M/s. SPA Lifestyle (P) Ltd., Gurgaon V. ACIT, New Delhi

ITA 6777/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74385 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHARAD MOHAN
• Assessee Lawyers: RENUKA JAIN GUPTA
• Keywords: Application of stay; Reasonable cause; Revised return
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO. 6777/DEL/2013 ASSESSMENT YEAR: 2009-10 SPA LIFESTYLE (P) LTD., 3 RD FLOOR, ANNEXE BLOCK, MGF METROPOLITAN MALL, M.G. ROAD, GURGAON. PAN NO. AAJCS8974K VS. ACIT, CIRCLE 9(1), NEW DELHI. (APPELLANT) (RESPONDENT) & STAY APPL. NO. 124/DEL/2014 (IN ITA NO. 6777/D/2014) ASSESSMENT YEAR: 2009-10 SPA LIFESTYLE (P) LTD., 3 RD FLOOR, ANNEXE BLOCK, MGF METROPOLITAN MALL, M.G. ROAD, GURGAON. PAN NO. AAJCS8974K VS. ACIT, CIRCLE 9(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. RENUKA JAIN GUPTA, CIT(DR) RESPONDENT BY: SH. SHARAD MOHAN, FCA O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A)-XII, NEW DELHI, DATED 18/09/2013 FOR A.Y. 20 09-10. THE ASSESSEE HAS ALSO FILED A PETITION FOR STAY OF DEMAND. ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 2 2. THE EFFECTIVE GROUND OF APPEAL IS THAT THE LD. C IT(A) ERRED IN SUSTAINING PENALTY LEVIED U/S 271B OF INCOME TAX ACT FOR THE A .Y. 2009-10. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD FI LED ITS RETURN OF INCOME DECLARING A LOSS OF RS. 4,30,01,359/- ON 30 TH SEPTEMBER, 2009. SUBSEQUENTLY, A REVISED RETURN WAS FILED BY THE ASS ESSEE AT A LOSS OF RS. 3,39,83,024/- ON 31 ST MARCH, 2011. THE ASSESSMENT WAS COMPLETED AT A TOTAL LOSS OF RS. 3,09,54,039/-. 4. THE AO NOTICED THAT THE STATUTORY AUDITORS M/S B SR & ASSOCIATES, GURGAON, SIGNED THE ACCOUNTS ONLY ON 17 TH NOVEMBER, 2011 (CORRECT DATE AS PER ASSESSEES COUNSEL IS 27 TH NOVEMBER, 2011) WHILE THE REVISED RETURN WAS FILED ON 31 ST MARCH, 2011. THE AO FURTHER OBSERVED THAT ASSESSE E EXPLAINED THAT DUE TO CERTAIN DIFFERENCES AMONG THE STAKEHOLD ER AND THE AUDITORS, THE SIGNING OF THE ACCOUNT WAS DELAYED. HE DID NOT ACC EPT THE ASSESSEES CONTENTION AND INITIATED PENALTY PROCEEDINGS U/S 27 1B. BEFORE AO THE ASSESSEE HAD FILED ITS REPLY DATED 20 TH JANUARY, 2012 WHICH IS REPRODUCED HEREUNDER: THE ASSESSEE VIDE ITS LETTER DATED 20/01/2012 CON TENDED THAT: THE COMPANY AS THE PER FRANCHISE CONDITIONS OF THE FRANCHISOR CLOSED ITS ACCOUNTS ON 31/12/2008. TO COMPLY WITH THE I.T. ACT PROVISIONS THE COMPANY PREPARED ITS ACCOUNTS FOR THE REMAINING PERIOD OF T HREE MONTHS I.E. UPTO 31/03/2009, ON PROVISIONAL BASIS. FURTHER, THE AUDITED ACCOUNTS UPTO 31/12/08 WERE NO T AVAILABLE FOR CERTAIN UNAVOIDABLE REASONS UNTIL THE TAX ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 3 AUDIT WAS TAKEN UP AND HENCE IT WAS CONDUCTED AS IF THE COMPLETE ACCOUNTS WERE UNAUDITED. THE AUDITED ACCOUNTS WERE SUBMITTED DURING THE PROCEEDINGS AND IT WAS NOTICED THAT THE STATUTORY AUDITORS M/S BSR & ASSOCIATES, GURGAON, SIGNED THE ACCOUNTS ON 17/11/2011. THIS DELAY WAS BEYOND THE CONTROL OF THE MANAGEMENT. THE SIGNING OF THE ACCOUNTS WAS DELAYED DUE TO CERT AIN DIFFERENCES AMONG THE STAKEHOLDERS AND THE AUDITORS . HOWEVER, THE ACCOUNTS WERE READY AND, THEREFORE, TH E TAX AUDIT COULD NOT BE DONE IN TIME. IT MAY KINDLY BE NOTED THAT FROM REPORTING POINT OF VIEW THE DIFFERENCE IS ONLY TECHNICAL AS ANNEXURE TO THE REPORT IN FORM 3CD, WHICH HAS DETAILED COMMENTS ON THE VARIOUS REPORTING PARAS REMAINS SAME IN BOTH THE CA SES. ONLY THE TEXT PART OF THE AUDIT REPORT HAS MINOR DIFFERENCE AND HAS NO FINANCIAL IMPLICATION. 4.1 THE AO AFTER CONSIDERING THE ASSESSEES REPLY L EVIED A PENALTY OF RS. 1,50,000/-. 5. BEFORE LD. CIT(A) THE ASSESSEE HAD ADVANCED TWO FOLD CONTENTIONS: A. SINCE THE STATUTORY AUDIT OF THE COMPANY GOT COM PLETED ON 27 TH NOVEMBER, 2011 (WRONGLY MENTIONED AS 17 TH NOVEMBER, 2011), THEREFORE, THERE WAS REASONABLE CAUSE FOR NOT FURNI SHING THE TAX AUDIT REPORT IN THE PRESCRIBED FORM. B. IN THE ALTERNATIVE IT WAS SUBMITTED THAT ASSESSE E HAD OBTAINED TAX AUDIT REPORT ON 30 TH SEPTEMBER, 2009 FOR THE ACCOUNTS OF THE PREVIOUS YEAR ENDED 31 ST MARCH, 2009. THIS TAX AUDIT REPORT IN FORM 3CB WITH ANNEXURE IN A PRESCRIBED FORM 3CD WAS DULY ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 4 SUBMITTED TO THE AO DURING THE PROCEEDINGS AND WAS NOT REJECTED BY HER. 5.1 LD. CIT(A), HOWEVER, HELD THAT THERE WAS NO REA SONABLE CAUSE FOR FAILURE OF COMPLY WITH THE PROVISIONS OF SECTION 44 AB. HE RESTRICTED THE PENALTY TO RS. 1 LAKH AS WAS APPLICABLE FOR THE REL EVANT ASSESSMENT YEAR. 6. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE US. 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSE SSEE HAD FILED RETURN OF INCOME ON 30 TH SEPTEMBER, 2009 AND IN THE RETURN FURNISHED ALL TH E DETAILS IN REGARD TO TAX AUDIT REPORT WHICH WAS ALSO OBTAIN ED ON 30 TH SEPTEMBER, 2009 IN FORM 3CB ALONG WITH ANNEXURE IN FORM 3CD HA D BEEN FURNISHED. LD. COUNSEL SUBMITTED THAT SINCE THE STATUTORY AUDI T GOT COMPLETED ON 27 TH NOVEMBER, 2011, THEREFORE, IT WAS NOT POSSIBLE TO F URNISH THE REPORT IN FORM 3CA ALONG WITH ANNEXURE IN FORM 3CD AND, THEREFORE, ASSESSEE HAD FURNISHED THE REPORT IN FORM 3CB. THUS, ASSESSEE H AD MADE SUBSTANTIAL COMPLIANCE OF THE PROVISIONS CONTAINED U/S 44AB OF THE I.T. ACT. 7.1 LD. COUNSEL SUBMITTED THAT SECOND PROVISO TO SE CTION 44AB ONLY GIVES THE ASSESSEE AN OPTION TO FURNISH REPORT IN FORM 3C A IF THE ACCOUNTS HAVE BEEN AUDITED UNDER ANY OTHER PROVISION OF THE ACT. LD. COUNSEL FURTHER REFERRED TO CIRCULAR NO. 561 DATED 22 ND MAY, 1990 WHICH SPECIFICALLY MENTIONED THAT WHERE COMPANIES ACCOUNTING PERIOD IS DIFFERENT FROM THE FINANCIAL YEAR THEN THE TAX AUDIT REPORT WILL BE IN FORM 3CB INSTEAD OF 3CA. LD. COUNSEL POINTED OUT THAT ASSESSEES ACCOUNTS CL OSED ON 31/12/2008, ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 5 THEREFORE, AS PER CIRCULAR ASSESSEE WAS TO FILE REP ORT IN FORM 3CB FOR THE PERIOD ENDED ON 31/03/2009. 8. LD. CIT(DR) REFERRED TO SECOND PROVISO TO SECTIO N 44AB AND SUBMITTED THAT IN VIEW OF THE SAID PROVISO, THE ASSESSEE WAS REQUIRED TO FURNISH THE REPORT IN FORM 3CA AND COULD NOT SUBMIT THE REPORT IN FORM 3CB. SHE FURTHER REFERRED TO RULE 6G OF THE INCOME TAX RULES WHICH D EALS WITH THE REPORT OF AUDIT OF ACCOUNTS TO BE FURNISHED U/S 44AB AND SUBM ITTED THAT SINCE THE ASSESSEE WAS REQUIRED TO GET ITS ACCOUNT AUDITED UN DER THE COMPANIES ACT, THEREFORE, AUDIT REPORT HAD TO BE FURNISHED FORM 3C A. 8.1 LD. CIT(DR) SUBMITTED THAT BY FURNISHING REPORT IN FORM NO. 3CB THE ASSESSEE CANNOT ESCAPE THE PENALTY FOR NOT FURNISHI NG THE REPORT IN FORM 3CA. 8.2 WE HAVE CONSIDERED THE RIVAL SUBMISSION AND HAV E PERUSED THE RECORD OF THE CASE. 9. THE SHORT CONTROVERSY IN THE PRESENT APPEAL IS T HAT IF AN ASSESSEE IS REQUIRED TO GET ITS ACCOUNT AUDITED UNDER ANY OTHER LAW BUT THE SAID AUDIT HAS NOT BEEN COMPLETED BY THE SPECIFIED DATE FOR FURNIS HING THE RETURN OF INCOME THEN COULD HE FURNISH TAX AUDIT REPORT IN FORM 3CB OR NOT AND IF ASSESSEE HAS FURNISHED THE REPORT IN FORM 3CB WHETHER ANY DEFAUL T CAN BE IMPUTED TO ASSESSEE OR NOT. IN ORDER TO PROPERLY APPRECIATE T HE CONTROVERSY, WE REPRODUCE SECTION 44AB ALONG WITH RULE 6G AND RELEV ANT REPORTS IN FORM 3CA AND 3CB: SEC. 44AB EVERY PERSON, - ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 6 (A) CARRYING ON BUSINESS SHALL, IF HIS TOTAL SALES, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS EXCEED OR EXCEEDS [ONE CRORE RUPEES] IN ANY PREVIOUS YEAR OR (B) CARRYING ON PROFESSION SHALL, IF HIS GROSS RECEIPTS IN PROFESSION EXCEED [TWENTY-FIVE LAKH RUPEES] IN ANY PREVIOUS YEAR; OR (C) CARRYING ON THE BUSINESS SHALL, IF THE PROFITS AND GAINS FROM THE BUSINESS ARE DEEMED TO BE THE PROFITS AND GAINS OF SUCH PERSON UNDER SECTION 44AE OR SEC. 44BB OR SEC. 44BBB, AS THE CASE MAY BE, AND HE HAS CLAIMED HIS INCOME TO BE LOWER THAN THE PROFITS OR GAINS SO DEEMED TO BE THE PROFITS AN D GAINS OF HIS BUSINESS, AS THE CASE MAY BE, IN ANY PREVIOUS YEAR; OR (D) CARRYING ON THE BUSINESS SHALL, IF THE PROFITS AND GAINS FROM THE BUSINESS ARE DEEMED TO BE THE PROFITS AND GAINS OF SUCH PERSON U/S 44AD AND HE HAS CLAIMED SUCH INCOME TO BE LOWER THAN THE PROFITS AND GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS AND HIS INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX IN ANY PREVIOUS YEAR, GET 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 THE PRESCRIBED FORM DUL Y SIGNED AND VERIFIED BY SUCH ACCOUNTANT AND SETTING FORTH SUCH PARTICULARS AS MAY BE PRESCRIBED: PROVIDED THAT THIS SECTION SHALL NOT APPLY TO THE PERSON, WHO DERIVES INCOME OF THE NATURE REFERRED ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 7 TO IN SEC. 44B OR SEC. 44BBA, ON AND FROM THE 1 ST DAY OF APRIL, 1985 OR, AS THE CASE MAY BE, THE DATE ON WHICH THE RELEVANT SECTION CAME INTO FORCE, WHICHEVER IS LATER: PROVIDED FURTHER THAT IN A CASE WHERE SUCH PERSON IS REQUIRED BY OR UNDER ANY OTHER LAW TO GET HIS ACCOUNTS AUDITED, IT SHALL BE SUFFICIENT COMPLIANCE WITH THE PROVISIONS OF THIS SECTION IF SUCH PERSON GETS THE ACCOUNTS OF SUCH BUSINESS OR PROFESSION AUDITED UNDER SUCH LAW BEFORE THE SPECIFIED DATE AND FURNISHES BY THAT DATE THE REPORT OF THE AUDIT AS REQUIRED UNDER SUCH OTHER LAW AND A FURTHER REPORT BY AN ACCOUNTANT IN THE FORM PRESCRIBED UNDER THIS SECTION. RULE 6G (1) THE REPORT OF AUDIT OF THE ACCOUNTS OF A PERSON REQUIRED TO BE FURNISHED U/S 44AB SHALL, - (A) IN THE CASE OF A PERSON WHO CARRIES ON BUSINESS OR PROFESSION AND WHO IS REQUIRED BY OR UNDER ANY OTHE R LAW TO GET HIS ACCOUNTS AUDITED, BE IN FORM NO. 3CA; (B) IN THE CASE OF A PERSON WHO CARRIES ON BUSINESS OR PROFESSION, BUT NOT BEING A PERSON REFERRED TO IN C LAUSE (A), BE IN FORM NO. 3CB. (2) THE PARTICULARS WHICH ARE REQUIRED TO BE FURNIS HED U/S 44AB SHALL BE IN FORM NO. 3CD. FORM NO. 3CA AUDIT REPORT U/S 44AB OF THE INCOME TAX ACT, 1961, IN A CASE WHERE THE ACCOUNTS OF THE BUSI NESS OR PROFESSION OF A PERSON HAVE BEEN WHERE THE AUDITED UNDER ANY OTHER LAW. ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 8 10. A BARE READING OF SECOND PROVISO TO SEC. 44AB M AKES IT CLEAR THAT THE SAID PROVISO WILL COME INTO OPERATION PROVIDED FOLL OWING CONDITIONS ARE FULFILLED: A) ASSESSEE IS REQUIRED BY OR UNDER ANY LAW TO GET HIS ACCOUNTS AUDITED; B) SUCH PERSON GETS THE ACCOUNTS OF SUCH BUSINESS O R PROFESSION AUDITED UNDER SUCH LAW BEFORE THE SPECIFIED DATE; C) SUCH PERSON FURNISHES BY THE SPECIFIED DATE THE REPORT OF THE AUDIT AS REQUIRED UNDER SUCH OTHER LAW. UNLESS THE AFOREMENTIONED THREE INGREDIENTS ARE FUL FILLED, THE ASSESSEE CANNOT BE ACCEPTED TO FURNISH A FURTHER REPORT IN F ORM PRESCRIBED UNDER THIS PROVISO (FORM 3CA). 11. ADMITTEDLY, IN THE PRESENT CASE, THESE INGREDIE NTS ARE NOT FULFILLED AND, THEREFORE, OPERATION OF SECOND PROVISO IS RULED OUT . NOW THE SECOND QUESTION ARISES AS TO WHETHER IN SUCH A SITUATION A SSESSEE IS REQUIRED TO WAIT TILL COMPLETION OF STATUTORY AUDIT UNDER THE RELEVA NT PROVISION OF THE ACT OR IT HAS TO FURNISH THE TAX AUDIT REPORT AS CONTEMPLATED U/S 44AB. THE ANSWER TO THIS IS OBVIOUS AND ASSESSEE CANNOT TAKE THE PLEA O F NOT GETTING ITS ACCOUNT AUDITED BEYOND THE SPECIFIED DATE AND, THEREFORE, I S REQUIRED TO FURNISH THE TAX AUDIT REPORT AS PER THE PROVISIONS OF SEC. 44AB . IN SUCH A SITUATION THE ASSESSEE IS LEFT WITH NO OTHER ALTERNATIVE BUT TO F URNISH THE REPORT IN FORM 3CB ALONG WITH FORM 3CD TO MAKE SUBSTANTIAL COMPLIANCE WITH THE PROVISIONS OF SECTION 44AB. IF WE ACCEPT THE INTERPRETATION PLAC ED ON 2 ND PROVISO TO SECTION 44AB BY LD. CIT(DR) THEN IT WOULD RESULT IN FURNISH ING THE TAR ONLY AFTER THE STATUTORY AUDIT IS COMPLETED UNDER OTHER PROVISION OF THE RELEVANT ACT. IN OUR ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 9 HUMBLE OPINION, THIS IS NOT THE OBJECT OF INCORPORA TION OF 2 ND PROVISION TO SECTION 44AB. IT IS WELL SETTLED LAW THAT PROVISO CANNOT EXPAND OR LIMIT THE CONSTRUCTION OF PRINCIPLE PROVISION. IT IS CARDINA L PRINCIPLE OF INTERPRETATION THAT THE LANGUAGE OF A PROVISO IS TO BE CONSTRUED I N RELATION TO THE SUBJECT MATTER COVERED BY THE SECTION TO WHICH THE PROVISO IS APPENDED. THE PROVISO USES THE PHRASE .IT SHALL BE SUFFICIENT C OMPLIANCE... THESE ARE ENABLING WORDS AND THEY ONLY IMPLY A DISCRETION. A LL THE CONDITIONS FOR EXERCISE OF DISCRETION SHOULD HAVE BEEN FULFILLED B EFORE 2 ND PROVISO COULD BE INVOKED. THE OBJECT OF LEGISLATURE IS TO AVOID DU PLICACY OF AUDIT FIRST UNDER OTHER LAW AND THEN UNDER INCOME TAX ACT. THERE IS N O DISPUTE THAT ASSESSEE HAD OBTAINED REPORT IN FORM 3CB ALONG WITH FORM 3CD ON 30 TH SEPTEMBER, 2009 AND THE RELEVANT DETAILS WERE FURNISHED IN THE RETURN OF INCOME FILED ON LINE. THEREFORE, THE ASSESSEE HAD MADE SUBSTANTIAL COMPLIANCE WITH THE PROVISIONS OF SECTION 44AB. IT IS FURTHER NOTICEAB LE THAT REPORT IN FORM 3CB REQUIRES THE AUDITOR TO EXAMINE THE BALANCE SHEET A ND PROFIT AND LOSS ACCOUNT AND CERTIFY THAT THE SAME ARE IN AGREEMENT WITH THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, WHEREAS FORM 3C A ONLY REQUIRES THE AUDIT REPORT ALONG WITH AUDITED FINANCIAL STATEMENT TO BE ANNEXED WITH THE REPORT. THUS, PRIMARILY THE ONLY DIFFERENCE IN FOR M 3CA AND FORM 3CB IS THAT IN FORM 3CA THE AUDITORS ARE NOT REQUIRED TO GIVE S EPARATE AUDIT REPORT. BUT IN FORM 3CB, SINCE THAT DEALS WITH THE CASE OF AN A SSESSEE WHOSE ACCOUNTS HAVE NOT BEEN AUDITED, MANDATES A COMPREHENSIVE AUD IT REPORT. THUS, WHEN AN ASSESSEE HAD FURNISHED THE TAX AUDIT REPORT IN FORM 3CB THEN IT ITA NO. 6777/D/2013 SPA LIFESTYLE (P) LTD. 10 CANNOT BE SAID THAT IT HAS NOT COMPLIED WITH THE PR OVISIONS OF SEC. 44AB MERELY BECAUSE THE REPORT IS NOT IN FORM 3CA WHICH WAS NOT POSSIBLE FOR ASSESSEE TO FURNISH. IT IS WELL SETTLED LAW THAT L AW DOES NOT REQUIRE AN ASSESSEE TO DO IMPOSSIBLE. IT IS FURTHER NOTICEABL E THAT FORM 3CB, FORM 3CA ARE NOT MUTUALLY EXCLUSIVE BUT FORM 3CA IS ONLY SUP PLEMENTAL TO FORM 3CB. 12. IN VIEW OF ABOVE DISCUSSION, WE SET ASIDE THE O RDER OF LD. CIT(A) AND CANCEL THE PENALTY LEVIED U/S 271(1)(C). 13. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . AS WE HAVE DECIDED THE ASSESSEES APPEAL, THE STAY PETITION FILED BY T HE ASSESSEE HAS BECOME INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 28.03.2014 SD/- SD/- (A.T. VARKEY) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 28.03.2014 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR