M/s. Triveni Textiles V. The Income Tax Officer, Bapatla

ITTA/153/2002

AI Insights

The case involves two appeals filed by M/s. Triveni Textiles and another appellant against the Income Tax Officer, Bapatla, concerning penalties imposed for not auditing their books of account by the due date under Section 44AB of the Income Tax Act, 1962. The appellants argued that their accountants were ill and provided medical certificates as an explanation for the delay. The Assessing Officer's actions were criticized for being high-handed and lacking substantive evidence of wrongdoing beyond the technical violation of the audit deadline. The Tribunal's decision to uphold the penalty was challenged in the High Court, which found the Tribunal's approach and the penalty application to be excessive and misapplied.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 796024 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 14-10-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1962
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: STANDING COUNSEL FOR INCOME TAX DEPARTMENT
• Assessee Lawyers: MV K MOORTHY
• Keywords: Audit; Books of account; Income Tax; Penalty; Turnover
• Section: 44AB; 260A; 271B

Judgement Text

"* THE HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.Nos.153 of 2002 and 161 of 2003 % 14.10.2014 # M/s. Triveni Textiles and another ….Appellants Vs. $ The Income Tax Officer, Bapatla …. Respondent ! Counsel for the Appellants: Sri M.V.K. Moorthy Counsel for Respondent: Standing Counsel for Income Tax Department Head Note: ? Cases referred: THE HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.Nos.153 of 2002 and 161 of 2003 COMMON JUDGMENT: (Per Hon’ble Sri Justice L.Narasimha Reddy) These two appeals are filed under Section 260A of the Income Tax Act, 1962 (for short, ‘the Act’) by two different assessees feeling aggrieved by the common order, dated 15.04.2002, passed by the Income Tax Appellate Tribunal, Visakhapatnam Bench, in I.T.A.Nos.284/Hyd/1997 and 285/Hyd/1997 referable to the assessment year 1995-96. The appellants are the assessees under the Act. Both of them are traders and their turnover exceeds Rs.40.00 lakhs during the assessment year 1995-96 concerned. Section 44AB of the Act mandates that wherever the turnover of an assessee exceeds Rs.40.00 lakhs, the books of account must be got audited. A survey was conducted in the premises of the appellants on 07.12.1995. Alleging that the books of accounts ought to have been audited by 31.10.1995, the Assessing Officer passed orders under Section 271B of the Act levying penalty 1½ percent on the turnover or Rs.1.00 lakh whichever is less. Feeling aggrieved by those orders, the appellants filed appeals before the Commissioner. The appeals were allowed by the Commissioner on 12.12.1996. The department carried the matter in further appeal before the Tribunal. The appeals were allowed by the Tribunal on 15.04.2002 and the order of penalty passed by the Assessing Officer was upheld. Hence, these two appeals. Heard Sri M.V.K. Moorthy, learned counsel for the appellants and Sri J.V. Prasad, learned standing counsel for the Income Tax Department. The due date for completion of audit of the books of account of the appellants was 31.10.1995. About one and half months subsequent to that date, survey was conducted and was found that the books of account were not audited. In their explanation to the show-cause notice issued under Section 271B of the Act, the appellants pleaded that their Accountants and other persons connected with the audit suffered ill-health and they have also filed the medical certificates. The over reaching nature of the Income Tax Officer – Assessing Officer in the instant case is evident from the fact that he not only visited the Doctors, who issued the medical certificates but also expressed the view that the said certificates cannot be believed since the corresponding entries were not made in the Out Patient Register. He has also obtained a letter in that regard. We deprecate the steps taken by the Income Tax Officer. He exhibited his power, obviously being under the impression that there is none to check his highhanded action. An assessee and a trader whose turnover was more than Rs.1.00 crore was virtually treated as a culprit, by the Income Tax Officers that too on the sole basis that there was delay in getting the books of account audited. We would have appreciated the one man-ship of the Income Tax Officer had he made an endeavour to point out any defect in the books of account. He wanted to exhibit his superiority just by pointing out the technical violation of provision of law. Unfortunately, there is no dearth of the officers, with such a tendency. It is these very officers who sleep over the returns for years together and do not even pass orders of assessment wherever the application of mind is needed. If the department has earned a typical reputation of frightening the assesses, it is not without reason. Another aspect is that the Income Tax Officer proceeded on the assumption that the amendment caused to Section 137A as well as to Section 44AB of the Act with effect from 01.07.1995 is applicable to the assessment year 1995-96 also. The appellate authority accepted the reasons pleaded for the failure to get the books of account audited for a relatively negligible period and allowed the appeals. The Tribunal, in our opinion, has undertaken an enquiry, which does not befit to its stature. No attempt was made to point out any corresponding loss to the exchequer or the revenue or any deliberate act of illegality on the part of the appellants. Even in its wildest dreams, the Members of Parliament would not have dreamt that the provisions relating to penalty would be put to such a gross misuse. If every lapse or defect is to result in penalties, a close scrutiny of the lapses of the officers of the Income Tax Department at various levels would lead to a situation, where the State had to shell down tons of money, on application of similar standards. We find that the common order passed by the Tribunal is totally untenable in law and not sustainable on facts. Both the appeals are allowed setting aside the common order, dated 15.04.2002, passed by the Income Tax Appellate Tribunal, Visakhapatnam Bench, in I.T.A.Nos.284/Hyd/1997 and 285/Hyd/1997. Miscellaneous Petitions, if any pending in these appeals shall also stand disposed of. There shall be no order as to costs. __________________________ L. NARASIMHA REDDY, J ____________________________ CHALLA KODANDA RAM, J 14th October, 2014 Note: L.R. copies to be marked. (B/o) GHN/GK "