Sancheti Motors Ltd.a v. The Income Tax Officercompany Ward I(3)Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MR.JUSTICE R.KARUPPIAH T.C.(A).No.540 of 2007 Sancheti Motors Ltd.A-125, Greams RoadChennai – 600 006. .. Appellant/Appellant Vs. The Income Tax OfficerCompany Ward I(3)Chennai. .. Respondent/Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal 'B' Bench, Chennai,dated 21.6.2006 made in I.T.A.No.528/Mds/2001 for the assessment year1987-1988. For Appellant : Mr.R.Sivaraman For Respondent :Mr.J.NarayanasamySenior Standing CounselJ U D G M E N T(Delivered by R.SUDHAKAR, J.) The assessee has filed this appeal challenging the order of theIncome Tax Appellate Tribunal 'B' Bench, Chennai, dated 21.6.2006made in I.T.A.No.528/Mds/2001 for the assessment year 1987-1988, andthe same was admitted on the following questions of law: (i)Whether, on the facts and circumstances of thecase, the Assessing Officer having initiated penalaction under Section 271B of the Income Tax Act on21.11.1990, the levy of penalty on 4.9.1991 isbarred by limitation of time under Section 271(1)(c) of the Act?(ii)Whether, on the facts and circumstances of thecase, and having regard to Section 44AB of the Actas applicable during the relevant year, the levy ofpenalty under Section 271B of the Act is justified https://hcservices.ecourts.gov.in/hcservices/ in law when there was a reasonable cause fordelayed submission of the audit report? 2.1 The facts in a nutshell are as under: The assessee filedreturn of income for the assessment year 1987-1988 on 27.3.1990without enclosing the audit report. The audit report was obtained on27.4.1990 and submitted during the course of the assessmentproceedings. However, the Assessing Officer issued notices on21.11.1990 and 19.3.1991 for levy of penalty and subsequently byproceedings dated 4.9.1991 levied penalty under Section 271B of theAct. 2.2. Aggrieved by the said order, the assessee appealed to theCommissioner of Income Tax (Appeals), who confirmed the order passedby the Assessing Officer. 2.3. On further appeal by the assessee, the Tribunal confirmedthe orders passed by the lower authorities and held that there is noreasonable cause for delayed filing of the audit report. 2.4. Challenging the said order, the assessee has filed thisappeal on the questions of law referred supra. 3. We have heard Mr.R.Sivaraman, learned counsel for theassessee and Mr.J.Narayanaswamy, learned Senior Standing Counselappearing for the Revenue and perused the orders passed by theTribunal and the authorities below. 4. The core question that arises for our consideration is “Iffiling of the audit report along with the return is not mandatory,but directory, whether penalty is leviable?” 5. In the case on hand, the assessee filed return of income on27.3.1990 and the audit report was obtained on 27.4.1990 andsubmitted during the course of the assessment proceedings. Thereason given by the assessee for the delay in submitting the auditreport was that the books were impounded on 29.12.1989. The retentionof seized/impounded books of accounts and documents is evidenced bythe letter dated 29.12.1989 issued by the Assistant Commissioner ofIncome Tax, Central Circle II(3), Chennai. Therefore, it is evidentthat the delay was not intentional, but due to circumstances beyondthe control of the assessee. 6. In this backdrop, we would like to analyse the case law onthis issue: https://hcservices.ecourts.gov.in/hcservices/ (i)In Commissioner of Income Tax v. Ashoka Dairy, (2005) 279 ITR 32, a Division Bench of the Punjab and Haryana High Court heldas under: 6. In this backdrop, we would like to analyse the case law onthis issue: https://hcservices.ecourts.gov.in/hcservices/ (i)In Commissioner of Income Tax v. Ashoka Dairy, (2005) 279 ITR 32, a Division Bench of the Punjab and Haryana High Court heldas under: “There is nothing in the language of section44AB of the Income-tax Act, 1961, from whichit can be inferred that the levy of penaltyis mandatory in all cases of non-compliancewith section 44AB and that the AssessingOfficer has the discretion in the matter ofimposition of penalty and he may not imposepenalty if he is satisfied with theexplanation given by the assessee for notgetting its accounts of the previous yearaudited by a chartered accountant before thespecified date and/or filing it along withthe return.” (emphasis supplied) (ii)In CIT v. Ramkrishna Stores [2002] 253 ITR 175, a Division Benchof the Calcutta High Court held that imposition of penalty undersection 271B of the Act is not automatic and in appropriatecase, the competent authority, on being satisfied with theexplanation given by the assessee, is free not to impose penalty. (iii)In ITO v. Nanak Singh Guliani [2002] 257 ITR 677, a Division Bench of the Madhya Pradesh High Court interpreted section 271Balong with section 44AB of the Act and held as under: “The provision of section 271B of the Income-taxAct, 1961, makes it clear that the imposition ofpenalty for non-compliance with the provision ofsection 44AB is not mandatory. The word ‘may’used in that section gives discretion to theAssessing Officer to impose penalty or not toimpose penalty. Further, the provision of section273B contains a non obstante clause and provides that notwithstanding the provision of section271B, no penalty shall be imposable on the personor the assessee, as the case may be, for anyfailure referred to in the said provision if heproves that there was reasonable cause for thesaid failure.” 7. In the light of the law enunciated in the decisions referredsupra, we are of the firm view that filing of audit report is notmandatory and it is directory. Moreover, the explanation offered bythe assessee that the delay in submitting the audit report was due tothe fact that the books were impounded by the department, in ourconsidered opinion, satisfies the reasonable cause to be shown by theassessee. For the foregoing reasons, we allow the appeal by setting asidethe order passed by the Tribunal, by answering the question of law infavour of the assessee and against the Revenue. Consequently, thelevy of penalty stands cancelled. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar sasiTo: 1. The Assistant Registrar,Income Tax Appellate Tribunal Chennai Bench "B", Chennai. 2. The Secretary, Central Board of Direct Taxes, New Delhi.3. The Commissioner of Income Tax (Appeals)-VChennai 600 034 4. The Income Tax Officer Company Ward I(3), Chennai. + 1 cc to Mr.J. Narayanasamy, Advocate SR.9217T.C.(A).No.540 of 2007MG(CO)Eu 09.03.15