1]In Cit v. Th] December 2011Rrb

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE B.N.RAO NALLAR.C.NO.64 OF 1998 ORDER: (Per the Hon’ble Sri Justice V.V.S.Rao) The two questions referred to the opinion of this Court bythe Income Tax Appellate Tribunal, Hyderabad Bench ‘B’,Hyderabad, under Section 256 (1) of the Income Tax Act, 1961(“the Act” for brevity) at the instance of the Revenue are thefollowing. The assessee is a contractor of civil works.For the-assessment year 198990, the assessee firm filed return ofincome on 30.10.1989 admitting the income in excess ofRs.40,00,000/-.Under Section 44AB of the Act, they wererequired to get their accounts audited by an accountant as definedin the Explanation before the specified date i.e., 31stOctober ofthe assessment year.Allegedly, there was lapse on the part ofthe assessee.Taking cognizance of the same, the AssistantCommissioner, Hyderabad, initiated penalty proceedings underSection 271B of the Act.A show cause notice dated 08.02.1991was issued proposing penalty.In reply thereto, the assesseesubmitted explanation on 16.02.1991 stating that the accounts ofthe firm were audited prior to filing of the return and the auditreport was filed on 29.01.1991 during the course of theassessment proceedings.They stated that by oversight, it was not enclosed to the return of the income.Not impressed, theAssistant Commissioner, by order dated 23.08.1991, levied-penalty of Rs.42,478/ under Section 271B of the Act. The assessee appealed to the CIT(A), Hyderabad.They-contended that for the assessment year 198990, accounts wereclosed on 31.03.1989; the due date for filing return was31.10.1989; and that though the accounts were audited by RaviShankar & Co., Chartered Accountants on 28.10.1989, reportcould not be filed along with the return of income on 30.10.1989.Further, they contended that, if the return of income was found tobe defective, the assessing officer ought to have given opportunityunder Section 139 (9) of the Act to rectify the defects.Thecontention found favour with the appellate authority, who deletedthe penalty, and was confirmed by the appellate Tribunal, whofound substantial compliance with Section 44AB.Being aggrieved,the Revenue sought reference to this Court. The Junior Standing Counsel for the Income Tax relies onSection 139(6A) of the Act and submits that filing of the auditreport along with the return of income is mandatory; admittedly,the assessee failed to comply with the requirement and therefore,the penalty under Section 271 B was justified. The appellate Tribunal recorded finding of fact that the auditwas completed and audit report dated 28.10.1989 was obtained-within the specified date and that nonfiling of the audit reportalong with return of income is oversight.This being a finding offact, deviation therefrom is not permissible.Section 271B enablesthe assessing officer to penalise @ 0.5% of the total salesturnover or gross receipts as the case may be, if the assesseefails to get his accounts audited in respect of any previous year orfurnish the report to such audit as required under Section 44AB within the specified date.The penalty provision is subject to theexception as stipulated under Section 273B of the Act, which is tothe effect that if the assessee proves that there was a reasonablecause for failure to get the accounts audited before the specifieddate, the penalty cannot be levied within the specified date.The penalty provision is subject to theexception as stipulated under Section 273B of the Act, which is tothe effect that if the assessee proves that there was a reasonablecause for failure to get the accounts audited before the specifieddate, the penalty cannot be levied [1]In CIT v. Eli Lilly And Company (India) Private Limited, theSupreme Court considered the scope of Section 271C of the Act(penalty for failure to deduct tax at source) read with Section 273Bof the Act held that “Section 271C(1)(a) is not mandatory orcompensatory or automatic because under Section 273B,Parliament has enacted that penalty shall not be imposed in casesfalling under Section 271C falls in the category of such cases andthat..….no penalty shall be imposed on the person or assessee forfailure to deduct tax at source if such person or the assesseeproves that there was a reasonable cause for the said failure”and…. “the liability to levy a penalty can be fastened only on theperson who does not have good and sufficient reason for notdeducting tax at source and that only those persons are liable forpenalty, who do not have good and sufficient reason for not”deducting tax at source.These principles are also applicablewhen we consider Section 271B read with Section 273B of the Act.As mentioned by us supra, the appellate Tribunal hasrecorded a finding of fact that the assessee had a reasonablecause for failure to furnish the audit report along with return ofincome.That being so, the levy of penalty is not justified.In the result, for the above reasons, both the questions areto be answered in affirmative in favour of the assessee andagainst the Revenue.Reference case shall stand disposed ofaccordingly without any order as to costs. 26[th] December 2011RRB [1](2009) 312 ITR 225 : (2009) 15 SCC 1 _______________ (V.V.S.RAO, J) ____________________(B.N.RAO NALLA, J)