9911796707
TMI Blog2001 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... consequential order passed by the second respondent, Commissioner of Income-tax, Tiruchirappalli, in C.No. 2026/25/96-97/TN-V, respectively, dated November 26, 1996, and October 21, 1997, and quash the same. Heard Mr. G. Jayachandran, learned counsel appearing for the petitioner, and Ms. Chitra Venkataraman, learned standing counsel appearing for the respondents. The petitioner, a co-operative society governed by the provisions of the Tamil Nadu Co-operative Societies Act, 1983, and the rules framed thereunder and is administered through the Commissioner of Handlooms and Textiles, Government of Tamil Nadu, exercising powers of the Registrar of Societies. The object of the society being to promote the traditional and ancient art of weaving, a cottage industry. All the co-operative societies in the State are subject to audit as provided under the Tamil Nadu Co-operative Societies Act and separate set of auditors are appointed for each and every type of society separately. Under the statutory provisions of the Co-operative Societies Act, auditors are appointed by the Director of Co-operative Audit or the Registrar and not by the petitioner-society. Under section 44AB of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents Nos. 3 and 2 herein. Counsel for the petitioner raised a number of contentions, while challenging the impugned proceedings. On behalf of the respondents, the second respondent filed a counter affidavit. According to the respondents, for the assessment year 1995-96 corresponding to the year ending with March 31, 1995, in terms of section 44AB, a statutory audit is provided. The provision as it stood till July 1, 1995, the audit report under section 44AB of the Act ought to have been obtained by the petitioner before October 31, 1995, and the petitioner had failed to obtain the audit report before the date prescribed and there is an obvious contravention of section 44AB. In terms of the provision as it stood, the audit report must be filed along with the return of income up to July 1, 1995, and after July 1, 1995, a report must be filed before the specified date even if the return of income is not filed, in which case a copy of the said report will have to be filed along with the return. There is no provision to file the audit report after the filing of the return. There is also no provision for granting any extension of time for obtaining the audit report after the due dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of one hundred thousand rupees, whichever is less. According to the respondents, the audit report should not only be obtained, but also filed before the specified date, which as per the statutory requirement the petitioner had failed to comply. The rejection of the petition filed by the petitioner under section 264 of the Act seeking to cancel the penalty is justified and valid and no exception could be taken. It is further submitted that the fact that the petitioner is totally exempt from levy of any tax and the delay being only technical, is an irrelevant consideration for the levy of penalty under section 271B of the Act. When once section 44AB had been contravened, a levy of penalty under section 271B is automatic and it is not necessary to consider as to whether the contravention was deliberate or wilful or a bona fide one. The decision reported in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) relied upon by the petitioner is not relevant and it has no application to the facts of the present case. Merely because in the earlier years for such belated submission, no penalty had been imposed, or the petitioner is not in the habit of filing audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty should not be imposed under section 271B. An explanation was submitted on December 11, 1995, followed with another explanation on February 24, 1996. By the impugned order dated March 29, 1996, which is long after filing of the audit report, a penalty of Rs. 30,947 was levied. According to the third respondent, who has no consistent stand, the last date for filing of the audit report is October 30, 1995, while in the show cause notice, it has been set out that such a statement should have been filed by December 6, 1995. However, in either case, there is a delay in submitting the audit report. Even assuming there is a delay, whether for such delay, a levy of penalty is automatic or a discretion is given to the assessing authority, is also an incidental contention advanced and it is required to be considered. To answer the said contention, it is essential to refer to the statutory provisions of the Income-tax Act. In this case, there is neither an attempt to evade income-tax nor is there a failure to furnish the return. It is the settled legal position that the element of mens rea is not required to be established or provided for imposition of penalty under section 271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be sustained. In the show cause notice issued, the third respondent has merely set out that the petitioner had not filed the audit report along with the return of income under section 44AB of the Income-tax Act, the return is defective under section 139(9) of the Income-tax Act and the failure to furnish audit report before December 6, 1995, attracts penalty under section 271B of the said Act. The said notice is dated November 24, 1995. The said notice proceeds on the basis that the audit report should have been filed before December 6, 1995. When there is time even according to the show cause notice, and there is time to file the audit report till December 6, 1995, what is the occasion or reason for the third respondent to issue a notice on November 24, 1995, is not known. The very notice itself has been issued without application of mind and it cannot be accepted as a bona fide act. An explanation has been submitted by the petitioner on December 11, 1995, and on February 24, 1996. In the meantime, on December 11, 1995, an audit report had been filed. In the explanation, the petitioner-society had set out the reasons for the delay and has pleaded that it was beyond its contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an application to the Registrar (Audit) requesting extension of time and there is a provision for further extension of time subject to the reasons assigned. Thus it is seen, the Registrar (Audit) is the authority, who appoints the auditor and under whose control, the audit is being carried out and the petitioner-society has no discretion to appoint auditors of its own. It is for the Registrar (Audit), who has to appoint an auditor for the petitioner-society and the petitioner has no choice in this respect. It is the main plea of the petitioner-society that there was delay in the auditors being appointed by the Registrar (Audit) and, consequently, there was delay in completing the audit as well. According to the rule, six months is the time before which audit has to be completed for every co-operative society. The expression "co-operative year" has been defined as the period commencing from the July 1 of any year ending with the June 30 of the succeeding year. Therefore, the audit as stipulated under the Co-operative Societies Act, has to be undertaken and completed before the expiry of six months reckoned from June 30 of that year. If the society itself is the authority to appo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning cannot be sustained. The appellate authority also had not taken into consideration the above materials nor had it considered the request in the manner required of it. If there is a reasonable cause for not filing the audit report, then the third respondent will be well justified in not levying penalty. This court is of the considered view that the provisions as contained under section 139(9), Explanation (e), and section 44AB and section 271B can be harmoniously read together and the expression "without reasonable cause" provides a sufficient insulation to the workability of section 44AB. It is a better clue and it does not exclude the use of discretion to drop the penalty proceedings if there is sufficient cause. The conspectus of the whole situation is that both the provisions, i.e., section 44AB along with section 271B and section 139(9), Explanation (e), can be read together and a harmonious construction is that the assessee has to file an audit report within the specified date, failing which he will have to pay the penalty if he fails to show reasonable cause for not doing so. However, if reasonable cause is shown, then it will be well open to the respondent to accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on an authority the same must be exercised fairly and not arbitrarily, justly and not fancifully, vide S.G. Jaisinghani v. Union of India [1967] 65 ITR 34; AIR 1967 SC 1427. Even if the Legislature has not used the words 'in his discretion' in section 18B(1), the Commissioner could have exercised only a discretionary power in view of the employment of the word 'may'. Now, when Parliament used both expressions 'may' and 'in his discretion' together, the position is placed beyond the pale of any doubt that the Legislature wanted an officer of the rank of the Commissioner to be reposed with the discretionary power to choose between entire waiver or reduction in any proportion." The said provisions of the Wealth-tax Act are on par with the Income-tax Act and, therefore, the said pronouncement could very well be applied to the present case even if it arises under the Income-tax Act. In the light of the said pronouncement of the apex court, on the facts of the case, the discretion exercised by the third respondent and as affirmed by the second respondent is an arbitrary exercise of power and it is not a just or reasonable exercise of power. Taking into consideration the object of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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