Brij Kishore Mittal, P/O M/S Shanti Trading Co v. Commissioner Of Income Tax, Alwar

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No.132/2004. Brij Kishore Mittal, P/o M/s Shanti Trading Co., aged about 40 years, Alwar ----Appellant Versus Commissioner of Income Tax, Alwar. ----Respondent __________________________________________________ Counsel For Appellant : Mr. Sanjay Jhanwar Counsel For Respondent(s) : Ms. Parinitoo Jain __________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DINESH MEHTA Judgment Per Hon’ble Jhaveri, J. 21/12/2016 1. By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasreversed the finding of the CIT (Appeals) and the penalty imposedby the Assessing Officer was reversed. 2.This court while admitting the appeal on 07.10.2004framed the following substantial question of law: “When the return of the assessee was filed incompliance to the notice u/s 148 whether theprovisions of section 271B of the Act areattracted which specifically refers to the returnfiled u/s 139(1) or 142(1) of the Act? 3.Counsel for the appellant Mr. Jhanwar has taken us to the provisions of Section 271B of the Income Tax Act which reads as under: “Section 271B of the I.T. Act stipulates that inthe following four circumstances, penalty underthat section is leviable: (i) If any persons fails to get his accountsaudited; or (ii) Fails to obtain a report of the auditor; or (iii) Fails to furnish the said report alongwith thereturn of his income filed u/s 139(1); or (iv) Fails to furnish the said report alongwith thereturn of income furnished in response to anotice u/s 142(1)(i) of the I.T. Act. Here again, the appellant has squarely failed onall the four counts and as would be seen that hehas nothing to say in this regard. This istherefore a fit case where penalty could belevied u/s 271B of the Act.” 4.He further contended that after amendment, the reasons and objects which were cited are as under: “29.1 Section 44AB of the Income-tax Act, 1961,requires every person carrying on business orprofession with gross receipts exceedingprescribed limits to get his accounts audited byan accountant before 31st October, or 30thNovember, as the case may be. Section 139(6A)states that the return forms for sub-sections (1)and (3) of section 139 and clause (i) of sub-section (1) of section 142 shall, in the case of anassessee engaged in business or profession,require him to furnish, inter alia, the report ofaudit obtained under section 44AB. Section 271Bprescribes levy of penalty for any of thefollowing failures: (1) Failure to get the accounts audited asrequired under section 44AB (2) Failure to obtain a report of such audit (3) Failure to furnish the said report along withthe return of income filed either under section139(1) or under section 142(1)(i). 29.2 The existing provisions under sections139(6A) and 271B allow interpretations contrary to the legislative intent of getting the accountsaudited by the specified date. With a view to setthe controversies at rest, the provisions ofsections 44AB, 139 and 271B have been recastso as to make them effective. The provisions ofsection 44AB have been amended to ensure thattax audit is completed by the specified date andthe audit report is furnished by that dateirrespective of the fact that the return of incomehas been furnished or not by that date. However,the return whenever furnished shall beaccompanied by a copy of the audit report andproof of filing the same by the specified date.” 5.He has also contended that the CIT (Appeals) while considering the case of the appellant in para 4(2) reads as under: to the legislative intent of getting the accountsaudited by the specified date. With a view to setthe controversies at rest, the provisions ofsections 44AB, 139 and 271B have been recastso as to make them effective. The provisions ofsection 44AB have been amended to ensure thattax audit is completed by the specified date andthe audit report is furnished by that dateirrespective of the fact that the return of incomehas been furnished or not by that date. However,the return whenever furnished shall beaccompanied by a copy of the audit report andproof of filing the same by the specified date.” 5.He has also contended that the CIT (Appeals) while considering the case of the appellant in para 4(2) reads as under: “It was also argued that the appellant has filedhis return of income not under sec.139(1) andalso not in response to notice under sec.143(1)but in response to notice under sec.148, whereupon the provisions of section 271B has noapplicability. Further the learned counsel of theappellant has also draw my attention towardsthe CBDT’s circular No.387 dated 6.7.1984 whichexplains the object of introducing the section44AB, wherein there was no mentioning ofobtaining of audit report within time issue andstress is upon the audit report should have beenbefore the assessing officer and to facilitate theassessing officer in completion of assessmentwork, which the appellant has complied with, assuch the penalty so imposed, merits to bequashed.”his return of income not under sec.139(1) andalso not in response to notice under sec.143(1)but in response to notice under sec.148, whereupon the provisions of section 271B has noapplicability. Further the learned counsel of theappellant has also draw my attention towardsthe CBDT’s circular No.387 dated 6.7.1984 whichexplains the object of introducing the section44AB, wherein there was no mentioning ofobtaining of audit report within time issue andstress is upon the audit report should have beenbefore the assessing officer and to facilitate theassessing officer in completion of assessmentwork, which the appellant has complied with, assuch the penalty so imposed, merits to bequashed.” 6.The Tribunal while reversing the case of the appellant has accepted the cancellation of levy of penalty for theassessment years 1991-92, 1992-93. However, for assessment years 1992-93, the Tribunal has observed as under: “ Now, the appeal is left for assessment year1993-94. In this appeal, the AO has leviedhe penalty of Rs. 53,963/- which wascancelled by the CIT(A) whlo specificallymentioned that even if the accounts werenot audited after the specified date andwere produced during the assessmentproceedings, causing no hindrance in the1993-94. In this appeal, the AO has leviedhe penalty of Rs. 53,963/- which wascancelled by the CIT(A) whlo specificallymentioned that even if the accounts werenot audited after the specified date andwere produced during the assessmentproceedings, causing no hindrance in the assessment proceedings, it should betreated that there was sufficient complianceof section 44AB. The CIT (A) also relied on anumber of case laws as mentioned in hisorder. assessment proceedings, it should betreated that there was sufficient complianceof section 44AB. The CIT (A) also relied on anumber of case laws as mentioned in hisorder. 4. After considering the rival submissions,we are of the view that in the instant casethe assessee knew very well that histurnover attracts the audit. Income might bebelow taxable limit as that was believed. Itwas only after notice under section 148 thathe declared the income for the purpose oftax. It may be mentioned that Hon’bleCalcutta High Court in the case of CIT Vs.Capital Electronics, 261 ITR page 4 observedthat if any person fails without reasonablecause, to get his accounts audited within thetime stipulate, then the concerned authoritymay levy the penalty. In the instant case, itwas well known to the assessee being aregular assessee that his turnover attractsthe audit. No reasonable cause was given,mere believe is not sufficient. Therefore, weset aside the order of the CIT(A) and restorethe levy of penalty imposed by the AO. Thusthis appeal is allowed in favour of thedepartment.” 7.Counsel for the respondent Ms. Parinitoo Jain has takenus to the proceedings and contended that the assessee did not filehis return under section 139 of the Income Tax Act and one of thecondition mentioned in Section 271B has been flouted inasmuchas the asseessee has not submitted audited accounts which wererequired under Section 44AB of the Act. She has referred to thecase of Shis Ram Raja Ram & Party and others Vs. ChiefCommissioner of Income Tax and others- (2015) 281 CTR (Raj.)214. She, thus, contended that the view taken by the DivisionBench is required to be applied in this case and the appealrequires to be dismissed. 8.We have heard Mr. Jhanwar learned counsel for theappellant and Ms. Parinitoo Jain for the respondent. 9.On first count, in view of the fact that the Tribunalwhile considering the case of the department has failed toappreciate that the CIT (Appeals) has accepted the substantialcompliance in view of the CBDT circular No.387 dated 6.7.1984and found that it is not a default. We are of the opinion that thepenal provisions rlating to levy of penalty for failure to get theaccount audited are to be construed strictly and if there are twoviews or opinions, the view which is in favour of the assessee isrequired to be taken. 10.The second limb of argument of Mr. Jhanwar is thataudit report was not required as contemplated under section44AB. It was only after the declaration in search proceedings thatthe turn over of the assessee crossed the audit limit. In our viewafter amendment/clarification which has been relied upon by Mr.Jhanwar, that on the date on which he was required to file returnof his income was not exceeding Rs.40 lacs and the turn over ofthe appellant had exceeded Rs.40 lacs, only on account of thedisclosure in survey. The appellant has submitted audit reportsubmitted before the Assessing Officer in compliance to the noticeunder Section 148. He contended that the provisions of Section148 of the Income Tax Act are not mentioned in any of the clausesof Section 271B of the Act, hence, penalty cannot be levied. 11.On both the counts, we reverse the view taken by theTribunal and confirm the view taken by the CIT (Appeals).Therefore, the issue is answered in favour of the assessee and against the department. 12.The appeal stands allowed. (DINESH MEHTA)J. (K.S. JHAVERI)J. bblm