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TMI Blog2024 (11) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... as in any way attributable to the conduct of the assessees in these appeals. We make this observation at this stage because we notice that, unlike the findings of the Assessing Authority and the First Appellate Authority, the observations of the Tribunal in the orders impugned before us are suggestive of such lethargy on the part of the assessees without there being any tangible material before the Tribunal based on which it could arrive at such a finding. We also find that, at any rate, the audit reports were made available before the Assessing Authority at the time of completion of the assessment, and hence, there was really no prejudice caused to the Department in the matter of finalisation of assessment. The appellants/assessees before us cannot be seen as persons who did not establish a reasonable cause for the belated filing of the audit reports before the Assessing Authority. The peremptory phraseology used in Section 273B of the I.T. Act therefore mandated that no penalty under Section 271B be imposed on them. For the same reason, and since reasonable cause was demonstrated by the assessees in the instant cases, the decision of Peroorkkada [ 2020 (1) TMI 624 - KERALA HIGH C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eties are entitled for exemption under Section 80P of the Act, and independent of an assessment of tax imposition of penalty is justified or not ? (iii) Whether on the facts and circumstances of the case the assesse's explanation for not furnishing the audit report ought to have been accepted and the penalty imposed is one liable to be interfered with ? (iv) Whether in the facts and circumstances of the case the Tribunal justified in holding that the imposition of penalty on the assesse is justified ? (v) Whether the Tribunal is correct in not following the binding judgments of the coordinate benches in ITA Nos.601/2018 ITA No.504/2018 ? I.T.A.No.10 of 2023: (i) Whether on the facts and circumstances of the case the imposition of penalty is justified or not ? (ii) Whether in the facts and circumstances of the case and in view of the decision in Mavilayi Society's case, that the primary agricultural credit societies are entitled for exemption under Section 80P of the Act, and independent of an assessment of tax imposition of penalty is justified or not ? (iii) Whether on the facts and circumstances of the case the assesse's explanation for not furnishing the audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive Bank vs. Income Tax Officer, reported in ILR 2021 (1) Ker 423, Principal Commissioner of Income Tax vs. Annsaheb Patil Mathadi Kamgar Sahkari Pathpedi Ltd, reported in 2023 (4) KLT SN 9 (CN 7), and KSCARD Bank vs. Assessing Officer, Trivandrum Ors (Judgment in Civil Appeal 5005-5007 of 2019), with respect to the entitlement of Appellant to claim deduction under Section 80P, whether the imposing of penalty upon appellant is justifiable ? I.T.A.No.35 of 2023: (a) Whether on the facts and circumstances of the case, the imposition of penalty is justified or not ? (b) Whether the imposition of penalty upon the appellant is justified, when the claim for deduction under Section 80P is yet to be considered by the appellate authority ? (c) Whether the imposition of penalty upon appellant under Section 271B can be considered as an arbitrary exercise of power, especially in wake of the fact that the appellant had duly furnished the returns as audited by the department authorities under the domain of Kerala Co-operative Societies Act ? (d) Whether the non-filing of returns in the stipulated format by itself would attract a penalty, when the assessee is claiming its entire income as to ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substituted. Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or (b) carrying on profession shall, if his gross receipts in profession exceeded fifty 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 44AE 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; or (d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or (e) carrying on the business shall, if the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of one hundred fifty thousand rupees, whichever is less. (emphasis supplied) Significantly, under Section 271B of the I.T. Act, the phraseology of may is used while dealing with the discretion of the Assessing Authority with regard to whether or not a penalty should be imposed and the phrase shall is used while specifying the quantum of penalty that is to be imposed. In other words, while the Assessing Authority has a discretion in the matter of whether or not a penalty is to be imposed, there is no such discretion available to the Assessing Authority in deciding the quantum of penalty once he/she finds that penalty has to be imposed. The quantum of penalty that has to be imposed is specified as being the lower among the two figures of (a) a sum equal to one-half percent of the total sales, turnover or gross receipts in business or of the gross receipts in profession in such previous years or years and (b) one hundred and fifty thousand rupees. 8. The circumstances under which the Assessing Authority can absolve an assessee from the payment of penalty under Section 271B of the I.T. Act are discernible from a reading of Section 273B which reads as under: Penalty not to be imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst instance because he was of the view that once it was established that there was a delay in submitting the audit reports prescribed in Section 44AB of the I.T. Act, the penalty under Section 271B of the I.T. Act was automatic. In the appeals before the First Appellate Authority, although the First Appellate Authority noticed the provisions of Section 273B that mandated that a penalty could not be imposed whenever reasonable cause was shown, on facts, he was of the view that reasonable cause had not been shown. The views of the First Appellate Authority were accepted by the Appellate Tribunal which took the view that the assessees had not demonstrated reasonable cause for the delay occasioned, and hence, the penalty imposed on the appellants/assessees did not require any interference. 10. The issue that we are thus called upon to examine in these cases is whether the delay in obtaining the audit reports from the statutory auditors under the Kerala Co-operative Societies Act and Rules can be seen as a reasonable cause for the delayed submission of the audit reports before the Assessing Authority under the I.T. Act, more so, when it is the admitted case that the audit reports, albe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the State Government and non-Governmental authorities. (7) The Director of Co-operative Audit shall be under the control of the Registrar of Co-operative Societies. (8) The minimum qualification and experience of auditors for auditing accounts of the Co-operative society may be such, as may be prescribed. (9) Every co-operative society shall cause to be audited by a team of auditors appointed by the Director of Co-operative Audit in accordance with the scheme approved and notified by the State Government. The composition, structure of the team, mode of conducting audit, mode of processing and preparing audit report shall be included in the scheme approved by the State Government. (10) The financial accounts of all apex societies and all urban co-operative banks shall be audited by auditing firms, from among the panel approved by the Director of Co-operative Audit and the administrative matters and related accounts of assisted apex societies shall be audited by the departmental auditors and submit the audit reports to the Director of Co-operative Audit. If the audit discloses any misappropriation or fraud or defalcation of money or property or assets of the society, audit te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re as well as hardware. (1B) If during the audit of information system and evaluation of software and hardware, any manipulation of records or manipulation in the working of the software or hardware is revealed, the auditor/auditors/audit firms shall inform the manipulations to the Director of Co-operative Audit and the Registrar. (1C) The Registrar himself, or the Director of Co-operative Audit in consultation with the Registrar shall inform the manipulations in the system to the Police or Vigilance officer, as the case may be, for investigation. (2) For the purpose of audit, the Director of Co-operative Audit or the person authorised by him under S.63 shall have the following powers, namely:- (a) he shall, at all reasonable times, have access to all the books, accounts, documents, papers and all other relevant records, securities, cash and other properties belonging to, or in the custody or control of the society; (b) he may summon any person in possession of or responsible for the custody of any such books, accounts, documents, papers, other records, securities, cash or other properties to produce the same at any place at the headquarters of the society or any branch thereof or, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e auditor or team of auditors or auditing firms appointed as per section 63 shall complete the audit within ninety days from the date of receipt of the statements and submit audit report to the Director of Co-operative Audit or to the persons authorized by him in this behalf. (5A) On completion of audit and before submission of audit report to the Director of Co-operative Audit, the auditor or audit team or audit firm, as the case may be, shall discuss the audit findings with the Managing Committee of the society concerned and get their reply in writing. (6) The amount of fee or cost for the audit of accounts of society for each year shall be such, as may be fixed by the Director of Co-operative Audit, in accordance with the rules made in this behalf. (7) The fee or cost shall be paid by the society concerned within thirty days of intimation thereof and in case of non-payment of the fee or cost within the period it shall be recoverable in the manner specified in S.79 or can be recovered from the account maintained in the financing bank by the society, through an order issued by the Registrar upon the request from the Director of Co-operative Audit. (8) The procedure for payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Audit or officer authorized by him for the purpose of audit within the time limit stipulated in sub-section (4), before a request for audit is made to the Director of Co-operative Audit; (b) To place the audit certificate in full before the general body or the representative general body and to read over to the general body or Representative General body of the defects mentioned in it and also to place the rectification reports of each defects before the general body or the Representative General body. (c) To rectify all the defects mentioned in the audit certificate and to submit the rectification reports on the defects mentioned in the audit certificate, to the Director of Co-operative Audit and to the Registrar within two months of the receipt of the audit certificate. (13) Notwithstanding anything contained in this Act or rules made thereunder or bye-laws of a Regional Co-operative Milk Producers' Union and its apex society, Annual Performance Audit in the Regional Co-operative Milk Producers Union and its apex society shall be conducted for every financial year, in the prescribed manner, by engaging persons from among the panel of experienced persons in dairy industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime to time; and (vi) any other matters specified by the Registrar on this behalf. (5) Within three months from the date of receipt of the audit report the Director of Co-operative Audit shall issue the audit certificate and a copy of the audit memorandum specified in sub-rule (1) duly signed by him. While communicating the audit memorandum, the Director of Co-operative Audit may modify or expunge any portion thereof which appears to him to be objectionable or not justified by facts. (6) The society shall publish or exhibit in the Notice Board of the society, - (i) the copy of audit certificate; (ii) the statement showing the receipts and disbursements for the year; (iii) the profit and loss account; and (iv) the balance sheet in the manner specified by the Director of Co-operative Audit and shall also keep them open for inspection by any member of the society. The summary of the audit memorandum shall also be read out at the general body meeting of the society. (7) The Director of Co-operative Audit shall have powers to issue directions to the societies to prepare and submit any other statements and schedules and call for any details which are necessary for the conduct and complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no basis from facts that were available before them in the records. In our view, the assessees had demonstrated reasonable cause for the delay occasioned in filing the audit report before the Assessing Authority for more reasons than one. At the outset, we find that notwithstanding the peremptory phraseology used in Section 44AB of the I.T. Act with regard to furnishing of audit reports within the prescribed time limit, the assessees in these appeals had furnished the audit reports before the completion of assessment and the assessment was completed by the Assessing Authority by placing reliance on the said audit reports. There was therefore no prejudice caused to the Department while completing the assessment against the appellants/assessees. Secondly, there is no material on record to suggest that it was on account of any fault with the assessees Societies that a delay was occasioned in the preparation of the final audit report. The statutory provisions under the Kerala Co-operative Societies Act and Rules noticed above would reveal that the auditors had time that extended to six months after expiry of the financial year in question to submit their audit report, and if they took ..... X X X X Extracts X X X X X X X X Extracts X X X X
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