2005 (12) TMI 204 - AT - Income Tax

Penalty levied u/s 271B - delay of four months and 27 days in obtaining the audit report - onus to prove - difference of opinion - Third Member Order - Whether the ld. CIT(A) was justified in cancelling the penalty levied u/s 271B holding that there was a reasonable cause within the meaning of section 273B of the Act? - HELD THAT - Accountant Member - The onus to establish reasonable cause lies squarely on the assessee. However we find that in the present case the assessee has completely failed to furnish any evidence apart from the seizure of its records in August 1992 which it got back in December 1992. However how could the dislocation or complete suspension even if we were to presume so by four months (August 1992 to November 1992) require 21 (twenty one) months and not 24 i.e. from December 1992 to (now) September 1994 (and not November 1994) the accounts of financial year 1992-93 being only finalized thereat to be finalized is difficult to accept specially with no material brought-forth to establish the same. Secondly a further period of six months (October 1994 to March 1995) to obtain the audit report of accounts for 12 months (previous year 1993-94) and which was held up only for want of correct carry forward of opening balances and which became available latest by (now) September 1994 and knowing that the matter stand already delayed for the second year in running is again difficult to understand. Finally the non-submission of the audit report dated 27-3-1995 immediately thereafter or upon the amendment in law making the furnishing of the report mandatory is nothing but a conscious disregard of its statutory obligations. In conclusion we uphold the levy of penalty and the order of the CIT(A) is dismissed - In result the appellant succeeds. Judicial Member - It is also not the case of revenue that the assessee has committed default of non-furnishing audit report as per amended provisions of section 44AB which stood amended by Finance Act 1995 with effect from 1st July 1995 as revenue did not base its penalty under amended provisions. Moreover it will be a point of debate that whether the said provision is applicable for assessment year 1994-95 and in case of debatable point benefit of doubt as per well-settled law should go in the favour of assessee particularly in the case of levy of penalty. Therefore on this ground also levy of penalty cannot be held justified. Thus ld. CIT(A) has rightly deleted the penalty and his order should be upheld. The departmental appeal is therefore liable to be dismissed and is dismissed. Third Member Order - It is also to be kept in mind that after the audit of the earlier year s accounts on 29-10-1994 the assessee took about 4 to 5 months in getting the accounts audited for the year under consideration on 27-3-1995. This period also cannot be said lo be unreasonable as the audit for the whole year s account generally takes this much time and that is probably the reason of allowing seven month period for getting the accounts audited after the close of the year namely the accounts are closed on 31st March of a particular year and the audit is required to be done on 31st October of that year. In my opinion it would also not be advisable to comment on the action of the auditor and attempt lo find reasons as to why he has taken that much time particularly when the Legislature itself provides for a time-limit of 7 months in obtaining the audit after the close of the accounts at the end of the accounting year. In the case of Rajasthan Rajya Vidyut Prasaran Nigam 2003 (3) TMI 76 - RAJASTHAN HIGH COURT the assessee had received the audit report for assessment year 1989-90 on August 28 1990. It took time to adjust accounts of the assessment year 1990-91 in conformity with the audit report received for the assessment year 1989-90 and submitted the accounts of assessment year 1990-91 for audit for on 29-12-1990 and obtained the audit report on 20-1-1992. This period of 4 months in submission of the accounts for audit of assessment year 1990-91 and almost 1 year thereafter in obtaining the audit report was held to be reasonable. The court held that the assessee had a reasonable cause for the delay in submission of the report for assessment year 1990-91 and for similar reasons also for assessment year 1991-92. The penalty has been levied by the Assessing Officer under the pre-amended provisions. At that time the requirement was to obtain the report on or before the specified date. Therefore any delay in furnishing the same as is made a requirement under the amended provisions with effect from 1-7-1995 by the Finance Act 1995 would not be of any consideration. Thus this is not a fit case for levying the penalty. In view of the majority opinion the order of the CIT(A) is upheld and accordingly the levy of penalty is deleted. In the result the Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Delay in obtaining the Tax Audit Report under section 44AB of the Income-tax Act, 1961.
2. Levy of penalty under section 271B of the Income-tax Act, 1961.
3. Applicability of section 273B of the Income-tax Act, 1961.
4. Impact of search and seizure operations on the delay.
5. Judicial interpretation of "reasonable cause."

Issue-wise Detailed Analysis:

1. Delay in obtaining the Tax Audit Report under section 44AB:
The assessee, a Hindu Undivided Family (HUF) dealing in textiles, filed its income return for the assessment year 1994-95 on 31-8-1995, with an audit report dated 27-3-1995. The due date for obtaining the report was before 31st October 1994, resulting in a delay of 4 months and 27 days. The delay was attributed to the search and seizure operations conducted by the Department on 11-8-1992, which caused a delay in finalizing accounts for the financial year 1992-93 and subsequently for 1993-94.

2. Levy of penalty under section 271B:
The Assessing Officer imposed a penalty of Rs. 64,521 under section 271B due to the delay. The primary reasons for rejecting the assessee's explanation were:
(a) Each year is independent, and the audit of one year does not need to wait for the previous year's audit completion.
(b) The financial year 1993-94 commenced in April 1993, and thus, there should have been no delay in compiling accounts for that year.

3. Applicability of section 273B:
Section 273B provides that no penalty shall be imposed if the assessee proves that the default occurred due to a reasonable cause. The assessee argued that the delay was due to the search and seizure operations, which disrupted the regular business operations and the maintenance of books of account. The CIT(A) accepted this explanation, citing the consequential link between the account books of successive years and relevant case law.

4. Impact of search and seizure operations:
The search and seizure operations on 11-8-1992 led to the seizure of all records, causing a delay in the preparation and audit of accounts for the financial year 1992-93. The assessee received photocopies of the seized records in December 1992, which allowed them to finalize the accounts for 1992-93 by December 1994. This delay impacted the subsequent year's audit, leading to the delay in obtaining the audit report for 1994-95.

5. Judicial interpretation of "reasonable cause":
The Tribunal examined whether the delay constituted a reasonable cause under section 273B. The Accountant Member found the assessee's explanation untenable, noting that the delay in finalizing accounts for 1992-93 should not have taken 21 months and that the further delay in obtaining the audit report for 1994-95 was excessive. Conversely, the Judicial Member found the delay reasonable, citing the need for authenticated closing figures from the previous year before proceeding with the audit for the subsequent year. The Judicial Member also referenced case law, including the jurisdictional High Court's decision in CIT v. Tea King, which supported the view that delays in auditing previous years' accounts can constitute a reasonable cause for subsequent delays.

Conclusion:
The Tribunal, in a majority decision, upheld the CIT(A)'s order, finding that the delay in obtaining the audit report was due to a reasonable cause. The penalty under section 271B was deleted, and the Revenue's appeal was dismissed. The decision was influenced by the interpretation of "reasonable cause" and relevant case law, emphasizing the impact of the search and seizure operations on the assessee's ability to comply with the audit requirements on time.