Ita/320/2019 Of Peroorkkada Service Co-Operative Bank Limited v. The Income Tax Officer

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR.JUSTICE T.V.ANILKUMAR TUESDAY, THE 07TH DAY OF JANUARY 2020 / 17TH POUSHA, 1941 ITA.No.320 OF 2019 AGAINST THE ORDER DATED 26-06-2019 IN ITA NO.400/2018 OFI.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/ASSESSEE: PEROORKKADA SERVICE CO-OPERATIVE BANK LIMITED,NO.T 1412, REPRESENTED BY ITS SECRETARY SHRI.VISWAKUMAR V., S/O.K.VASUDEVAN PILLAI, AGED 54 YEARS, PEROORKADA P.O., THIRUVANANTHAPURAM DISTRICT, KERALA, PIN - 695 005. BY ADVS.SRI.C.A.JOJO SMT.SWATHY S. RESPONDENTS/RESPONDENTS: 1THE INCOME TAX OFFICER,WARD-2(1), KOWDIAR, TRIVANDRUM - 695 003.WARD-2(1), KOWDIAR, TRIVANDRUM - 695 003. 2COMMISSIONER OF INCOME TAX (APPEALS)-I,OFFICE OF THE COMMISSIONER OF INCOME TAX (APPEALS), TRIVANDRUM - 695 003.OFFICE OF THE COMMISSIONER OF INCOME TAX (APPEALS), TRIVANDRUM - 695 003. 3THE PRINCIPAL COMMISSIONER,TRIVANDRUM - 695 003.TRIVANDRUM - 695 003. OFFICE OF THE COMMISSIONER OF INCOME TAX, I.T.APPEAL No.320 of 2019 :-2-: 4THE JOINT COMMISSIONER,OFFICE OF THE COMMISSIONER OF INCOME TAX, TRIVANDRUM - 695 003. 5THE ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH, KAKKANAD, COCHIN - 682 030. OTHER PRESENT: SRI.CHRISTOPHER ABRAHAM, SC FOR RESPONDENTS. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON07.01.2020, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: I.T.APPEAL No.320 of 2019 :-3-: C.K.ABDUL REHIM & T.V.ANILKUMAR, JJ. ------------------------------------------------ I.T.Appeal No.320 of 2019----------------------------------------- Dated this the 7[th] day of January, 2020 J U D G M E N T C.K.ABDUL REHIM, J. The above Income Tax Appeal was filed challenging anorder passed by the Income Tax Appellate Tribunal, CochinBench in I.T.A.No.400/COCH/2018, dated 26.06.2019. Theassessee is the appellant and the revenue is the respondent. 2.Issue pertains to sustainability of the penaltyimposed against the appellant under Section 271B of theIncome Tax Act, 1961 ('the Act', for short). The proceedingswas initiated based on an allegation that the appellant hadfailed to furnish report of audited accounts as requiredunder Section 44AB with respect to the assessment year2014-15. A show cause notice was issued precedingimposition of the penalty, requiring the assessee to show I.T.APPEAL No.320 of 2019 :-4-: cause as to why penalty under Section 271B should not be imposed. In the reply the appellant said that, as per thesecond proviso to Section 44AB, if a person is required by orunder any other law to get his accounts audited, getting theaccounts audited under that law before the specified dateand furnishing of a report of such audit, would be sufficientcompliance of the requirement under that Section and thatno penalty can be imposed. But the Assessing Authorityfound that, the appellant had failed to furnish the report ofaudit in the prescribed Form, duly signed and verified by anAccountant as required under Section 44AB or to furnish thereport of audit conducted under any other law along with thefurther report by an Accountant in the Form prescribed, asrequired under the second proviso to Section 44AB.Therefore it is held that the appellant is liable to be imposedwith penalty under Section 271 B and ordered to paypenalty of Rs.1,50,000/- as provided under the said Section. 3.The order imposing penalty was taken up in appeal I.T.APPEAL No.320 of 2019 before the Commissioner of Income Tax (Appeals). The first 3.The order imposing penalty was taken up in appeal I.T.APPEAL No.320 of 2019 before the Commissioner of Income Tax (Appeals). The first Appellate Authority had found that the appellant had failedin complying with the statutory requirement of furnishingthe audited report in Form No.3CA as required underSection 44AB, along with the further report of theAccountant as mandated. It was found that, what was filedby the appellant is only a 'Certificate' issued by the JointDirector (Audit), Thiruvananthapuram, Co-operativeDepartment, dated 03.07.2018, accompanied by the 'AuditNote' of the assessee Society. It was found that, filing ofForm No.3CA along with a further report by an Accountant isthe mandatory requirement and the mere getting of theaccounts audited under any other law will not sufficecompliance of the said requirement. In the absence ofcompliance of the provisions contained in the second provisoto Section 44AB read with Rule 6G(1) of the Income TaxRules,1962, it cannot be said that there is proper complianceof the provision, is the findings . It was also found that the I.T.APPEAL No.320 of 2019 appellant had failed to prove that there existed no 'sufficientcause' for the failure or that there existed any 'reasonablecause' for such failure. Therefore the order of penalty wasconfirmed. 4. In the second appeal filed before the Tribunal, theappellant/assessee contended that the audit was completedunder provisions of the Co-operative Societies Act, 1969.But the audit was completed at a later stage. The Societydoes not have any power to appoint an Auditor and to get itsaccount audited within the time stipulated under the IncomeTax Act. Therefore, the delay occurred in submitting theaudited account was reasonable. It was pointed out thatthere was proper compliance of the first limb of the secondproviso to Section 44AB. According to the appellant, thefailure was only with respect to furnishing of the furtherreport by an Accountant, as required under the second limbof the second proviso. It was argued that the penalty underSection 271B could be imposed only if there is a failure to I.T.APPEAL No.320 of 2019 get the accounts audited or if there is a failure to furnish the report of such audit. It was contended that the scope ofSection 271B cannot be extended, alleging non-complianceto furnish the further report by an Accountant. 5. The Tribunal found that that the assessee hadfurnished documents such as Annual report of the financialyear 2013-14 depicting the audited financial statements. Butthe Audit Report in the prescribed Form was not producedbefore the Assessing Officer. It was held that, thenon-production of the Audit Report in the prescribed formatcan be a reason for imposing penalty under Section 271B.Therefore the contentions were discarded and the orders ofthe authorities below were confirmed. It is aggrieved by thesaid order, the above appeal is filed by raising the followingquestions of law. 1Whether the Assessing Officer is right in imposing penaltywhen audit report is filed as per the 2[nd] proviso to S.44AB ofthe Income Tax Act, 1961?when audit report is filed as per the 2[nd] proviso to S.44AB ofthe Income Tax Act, 1961? I.T.APPEAL No.320 of 2019 :-8-: 2Whether the Assessing Officer is right in insisting for a'Further Report in Form No.3CA when the proviso veryclearly speaks that 'where such person is required by orunder any other law to get his accounts audited it shall besufficient compliance with the provisions of this section?'Further Report in Form No.3CA when the proviso veryclearly speaks that 'where such person is required by orunder any other law to get his accounts audited it shall besufficient compliance with the provisions of this section? 1Whether the Assessing Officer is right in imposing penaltywhen audit report is filed as per the 2[nd] proviso to S.44AB ofthe Income Tax Act, 1961?when audit report is filed as per the 2[nd] proviso to S.44AB ofthe Income Tax Act, 1961? I.T.APPEAL No.320 of 2019 :-8-: 2Whether the Assessing Officer is right in insisting for a'Further Report in Form No.3CA when the proviso veryclearly speaks that 'where such person is required by orunder any other law to get his accounts audited it shall besufficient compliance with the provisions of this section?'Further Report in Form No.3CA when the proviso veryclearly speaks that 'where such person is required by orunder any other law to get his accounts audited it shall besufficient compliance with the provisions of this section? 3Whether the Appellate Authorities are justified inconfirming the penalty imposed by the assessing officerwithout applying mind while an Audit Report has beensubmitted as per the proviso to S.44AB?confirming the penalty imposed by the assessing officerwithout applying mind while an Audit Report has beensubmitted as per the proviso to S.44AB? 6.We heard learned counsel for the appellant Adv. Sri.C.A.Jojo, as well as learned standing counsel appearing for the respondents. Section 271B of the Act reads as follows ; “271B. Failure to get accounts audited If any person fails to get his accounts audited in respect of anyprevious year or years relevant to an assessment year or [furnish areport of such audit as required under section 44AB], the [Assessing]Officer may direct that such person shall pay, by way of penalty, a sumequal to one-half per cent of the total sales, turnover or gross receipts,as the case may be, in business, or of the gross receipts in profession, insuch previous year or years or a sum of [one hundred fifty thousandrupees], whichever is less.” It is evident that, if there is any failure on the part of theassessee to get his accounts audited in respect of any I.T.APPEAL No.320 of 2019 :-9-: previous year relevant to the assessment year or if the assessee fails to furnish a report of such audit as requiredunder Section 44AB, it is liable to be imposed with penaltyunder that Section. Section 273B provides that, no penaltyshall be imposed for any failure referred to in Section 271B,if the assessee proves that there was 'reasonable cause' forthe said failure. 7.From the provisions enumerated as above, it isclear and evident that if an assessee is liable to furnish theaudited report of his accounts, audited under any other lawapplicable to him, along with a further report by anAccountant in the prescribed form, within the datestipulated for the said purpose, it will attract penalty underSection 271B, subject to provisions contained in Section273B, which is of showing sufficient reasons (reasonablecause). In the case at hand, the appellant had furnishedaudited financial statement with respect to the yearconcerned along with a Certificate issued by the Joint I.T.APPEAL No.320 of 2019 :-10-: Director (Audit) of the Co-operative Department dated3.7.2018. He has not furnished the report of audit in theprescribed form, Form 3CA, as required under the secondproviso (as it stood then) to Section 44AB read with therequirements under Rule 6G(1) of the Income Tax Rules. I.T.APPEAL No.320 of 2019 :-10-: Director (Audit) of the Co-operative Department dated3.7.2018. He has not furnished the report of audit in theprescribed form, Form 3CA, as required under the secondproviso (as it stood then) to Section 44AB read with therequirements under Rule 6G(1) of the Income Tax Rules. 8.Contention of the appellant herein is that thesubmission of audited accounts and statement along with theCertificate of the Auditor appointed under the Co-operativeSocieties Act, as mandated under Section 63 of the Co-operative Societies Act, would amount to sufficientcompliance of the requirements under the second proviso toSection 44AB. His further contention is that the furtherreport by an Accountant, insisted upon in the secondproviso, is not a mandatory requirement, because theprovision in the Constitution of India itself insists upon for amandatory audit of the accounts of a Co-operative Societyunder the Department of the Government concerned. Wetake note of the fact that, it is a mandatory requirement I.T.APPEAL No.320 of 2019 under Section 44AB that the appellant should get its accountaudited by an Accountant and to furnish before the specifieddate, the report of such audit in the prescribed form dulysigned and verified by such Accountant and by setting forthsuch particulars as may be prescribed. Form CA is theparticular form prescribed for the said purpose. 9.Since the appellant is a person required under theCo-operative Societies Act to get its account audited underthat Act, it would be sufficient compliance under the secondproviso to Section 44AB, if the appellant gets the account ofits business audited under the Co-operative Societies Actbefore the specified date and furnishes that report of audit,along with further report by an Accountant in the formprescribed, before the Assessing Authority under the IncomeTax Act, before the date stipulated for the said purpose. It isto be noted that, the further report required by anAccountant need to be furnished in Form 3CD. Evidently theappellant had not furnished the report of the audit under Co- I.T.APPEAL No.320 of 2019 :-12-: operative Societies Act in the form prescribed, which isForm 3CA. On the other hand, his contention is that theaccounts were audited by the Co-operative Department andthe Joint Director had issued a Certificate to that effect.Probable contention raised by the appellant is that since theappellant is a person required by the Co-operative SocietiesAct to get its accounts audited under that Act, the auditreport need not be filed in Form 3CA. Even assuming(without admitting) that the furnishing of a report of theaudit conducted by the competent Auditor stipulated underthe Co-operative Societies Act would suffice compliance ofthe first limb of the second proviso, it is evident that thefurther report by an Accountant, as mandated to befurnished in Form 3CD, was not furnished by the appellant.Moreover, the factual finding arrived by the Tribunal is tothe effect that the appellant had furnished only the AnnualReport depicting the audited financial statement along withcopy of the receipts and distribution statements. It is also I.T.APPEAL No.320 of 2019 :-13-: I.T.APPEAL No.320 of 2019 :-13-: evident that the appellant had furnished a Certificate issuedby the Joint Director (Audit) of the Co-operative Department.When the second proviso carves out an exemption from thegeneral provisions of Section 44AB, the stipulations thereinneed to be strictly adhered and the mere fact that the auditof the assessee was conducted under the provisions of theCo-operative Societies Act, would not be sufficient for suchcompliance. Furnishing of the report of audit in theprescribed form accompanied with a further report by anAccountant in the prescribed form, is a mandatoryrequirement for proper compliance. Since the appellant hadfailed to show any 'reasonable cause', coming within thepurview of Section 273B, the imposition of penalty underSection 271B cannot be interfered with. 10.Lastly, learned counsel for the appellant haddrawn our attention to a Circular issued by the CentralBoard of Direct Taxes, Circular No.03/2009, dated21.5.2009. Based on which it is contended that, the audited I.T.APPEAL No.320 of 2019 :-14-: report need not be attached along with the returns or furnished separately at any time before or after the duedate; but it need only to be retained by the assessee andproduced if it is called for by the Income Tax Authorityduring any proceedings under the Act. The Circular saysthat no penalty under Section 271B shall be initiated orlevied for not furnishing the tax audit report before the duedate. Therefore the imposition of penalty under Section271B cannot be sustained, is the contention. We are notpersuaded to accept the above contention in view of themandatory provisions contained in Section 44AB, whichinsists on furnishing of the audit report in the prescribedform before the due date stipulated, along with a furtherreport of an Accountant. When the specific provisioncontained in the statute is unambiguous in this respect, wecannot hold otherwise based on any circular of theDepartment. Hence the above contention cannot beaccepted. Further, learned Standing Counsel appearing for I.T.APPEAL No.320 of 2019 :-15-: the respondents contended that, the penalty proceedings in this case was initiated on the allegation that the appellanthad failed to obtain a proper audit report within the datestipulated in the relevant provision. For the reasons mentioned as above, we are of theopinion that, no substantial question of law arises forconsideration in challenge against the impugned order ofthe Tribunal. Accordingly, the above appeal fails and thesame is hereby dismissed. All pending interlocutory applications are closed. Sd/- C.K.ABDUL REHIM JUDGE Sd/- ami/DST T.V.ANILKUMAR JUDGE APPENDIX PETITIONER'S EXHIBITS: ANNEXURE AA TRUE COPY OF THE REPLY DATED 17/01/2017 SUBMITTED TO THE 1ST RESPONDENT. ANNEXURE BA TRUE COPY OF THE PENALTY ORDER DATED 19/06/2017 ISSUED BY THE 1ST RESPONDENT. ANNEXURE CA TRUE COPY OF THE DEMAND NOTICE U/S. 156 DATED 19/06/2017. ANNEXURE DA TRUE COPY OF THE 1ST APPELLATE ORDER DATED 19/07/2018. ANNEXURE EA TRUE COPY OF THE APPEAL DATED 21/08/2018 BEFORE THE 5TH RESPONDENT. ANNEXURE FTHE ORIGINAL COPY OF THE APPELLATE ORDER BYTHE 5TH RESPONDENT DATED 26/06/2019. ANNEXURE GA TRUE COPY OF THE LETTER OF DEMAND DATED 08/11/2019 ISSUED BY THE 1ST RESPONDENT. ANNEXURE HA TRUE COPY OF THE STAY ORDER IN WP(C) NO.1828/2018 DATED 18/01/2018.