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TMI Blog2005 (1) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... al") has referred the following question of law for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming the order of the learned Commissioner of Income-tax (Appeals), Karnal, who deleted the penalty of Rs. 1 lakh imposed under section 271B of the Income-tax Act, 1961 by the Assessing Officer?" The assessee is engaged in the sale of milk. For the assessment year 1985-86, its turnover was more than Rs. 40 lakhs. Therefore, in terms of section 44AB of the Act. it was required to file return latest by July 31, 1985 (the date was extended to September 30, 1985, by the Central Board of Direct Taxes vide its Circular No. 422 dated June 19, 1985. However, the return was actually filed on November 29, 1985. The same was accompanied by the audit report prepared by the chartered accountant, namely, M/s. Rajesh Behl and Associates. Later on, the assessee filed revised return under the amnesty scheme. The Assessing Officer accepted the return but initiated penalty proceedings under section 271B on account of delayed filing of the same. In its reply, the assessee tried to explain delay in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was the first year of this requirement. In the present case, we find that the assessee had obtained the audit report and filed it along with the return near about two months after the extended date, i.e., on November 29, 1985. The chartered accountant of the assessee has signed this audit report on November 28, 1985. Now the question arises whether the assessee has committed default of statutory provision of section 44AB in the given facts and circumstances of the case. So far as the provision is concerned, the assessee as per the Board's circular was required to get its accounts audited and obtain its report and file it up to the extended date September 30, 1985. However, in the present case the same was filed along with the return on November 29, 1985. The question arises whether the provision is mandatory or procedural. In the case of D.K. Jain, Prop. M/s. Luxor Pen Co. v. Deputy CAT (I.T.A. No. 7173/Del/92) vide order dated November 24, 1993, the Appellate Tribunal has hold that this provision is procedural. If the assessee had filed the audit report before the assessment is completed, it is a sufficient compliance. Keeping in view the order of the Appellate Tribunal and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1985) which provides for levy of penalty on account of non compliance with section 44AB, read as under: "Section 44AB.-Every person,- (a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year, or (b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year, or (c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD or section 44AR or section 44AF (or section 44BB or section 44BBB), as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: Provided that this section shall not apply to the person, who derives income of the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986) and the word "may" shows that it is only an enabling provision and the Assessing Officer is not under an obligation to impose penalty in each and every case ignoring the explanation given by the assessee or cause shown by it for delayed filing of the return and/or audit report. To put it differently, the Assessing Officer has the discretion in the matter of imposition of penalty and he may not impose penalty if he is satisfied with the explanation given by the assessee for not getting its accounts of the previous year audited by an accountant before the specified date and/or tiling thereof along with the return. In CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, the Supreme Court interpreted section 271(1)(c) of the Act together with the Explanation added by the Finance Act, 1964 and held: "Where the total income returned by the assessee is less than 80 per cent. of the total income as assessed, the Explanation to section 271(1)(c) of the Income-tax Act,1961 shifts the burden to the assessee to show that the difference was not owing to fraud or gross or wilful neglect on his part. This onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Madhya Pradesh and the Calcutta High Courts held that imposition of penalty under section 271B of the Act is not automatic and in appropriate1 case, the competent authority, on being satisfied with the explanation given by the assessee, is free not to impose penalty. In ITO v. Nanak Singh Guliani [2002] 257 ITR 677, a Division Bench of the Madhya Pradesh High Court interpreted section 271B along with section 44AB of the Act and held: "The provision of section 271B of the Income-tax Act, 1961, makes it clear that the imposition of penalty for non-compliance with the provision of section 44AB is not mandatory. The word 'may' used in that section gives discretion to the Assessing Officer to impose penalty or not to impose penalty. Further, the provision of section 273B contains a non obstante clause and provides that notwithstanding the provision of section 271B, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for the said failure." In CIT v. Capital Electronics (Gariahat) [2003] 261 ITR 4, a Division Bench of the Calcutta High Court interprete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompliance by introducing coercive process, it is something implicating a penal interest. If instead of penalty interest was payable, in that event, it would not assume the characteristic of quasi-criminal proceedings. Therefore, the nature of the proceeding has to be examined having regard to the context under which the liability is created. If the liability reveals a civil liability only to ensure compliance through a coercive manner then it is definitely a civil liability without any criminal implication. But as soon as criminal liability is imposed by reason of default in compliance of a particular provision and there is some element of criminality involved in the default, the proceeding can be said to be a quasi-criminal one. The presence of the element of criminality is one of the factors that determines the question. Section 44AB imposes a liability to get the accounts audited within the stipulated time. There is nothing in the section to make it incumbent to furnish the audited accounts within the stipulated time. Failure to furnish, therefore, will not attract the mischief of section 271B though failure to get the accounts audited within the stipulated time would attract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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