Manjula Chellur, C.j v. M/S.data Softwareresearch Co.p.ltd. (Cdj 2006 Mhc 1925

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 25TH DAY OF SEPTEMBER 2013/3RD ASWINA, 1935 ITA.No. 40 of 2013 () ---------------------- AGAINST THE ORDER/JUDGMENT IN ITA 346/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 31-01-2012 APPELLANT(S): ------------- M/S. METRO AGENCIES,ROCK HILL BUILDING, BANERJI ROAD,ERNAKULAM, COCHIN-18 A PARTNERSHIPFIRM REPRESENTED BY ITS PARTNERMUSTAFA H.KAPASI. BY ADVS.SRI.K.N.SIVASANKARAN SRI.SUNIL SHANKER RESPONDENT(S):-------------- THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE 2, RANGE 2, ERNAKULAM. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON25-09-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: MANJULA CHELLUR, C.J & A.M.SHAFFIQUE, J. ---------------------------------------------- I.T.Appeal.No. 40 of 2013 ---------------------------------------------- Dated this the 25[th] day of September, 2013JUDGMENT Manjula Chellur, C.J. Heard learned counsel for the appellant. We have also gone through the judgment cited by learned counsel for the appellantin The Commissioner of Income Tax v. M/s.Data SoftwareResearch Co.P.Ltd. (CDJ 2006 MHC 1925). 2. The brief facts of the case that led to filing of presentappeal are as under: The appellant is aggrieved by the order of the assessing authority levying a penalty of 1,00,000/- under Section 271B of₹the Income Tax Act (for short, 'the Act') for the assessment year2005-2006 on the ground of delay of three months in not filingreturns as contemplated under Section 271B of the Act. It is not indispute that appellant is a partnership firm dealing in WeldingElectrodes, industrial tools and other equipments. Though theappellant has filed return of income for the assessment yearconcerned on 30.1.2006 declaring a total income of 9,30,230/-₹ ITA.40/13 and after completion of the assessment under Section 143(3) ofthe Act accepting the return of income filed by the appellant onaccount of delay of three months in submitting the return, penaltycame to be imposed totally rejecting the explanation given by theassessee, is the case of the appellant before us. Against the order of penalty, an appeal came to be filedbefore the Commissioner of Income Tax, who affirmed opinion ofthe authority imposing the penalty and again the assesseechallenged the same before the Income Tax Appellate Tribunal,Kochi Bench, which also affirmed order of the CIT. Aggrieved bythe same, appellant is before us contending that having regard toacceptance of the return for the assessment year in questionunder section 143(3) of the Act, when reasonable explanation wasgiven for the delay in filing the return, there was no justificationfor the authorities to reject the reasonable cause shown by theappellant. 3. The appellant relies upon paragraph 10 of the judgment in M/s.Data Software Research Co.P.Ltd's case (Supra), tocontend that the reason explained by the appellant for the delayin finalisation of accounts so as to file return is absence of the ITA.40/13 accountant during the year 2005. Paragraph 10 of the abovejudgment reads as under: 3. The appellant relies upon paragraph 10 of the judgment in M/s.Data Software Research Co.P.Ltd's case (Supra), tocontend that the reason explained by the appellant for the delayin finalisation of accounts so as to file return is absence of the ITA.40/13 accountant during the year 2005. Paragraph 10 of the abovejudgment reads as under: “10. Keeping the above principles in mind, wefind that in the instant case, the explanation offeredby the assessee is that they could not file the auditreports, as they had not received the audit reportsfrom its branch office at USA. This shows that they didnot have the audit reports in their hand and therefore,the question of deliberate or mala fide intention ontheir part does not arise and as a result, theirexplanation has to be accepted as bona fide,particularly, the reason for the delay is non-completion of the audited accounts in the branchoffice at USA for the entire period of delay. Once theexplanation appears to be bona fide, the samesatisfies the test of reasonableness. Consequently, thecause for the delay being reasonable, the Revenuecannot reject the same and impose penalty, as thesame is still protected under Section 273B of the Actand more particularly, when such a delay has notreflected any loss to the revenue, as it is nothing buttechnical in nature.” 4. It is not in dispute that the appellant was consistent in astand so far as the sufficient cause for the delay in filing the auditreport, i.e., the absence of the accountant of the firm. According ITA.40/13 to them, only by the end of December, 2005, they could finalisethe accounts and return came to be filed in the month of January,2006 by which time there was delay of three months insubmitting audit reports. According to the appellant, the penaltyunder Section 271B of the Act can be imposed only in case ofabsolute default in obtaining the audit report and furnishing thesame. According to them, absolute default in obtaining the auditreport would mean, not at all filing the audit report and not anaudit report which was filed beyond the time prescribed under theAct. According to the appellant, the explanation offered by theassessee amounts to reasonable cause. In the judgment reliedupon by learned counsel for the appellant from paragraphs 9.1 to9.4 various judgments of the High Court of Madras and SupremeCourt are referred to. From reading paragraphs 9.1 to 9.4, thesettled law would be that a reasonable cause can be said to be acause which prevents a man of average intelligence and ordinaryprudence, acting under normal circumstances, without negligenceor inaction or want of bona fides on his part. It is also well settledfrom the above decision that so far as reasonable cause, itdepends upon the facts and circumstances of each case. ITA.40/13 ITA.40/13 5. Ultimately, one has to see whether the cause shown by anassessee would constitute a good cause for the non compliance inorder to avoid him from paying the penalty imposed. In order toascertain whether the assessee acted as a man of averageintelligence and ordinary prudence, the facts and circumstancesalone have to be considered. Apparently, the three authorities,who had the opportunity of looking into the factual situation in thepresent case, have consistently opined that there was noreasonable cause. Even otherwise the cause shown is only for apart of the assessment year, i.e., before 31.12.2005. There isnothing on record to show during what spells of 2005 theaccountant was on leave and for how many days. There is alsonothing on record to show whether there is any other assistant tothe accountant who said to have been on leave so far as theassessee's partnership firm. Apart from that, the cause for thedelay is the absence of accountant on various dates, therefore,they could not finalise the accounts in order to file the auditreport in time. There is nothing on record to show that as andwhen the said accountant who was on leave returned for duty hehad failed to enter the accounts. Even otherwise, once proper ITA.40/13 documents for conducting the partnership business of theassessee are maintained, it would not be difficult for the assesseeto engage services of another accountant to finalise the accountsin order to file returns and then submit the audit report. Accordingto him, finalisation of accounts is delayed till December, 2005,therefore, audit report could not be submitted in time. Whether tofinalise accounts of the assessee's business with the assistance ofany other person or not would be the test to know whether thereis sufficient or reasonable cause. In the absence of engaging anyother accountant to complete the accounts and then submit theaudit report in time, we fail to understand how the judgmentrelied upon by learned counsel for the appellant would come tohis assistance. In the case referred to above, it was a noncompletion of audit of the accounts of a branch at USA whichprevented the head office from submitting the records. It was notpossible for the head office in India to complete the accountingand then submit audit report within the time prescribed. But, inthis case it was within the reach of the assessee to complete theprocess of finalisation of accounts and then submit an audit reportwithin the time prescribed which they failed to do. Even other ITA.40/13 wise on facts, no material is produced by the assessee tosubstantiate the cause shown by the assessee. In that view of the matter, we find no good ground tointerfere with the reasoning of the Tribunal. Accordingly, the WritAppeal is dismissed. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE vgs26.9