Jasbir Singh v. Commissioner Of Income Tax, Patiala

ITA No. 115 of 2003 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Jasbir Singh Versus Commissioner of Income Tax, Patiala ITA No. 115 of 2003 Date of Decision: 28.9.2010 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Pankaj Jain, Advocate for the appellant. Mr. Tajender K. Joshi, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 20.1.2003 passed by the Income Tax AppellateTribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as “theTribunal”) in ITA No. 1091/CHANDI/98 for the assessment year 1991-92, proposing following substantial question of law:- “That whether under the facts and circumstances ofthe case and on the true interpretation of theprovision of the Act the Hon'ble Tribunal was justifiedin upholding the levy of penalty u/s 271B for delayedfiling of the audit report in response to the proceedings u/s 148 and before the completion of the assessment?” 2.Facts necessary for adjudication as narrated in the appealmay be noticed. The assessee filed his return on 3.9.1991 declaring anamount of Rs.40,720/-. The search was conducted on 7.9.1993 underSection 132 of the Act on the premises of M/s Sarup Singh andCompany and group cases and notice under Section 148 of the Act wasissued on 31.10.1995 for not disclosing the income from supply of milkto M/s Milk Foods Ltd., Bahadurgarh. In pursuance thereto, theassessee filed return on 26.12.1995. The assessment was completedunder Section 143(3) on 27.3.1997 determining the income atRs.2,21,985/-. In the absence of the tax audit report, the income fromsupply of milk was estimated by applying a gross profit rate of 0.5% onthe total sales of Rs.3,45,27,248/- (Rs.3.45 crores) as the gross profitrate of 0.53% was disclosed in the firm for the assessment year inquestion. Since the turnover exceeded Rs.40 lacs, the assessee wasrequired to get its accounts audited and was directed to obtain its reportbefore 31.10.1991. the said report was not filed with the return. Theassessee filed the audit report dated 8.6.1991 of H.R. Mittal and Co.during the course of reassessment proceedings. Accordingly, theAssessing Officer initiated penalty proceedings under Section 271B ofthe Act and imposed a penalty of Rs.1 lac on account of failure of theassessee in obtaining the report and furnishing the same with thereturn. Against the penalty, the assessee filed an appeal. TheCommissioner of Income Tax (Appeals) [in short “the CIT(A)”] videorder dated 31.7.1998 allowed the appeal and deleted the penalty ITA No. 115 of 2003-3- imposed by the Assessing Officer. Being aggrieved, the revenue wentin appeal before the Tribunal, who vide order dated 20.1.2003 set asidethe order of the CIT (A) and restored that of the Assessing Officer whichgive cause to the assessee to approach this Court by way of instantappeal. 3.We have heard learned counsel for the parties and perusedthe record. ITA No. 115 of 2003-3- imposed by the Assessing Officer. Being aggrieved, the revenue wentin appeal before the Tribunal, who vide order dated 20.1.2003 set asidethe order of the CIT (A) and restored that of the Assessing Officer whichgive cause to the assessee to approach this Court by way of instantappeal. 3.We have heard learned counsel for the parties and perusedthe record. 4.Learned counsel for the appellant submitted that theaccounts of the assessee were audited on 8.6.1991, i.e. before the filingof the return, but the audit report was misplaced and, therefore, thesame could not be filed along with the return. According to the learnedcounsel, penalty under Section 271B, as it stood at the relevant time,could be imposed for not filing the audit report along with the returnwhich was filed under Section 139(1) or in response to notice issuedunder Section 142(1) but Section 271B was not attracted where theassessee had failed to file the audit report along with the return filed inresponse to notice under Section 148 of the Act. The penaltyproceedings under Section 271B were initiated on 27.3.1997 whileframing assessment on the basis of returned filed in compliance tonotice under Section 148 of the Act. Reliance was placed on thedecision of this Court in Income Tax Officer v. Kaysons India [2000]246 ITR 489. 5.Learned counsel for the revenue submitted that failure ofthe assessee to file the audit report along with the return had made himliable to penalty under Section 271B of the Act. He supported the orderpassed by the Tribunal. 6.We have given our thoughtful consideration to therespective submissions of learned counsel for the parties. 7.Section 271B of the Act at the relevant time, i.e. prior to1995, reads as under:- “271-B if any person fails to get his accounts auditedin respect of any previous year or years relevant toan assessment year or obtain a report of such auditas required under section 44AB or furnish the saidreport along with the return of his income filed undersub-section (1) of section 139 or along with the returnof income furnished in response to a notice underclause (i) of sub-section (1) of section 142, theAssessing Officer may direct that such person shallpay, by way of penalty a sum equal to one halfpercent of the total sales, turnover or gross receipts,as the case may be, in business, or of the grossreceipts in profession, in such previous year or yearsor a sum of one hundred thousand rupees, whicheveris less.” 8.A Division Bench of this Court in Kaysons India's case(supra) while interpreting Sections 44AB and 271B, as they stood priorto 1.7.1995, had observed as under:- “A plain reading of the aforesaid provisions showsthat it provides for penalty in case of following events:(i)Failure to get the accounts audited in terms ofsection 44AB. This would cover cases where either the accounts are not got audited at all or are gotaudited but after the specified date; (ii)Failure to obtain report of audit as requiredunder section 44AB. This would cover cases wherethe accounts are duly got audited but the audit reporton the prescribed form is not obtained before thespecified date; (iii)Failure to furnish the audit report along with thereturn of income filed under sub-section (1) of section139. This would cover cases where a return hasbeen filed under sub-section (1) of section 139 andthe audit report is not attached therewith. (iv)Failure to furnish the audit report along with thereturn of income furnished in response to a noticeunder clause (i) of sub-section (1) of section 142.This would cover cases where a notice under clause(i) of sub-section (1) of section 142 is issued to anassessee requiring him to file a return and inresponse to the same a return is filed withoutattaching the audit report.” 9.In that case, the assessee had not filed the audit reportalong with the return filed under Section 139(4) of the Act. The DivisionBench while adjudicating the issue in favour of the assessee had held:- (iv)Failure to furnish the audit report along with thereturn of income furnished in response to a noticeunder clause (i) of sub-section (1) of section 142.This would cover cases where a notice under clause(i) of sub-section (1) of section 142 is issued to anassessee requiring him to file a return and inresponse to the same a return is filed withoutattaching the audit report.” 9.In that case, the assessee had not filed the audit reportalong with the return filed under Section 139(4) of the Act. The DivisionBench while adjudicating the issue in favour of the assessee had held:- “It is, therefore, evident that the default or failure tofile the return along with the audit report on or beforethe specified date is not hit by the provisions of section 271B. It is not the case of the Revenue thatthe assessee has failed to get the accounts auditedor has failed to obtain the report of such audit interms of section 44AB before the specified date. It isalso evident that no return had been filed eitherunder sub-section (1) of section 139 or in response toany notice under clause (i) of sub-section (1) ofsection 142 and as such there could possibly be nodefault of not furnishing the audit report along withsuch a non-existent return. The return under sub-section (1) of section 139 in this case could be filedup to November 30, 1990. However, the assesseehad filed the return on December 31, 1990 which wasa return filed under sub-section (4) of section 139and this return was duly accompanied by the auditreport obtained by the assessee in accordance withthe provisions of section 44AB. Thus, according tous, the default for which penalty had been levied wasnot covered by the provisions of section 271B andthe Commissioner of Income-tax (Appeals) and theTribunal were justified in holding that no penalty wasleviable.” 10.It is not in dispute that the original return declaring anincome of Rs.40,720/- was filed on 3.9.1991 which was processedunder Section 143(1)(a) on 4.2.1992 and the Assessing Officer had notinitiated any penalty proceedings under Section 271B of the Act for the ITA No. 115 of 2003 failure on the part of the assessee to file the audit report along with thisreturn. The penalty proceedings under Section 271B of the Act wereinitiated in the course of assessment proceedings while finalizingassessment in response to notice issued under Section 148 of the Actas would be evident from perusal of assessment order dated 27.3.1997.Further, the audit report dated 8.6.1991 was filed by the assesseeduring reassessment proceedings. Once that is so, then applying theaforesaid guiding principles as laid down in Kaysons India's case(supra), it can safely be concluded that the Tribunal was in error inreversing the order of the CIT(A) while upholding penalty under Section271B in the present case. 11.Accordingly, the substantial question of law is answeredagainst the revenue and in favour of the assessee. Consequently, theappeal is allowed and the order of the Tribunal dated 20.1.2003 is setaside. (AJAY KUMAR MITTAL) JUDGE September 28, 2010gbs (ADARSH KUMAR GOEL) JUDGE