M/s Metro Agencies, Cochin V. DCIT, Ernakulam

ITA 346/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58258 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 28-05-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: P K SASIDHARAN
• Keywords: Reasonable cause
• Section: 273B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 346 /COCH/2010 ASSESSMENT YEAR: 2005-06 METRO AGENCIES, ROCK HILL BUILDING, BANERJI ROAD, ERNAKULAM, COCHIN-18. [PAN:AAEFM 3406G] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE(2), RANGE-2, ERNAKULAM (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT ) ASSESSEE BY SHRI P.K.SASIDHARAN, CA REVENUE BY MS. S. VIJAYAPRABHA, JR.DR DATE OF HEARING 29/11/2011 DATE OF PRONOUNCEMENT 31/01/2012 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF TH E ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOCHI (CIT(A) FOR SHO RT) DATED 31-03-2001, DISMISSING THE ASSESSEES APPEAL, CONTESTING THE LEVY OF PENALTY U NDER SECTION 271B OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) BY THE ASSESSING OFFICER (AO) VIDE ORDER DATED 29-01- 2008. THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE I S 2005-06 2. THE BRIEF FACTS ARE THAT THE ASSESSEE, A PARTNER SHIP FIRM DEALING IN WELDING ELECTRODES & EQUIPMENTS, ETC., FILED ITS RETURN OF INCOME FOR THE RELEVANT YEAR ON 30-01- 2006, DECLARING AN INCOME AT ` 9.30 LAKHS, AT WHICH IT WAS ASSESSED VIDE ORDER U/S . 143(3) OF THE ACT DATED 14-11-2007. THE RETURN WAS, HOWEVE R, ACCOMPANIED BY AN AUDIT REPORT U/S. 44AB OF THE ACT DATED 30-12-2005. THE ASSESSEE BEING OBLIGED TO OBTAIN SUCH AUDIT REPORT BY THE SPECIFIED DATE, WHICH FOR THE RELEVAN T YEAR IS 31-10-2005, AND FURNISH THE I.T.A. NO.346 /COCH/2010 METRO AGENCIES VS. DCIT, EKM 2 SAME TO THE DEPARTMENT BY THAT DATE, THERE WAS, THU S, A DEFAULT OF LATE SUBMISSION BY THREE MONTHS. PENALTY PROCEEDINGS, INITIATED VIDE THE ASS ESSMENT ORDER, WERE PROCEEDED WITH, AND FINDING THE ASSESSEES EXPLANATION AS NOT REASO NABLE, PENALTY THEREUNDER WAS LEVIED AT THE IMPUGNED SUM OF ` 1 LAKH, BEING LESS THAN ONE-HALF PERCENT OF THE GRO SS RECEIPT OF ` 264.63 LAKHS. THE SAME FOUND FAVOUR WITH THE LD. C IT(A) IN APPEAL, AS THE REASON ADVANCED BY THE ASSESSEE, I.E., THE DELAYED FINALIZ ATION OF ITS ACCOUNTS FOR THE RELEVANT YEAR, WAS NOT FOUND, AS BY THE AO BEFORE HIM, AS CO NSTITUTING A `REASONABLE CAUSE WITHIN THE MEANING OF S. 273B OF THE ACT. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 3. BEFORE US, THE ASSESSEES PRINCIPAL CONTENTION W AS THAT THERE IS AN AMBIGUITY IN LAW IN-AS-MUCH AS THERE IS NO ABSOLUTE DEFAULT BY IT IN OBTAINING THE AUDIT REPORT AND FURNISHING THE SAME, BUT ONLY A DELAY IN COMPLYING WITH THE PROVISIONS OF THE ACT. ACCORDINGLY, NO PENALTY COULD BE LEVIED. IN ANY CA SE, THE DELAY IN THE FINALIZATION OF THE ACCOUNTS CONSTITUTES A REASONABLE CAUSE, SO THAT IT COULD NOT BE DISMISSED BY THE REVENUE AS BEING NOT VALID ON THAT COUNT. THE LD. DR, ON TH E OTHER HAND, RELIED ON THE DECISIONS REPORTED IN THE CASE OF U.P. NALKOOP NIGAM LTD. VS. DY. CIT , 71 ITD 395 (ALL.) AND DY. CIT V. BIHAR STATE LEATHER DEVELOPMENT CORPORATION (P.) LTD ., 58 ITD 276 (PATNA). THERE HAS BEEN A CHANGE IN LAW BY THE FINANCE ACT W ITH EFFECT FROM 01-07-1995, OBLIGING THE ASSESSEE TO FURNISH THE AUDIT REPORT BY THE SPE CIFIED DATE. AS SUCH, EVEN IF IT IS OBTAINED BY THAT DATE, BUT NOT FURNISHED, THERE WOU LD BE A DEFAULT U/S. 44AB, ATTRACTING S. 271B. THE PROVISION HAS BEEN THUS, AND SINCE, DELIN KED FROM THE OBLIGATION OF FILING THE RETURN OF INCOME. IN THE INSTANT CASE, IN FACT, THE ASSESSEE IS AT DEFAULT BOTH IN OBTAINING THE REPORT AS WELL AS IN NOT FURNISHING THE SAME SU BSEQUENTLY, BEING SUBMITTED ONLY AFTER THIRTY (30) DAYS OF OBTAINING THE SAME. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD, AS ALSO THE CASE LAW CITED. I.T.A. NO.346 /COCH/2010 METRO AGENCIES VS. DCIT, EKM 3 4.1 THE ASSESSEE IMPUGNS THE RELEVANT PROVISIONS, I.E., S. 44AB, THE INFRACTION OF WHICH STANDS PENALISED BY THE LEVY OF PENALTY U/S. 271B, AS VAGUE. WE REPRODUCE THE RELEVANT PROVISIONS, AS UNDER:- AUDIT OF ACCOUNTS OF PERSONS CARRYING ON BUSINESS O R PROFESSION 44AB . EVERY PERSON, - (A) CARRYING ON BUSINESS, IF HIS TOTAL SALES, TURN OVER OR GROSS RECEIPTS, AS THE CASE MAY BE, EXCEED OR EXCEEDS FORTY LAKH RUPEES IN ANY PREVIOUS YEAR; OR (B)..; OR (C).; OR (D).., GETS HIS ACCOUNTS OF SUCH PREVIOUS YEAR AUDITED BY AN ACCOUNTANT BEFORE THE SPECIFIED DATE AND FURNISH BY THAT DATE THE REPORT OF SUCH AUDIT IN T HE PRESCRIBED FORMAT DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT AND SETTING FORTH S UCH PARTICULARS, AS MAY BE PRESCRIBED: PROVIDED THAT.. FAILURE TO GET THE ACCOUNTS AUDITED. 271B . IF ANY PERSON FAILS TO GET HIS ACCOUNTS AUDITED IN RESPECT OF ANY PREVIOUS YEAR OR YEARS RELEVANT TO THE ASSESSMENT YEAR OR FURNISH A REPORT OF SUCH AUDIT AS REQUIRED UNDER SECTION 44AB, THE ASSESSING OFFICER MAY DIRECT THAT SUCH PERSON SHALL PAY, BY WAY OF PENALTY, A SUM EQUAL TO ONE-HALF PERCENT OF THE TOT AL SALES, TURNOVER OR GROSS RECEIPT, AS THE CASE MAY BE, IN BUSINESS . [EMPHASIS, OURS] THE REQUIREMENT OF LAW PER SEC. 44AB, TH US, IS TO OBTAIN THE AUDIT REPORT FROM AN ACCOUNTANT BEFORE THE SPECIFIED DATE AND, FURTHER, FURNISH THE SAME TO THE DEPARTMENT BY THAT DATE. THE PROVISION IS UNAMBIGUOUSLY CLEAR, AN D WOULD STAND VIOLATED IF EITHER OF THE TWO OBLIGATIONS AS CAST IS NOT MET. A FAILURE TO C OMPLY THEREWITH ATTRACTS SEC. 271B, PRESCRIBING PENALTY, WHICH THOUGH IS SAVED ON A REA SONABLE CAUSE BEING SHOWN, I.E., FOR THE DEFAULT. THE TWO PROVISIONS ARE IN HARMONY. AS SUCH, A PENALTY U/S. 271B GETS ATTRACTED WHERE EITHER THE REPORT OF AUDIT IS NOT O BTAINED OR NOT FURNISHED TO THE DEPARTMENT BY THE SPECIFIED DATE. THE CHARGE OF THE ASSESSEE OF THE PROVISION BEING AMBIGUOUS, SO THAT IT IS ATTRACTED ONLY IN CASE OF AN ABSOLUTE DEFAULT, IS NEITHER COMPREHENSIBLE NOR WARRANTED BY THE CLEAR LANGUAGE OF THE PROVISION. ALSO, THE PROVISION I.T.A. NO.346 /COCH/2010 METRO AGENCIES VS. DCIT, EKM 4 IS INDEPENDENT OF THE OBLIGATION OF FILING THE RETU RN OF INCOME, WHICH IS DEPENDENT ON INCOME; THE ONLY REQUIREMENT IN LAW BEING THAT THE SAME IS TO ACCOMPANY SUCH REPORT OR THE PROOF OF FILING THE SAID REPORT WHERE FILED EAR LIER. OF COURSE, THE CASE OF A DELAY IN COMPLYING WITH THE OBLIGATION/S CAST BY S. 44AB WOU LD STAND ON A DIFFERENT FOOTING THAN A CASE OF AN ABSOLUTE DEFAULT. HOWEVER, IT CANNOT BE CONTENDED THAT THE PROVISION OF S. 271B IS NOT ATTRACTED WHERE THERE IS NO ABSOLUTE DEFAULT BUT ONLY A DELAYED FILING OF THE AUDIT REPORT REQUIRED U/S. 44AB. THE FACTUM OF THE DELAYE D FURNISHING AND, THUS, THE EXTENT OF THE DEFAULT; THE PROVISION BEING ATTRACTED, WOULD A SSUME SIGNIFICANCE IN DETERMINING THE ISSUE AS REGARDS THE LEVY OF PENALTY, WHICH IS NOT AUTOMATIC BUT SAVED BY A `REASONABLE CAUSE U/S. 273B OF THE ACT. THIS IS AS A REASONA BLE CAUSE WOULD EXTEND ONLY OVER THE PERIOD OF THE DEFAULT. THAT IS, THE CONSIDERATION OF THE EXTENT OF THE DEFAULT WOULD ARISE WHILE EXAMINING THE REASONABLE CAUSE LEADING TO THE DEFAULT. TOWARD THIS, WE FIND THAT THE ASSESSEE HAS FURNISHED TWO EXPLANATIONS, WHICH WE S HALL PRESENTLY EXAMINE. 4.2 FIRSTLY, IT IS URGED THAT NO ADDITION ON ASSESSMENT WAS MADE, SO AT THERE WAS NO LOSS OF REVENUE. THE SAME CAN HARDLY CONSTITUTE A R EASONABLE CAUSE, AND IS EVEN OTHERWISE A MATTER SUBSEQUENT. THIS ISSUE STANDS WELL EXAMINE D AND EXPLAINED BY THE TRIBUNAL PER ITS DECISION IN THE CASE OF U.P. NALKOOP NIGAM LTD. VS. DY. CIT (SUPRA), WHEREIN IT HAS BEEN EXPLAINED THAT PENALTY U/S. 271B IS NOT BASED ON AS SESSED TAX; THE ASSESSMENT HAVING BEEN SET ASIDE IN APPEAL IN THAT CASE, WHICH FACT THE TR IBUNAL FOUND AS OF NO CONSEQUENCE IN THE PENALTY PROCEEDINGS U/S. 271B. 4.3 THE ASSESSEES SECOND EXPLANATION IS THAT THE D ELAY IN THE FINALIZATION OF ITS ACCOUNTS IS FOR THE REASON THAT THE FIRMS ACCOUNTA NT WAS ON LEAVE AT VARIOUS TIMES DURING THE SIX MONTH PERIOD ENDING 31-10-2005, THE SPECIFI ED DATE FOR THE RELEVANT YEAR. IT IS FIRSTLY OBSERVED THAT THE EXPLANATION COVERS ONLY T HE PERIOD UP TO 30-12-2005, I.E., THE DATE ON WHICH THE AUDIT REPORT WAS OBTAINED, WHILE THE SAME (AUDIT REPORT) WAS FURNISHED ONLY ON 30-01-2006, I.E., A MONTH HENCE. NO EXPLANA TION WHATSOEVER HAS BEEN FURNISHED FOR THE NON-SUBMISSION OF THE AUDIT REPORT OBTAINED ON 30-12-2005 ON THAT DATE OR IMMEDIATELY THEREAFTER; THE SPECIFIED DATE HAVING A LREADY ELAPSED. THE SAME, THUS, I.T.A. NO.346 /COCH/2010 METRO AGENCIES VS. DCIT, EKM 5 QUALIFIES FOR LEVY OF PENALTY U/S. 271B R.W.S. 44AB ; THE LAW CASTING AN OBLIGATION FOR FURNISHING SUCH REPORT BY THE SPECIFIED DATE, AND I NDEPENDENT OF THE FILING OF THE RETURN. AS REGARDS THE DELAY FOR THE TWO MONTH PERIOD UP TO 30-12-2005, NO DOUBT THE DELAYED FINALIZATION OF ACCOUNTS AT THE ASSESSEES END WOUL D IMPACT THE AUDIT PROCESS, SO THAT THE SAME WOULD STAND TO BE DELAYED. SO, HOWEVER, THE QU ESTION IS WHETHER A DELAYED FINALIZATION OF ACCOUNTS IS A `REASONABLE CAUSE. THE SAME BY ITSELF CANNOT BE, FOR THE REASON THAT IT IS ONLY THE EFFECT OR THE RESULT OF SOME OTHER UNDERLYING CAUSE/S, WHICH THEREFORE WOULD HAVE TO BE CONSIDERED FOR CONSTITUT ING A REASONABLE CAUSE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. SUCH CAUSE IN THE PRESEN T CASE HAS BEEN STATED TO BE THE ABSENCE OF THE ACCOUNTANT. NO MATERIAL WHATSOEVER, HOWEVER, SUBSTANTIATING THE SAME HAS BEEN PRODUCED BY THE ASSESSEE BEFORE ANY AUTHORITY, INCLUDING THE TRIBUNAL. MERELY STATING THAT THE ACCOUNTANT WAS ABSENT AT DIFFERENT TIMES A FTER THE CLOSE OF THE YEAR, EVEN WITHOUT STATING THE PERIOD OF THE LEAVE; THE REASON FOR HIS CONTINUED OR INTERMITTENT ABSENCE; AND HOW AND TO THE EXTENT IT IMPACTED THE FINALIZATION OF THE ASSESSEES ACCOUNTS, WOULD BE OF NO MOMENT. THIS IS MORE SO AS THE ACCOUNTS FOR THE SUBSEQUENT PERIOD ARE BEING OSTENSIBLY REGULARLY KEPT, AND THE ASSESSEE WOULD H AVE OTHER STAFF AS WELL, WHO COULD WELL BE INSTRUCTED IN THE MATTER. ALSO, IT IS TO BE BORN E IN MIND THAT THE ACCOUNTS FOR THE RELEVANT YEAR WERE BEING REGULARLY KEPT DURING THE PREVIOUS YEAR, AND THE LAW ITSELF PROVIDES A PERIOD OF SEVEN MONTHS AFTER THE CLOSE O F THE YEAR FOR OBTAINING THE AUDIT REPORT. AS AFORE-NOTED, EVEN THE FACT OF THE ACCOUN TANTS ABSENCE HAS NOT BEEN SHOWN OR ESTABLISHED. WE, ACCORDINGLY, FIND THE ASSESSEES T HIS EXPLANATION, WHICH CONSTITUTES ITS CASE, AS TOTALLY UNSUBSTANTIATED, SO THAT IT LIABLE TO BE REJECTED. 5. IN VIEW OF THE FOREGOING, WE FIND NO INFIR MITY IN THE ORDERS OF THE AUTHORITIES BELOW AND, ACCORDINGLY, CONFIRM THE SAME. WE DECIDE ACCOR DINGLY. I.T.A. NO.346 /COCH/2010 METRO AGENCIES VS. DCIT, EKM 6 6. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. SD/- SD /- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 31ST JANUARY, 2012 GJ COPY TO: 1. METRO AGENCIES, ROCK HILL BUILDING, BANERJI ROAD , ERNAKULAM, COCHIN 682 018. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-(2 ), RANGE-2, ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN BENCH