BRING HIS OWN CONCLUSION ON THE BA SIS OF HIS FINDINGS. 6. IN THE PRESENT CASE DECLARATION OF THE ASSESSEE COMPANY AS A SICK UNIT AND ITS ASSERTION IT HAS RETRENCHED THE STAFF IS A SUFFICIENT AND REASONABLE PROOF FOR NOT GETTING ACCOUNTS AUDITED. WE ARE UNABLE TO AGREE WITH THE LD. CIT(A) AND THE LD. DR THAT ORDER OF TH E BIFR, A COPY OF WHICH IS PLACED ON RECORD DECLARING THE ASSESSEE AS A SICK UNIT HAS NO RELEVANCE. IN OUR CONSIDERED VIEW THIS IS A REASON ABLE CAUSE FOR NOT GETTING THE ACCOUNTS AUDITED. ACCORDINGLY LEVY OF P ENALTY OF AO AND SUSTAINED BY LD. CIT(A) IS CANCELLED. 5 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 23/4/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 23/4/2010