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TMI Blog1992 (10) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer, however, found that the assessee had not got its accounts audited under the provisions of section 44AB and also did not file the prescribed forms 3CA and 3CD. The ITO was, therefore, of the view that the assessee-company had failed to perform the statutory obligation. He accordingly issued a show-cause notice to the assessee and after giving an opportunity of being heard to the assessee, he was of the view that the assessee failed without reasonable cause to meet the requirements of section 44AB. He, therefore, levied a penalty of Rs. 1,00,000 under the provisions of section 271B of the IT Act. 3. In appeal before the Commissioner of Income-tax (Appeals), it was pleaded by the assessee that the assessee had got its accounts audited under section 227(4A) of the Companies Act, 1956, which was completed on 27-7-1985. The assessee was required to obtain the audit report under the provisions of section 44AB of the IT Act by the extended date of 30-9-1985. Since the audit had been done under section 227(4A) of the Companies Act, there was no further necessity for the assessee to get the accounts audited under the provisions of section 44AB of the IT Act. It was, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act, 1956, in the case of the assessee was not, therefore, sufficient to fulfil the conditions laid down under the provisions of section 44AB as the assessee failed to obtain the further report in the prescribed form. He, therefore, urges that the CIT (Appeals) was not justified in vacating the penalty order. A prayer has, therefore, been made to vacate the order of the CIT (Appeals) and restore the order of the ITO. 5. On the other hand, the learned counsel for the assessee, Sri K.K. Viswantham, supports the decision of the CIT (Appeals). He contends that the assessee filed the return of income for the year under consideration on 30-9-1985 along with the statutory audit report as required under Company Law, along with annexures. The assessee was under the impression that the report submitted along with the return of income was sufficient compliance under section 44AB as clearly laid down under the proviso to that section. He urges that section 44AB provides that in addition to the statutory report, a further report is also required from the statutory auditors to be obtained. Nowhere in the Act it is stipulated that this should be submitted along with the return of income. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh High Court in the case of J and J Dechane v. CIT [1990] 182 ITR 345. 7. It is further argued that the penalty under section 271B has been initiated and levied by the ITO on wrong premises. The ITO was of the view that the assessee was required not only to obtain the report and further report in the prescribed forms, but such report or further report was also to be filed before the ITO. In this regard, he draws our attention to the ITO's letter dated 20-2-1987 in which the ITO observes : " During the year under consideration the total sales effected by you is Rs. 2,02,87,090.85Ps. Under the provisions of section 44AB of the IT Act, 1961, you are required to furnish the Audit Report in Form 3CA and 3CE. I find that the same is not enclosed to the return of income. Please show cause why the same has not been enclosed ? You are hereby directed to furnish the Audit Report immediately. " Thus, the ITO was of the view that the further report in the prescribed form was to be furnished before him. The learned counsel has also drawn our attention to the penalty order under section 271B of the ITO and points out that in the said order also, the ITO has mentioned that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport including the further report in the prescribed forms. He, therefore, reiterates that the CIT (Appeals) was in error in cancelling the penalty. 10. We have heard the rival submissions in the light of the judicial precedent relied upon. The provisions of section 44AB were inserted by Finance Act, 1984. with effect from 1st April, 1985, for and from assessment year 1985-86. Before the insertion of the provision, two categories of assessees were statutorily required to get their accounts audited, firstly, accounts maintained by a limited company were required to be audited under the Companies Act, 1956; similarly, accounts maintained by a co-operative society were also subjected to audit under the Co-operative Societies Act, 1912. There was no obligation on other assessees to submit their accounts for the purpose of audit. However, section 44AB of the IT Act has made it mandatory for certain businesses and professions to get their accounts statutorily audited. The provision was introduced with a view to ensure that books of account and other records are properly maintained and that the books of account maintained during the course of the business faithfully reflect the income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our view, therefore, the assessee has fulfilled the conditions laid down under section 44AB of the IT Act. 12. Regarding obtaining a further report in the prescribed forms under section 44AB, we are of the view that this was prescribed again to ensure that an assessee discloses the correct and true income. In our view, there is no other function of obtaining the further report in the prescribed forms except to ensure that the assessee has maintained the books of account which reflect the true profit of the business. If the true profit of the business could be arrived at by the ITO on the basis of the audit report itself, we do not find any necessity for sustaining a penalty for the failure to obtain the further report in the prescribed forms. 13. It is settled that before a penalty is imposed, the assessee must be apprised of the precise charge brought against him. He must be told that he has contravened the provisions of a particular section. In the case before us, for the assessment year under appeal, the statute required the assessee only to get its accounts audited and obtain the report thereof and a further report in the prescribed forms. In this year, there was no requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are penal in nature and, therefore, must be strictly construed. The penalties are to be construed within the terms and language of the particular statute. The status creating the penalty is the first and last consideration in that respect. The popular and literary notion about penalty and the concepts associated with it have to subordinate themselves to the actual words and terms used in the statute creating the penalty and laying down the procedure for its imposition. The golden rule is that if the provision is capable of two alternative meanings the court should lean in favour of the assessee, if the provision lacks in clarity and no meaning is reasonably clear, the courts will be unable to regard it as of any effect and naturally the assessee cannot be penalised. The provisions of section 271B as reproduced above do not make it abundantly clear that the failure to obtain the additional report in the prescribed forms is liable to be penalised under section 271B of the IT Act. Though section 44AB speaks of "and a further report in the form prescribed in this section", section 271B envisages penalty only for the failure to get the accounts audited and obtain a report thereof. As a ..... 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