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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 ..... e provisions of Section 44AB of the I.T. Act, however, they did not file the audit report as mandated under the said provision within the time limit specified there under. However, the audit reports were made available before the Assessing Authority at the time of finalisation of the assessments. In fact, the Assessing Authority completed the assessments by relying on the said audit reports, but while passing the assessment orders, initiated penalty proposals under Section 271B of the I.T. Act for alleged breach of the procedure contemplated under Section 44AB of the I.T. Act. 3. In the penalty proceedings that ensued, the appellants/assessees were imposed with penalties of Rs.1.5 lakhs, which was the lesser of the two amounts mentioned in Section 271B of the I.T. Act, by rejecting the explanations offered by the assessees for the delay in producing the audit reports. The orders of the Assessing Authority imposing penalty were upheld by the First Appellate Authority and thereafter by the Appellate Tribunal in appeals preferred by the assessees. 4. In the appeals before us, the appellants/assessees raise the following questions of law: I.T.A.No.9 of 2023: (i) Whether on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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.25 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 stands allowed by the Tribunal ? (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 deducted under Section 80P ? (e) Whether the penalty proceedings init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the appellants/assessees in all these appeals and Sri.P.G.Jayashankar and Sri.Keerthivas Giri, the learned Standing Counsel for the Income Tax Department in the aforementioned cases. 6. The sole issue that arises for consideration in these appeals is the legality of the penalty that was imposed on the assessees Societies under Section 271B of the I.T. Act for the alleged breach of the procedural provisions under Section 44AB of the I.T. Act. Section 44AB of the I.T. Act prescribes a procedure of audit of accounts by certain categories of assessees and deals inter alia with the manner in which reports of such audit have to be submitted before the Assessing Authority under the I.T. Act. Section 44AB of the I.T. Act reads as under: "Audit of accounts of certain persons carrying on business or profession. 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 one crore rupees in any previous year : Provided that in the case of a person whose - (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later: Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section." (emphasis supplied) It is significant to note that the phraseology used under Section 44AB of the I.T. Act, while dealing with the procedure to be followed in the matter of getting the accounts audited, is "shall". 7. Section 271B of the I.T. Act deals with the consequences of a failure to get accounts audited in the manner contemplated under Section 44AB of the I.T. Act. The said provision reads as under: "Failure to get accounts audited. 271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said provisions if he proves that there was reasonable cause for the said failure." (emphasis supplied) It merits notice that the phraseology used in Section 273B of the I.T. Act is such that no penalty can be imposed on an assessee under Section 271B for breach of the provisions, if he proves that there was "reasonable cause" for the said failure. 9. The moot question that arises in these cases is whether the assessee Societies had demonstrated a reasonable cause for the delay in submitting audit reports as mandated under Section 44AB of the I.T. Act before the Assessing Authority ? If the assessees could demonstrate that there were valid reasons for the delay occasioned in submitting the audit reports before the Assessing Authority, and that they were on account of reasons beyond the control of the assessees, then the threshold of reasonable cause would be crossed by the assessees. The reason cited by the assessees herein, before the Assessing Authority, was that, being Co-operative Societies regulated by the provisions of the Kerala Co-operative Societies Act and Rules, their accounts had to be mandatorily audited in terms of the said statutory provisions and the delay in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit shall be such, as may be prescribed. (3) The Government may by general or special order, delegate all or any of the powers of the Director of Co-operative Audit, in the Act to his subordinate officers or to the subordinate officers of the Registrar. (4) It shall be the duty of the managing committee cause to audit the accounts of every society at least once every year: Provided that the accounts of every society shall be audited within six months of the close of the financial year to which such accounts relate. Provided further that in the case of those societies which are liable to file income tax returns, financial statements for that purpose shall be duly certified by the Auditor, within three months from the end of the financial year. (5) The procedure to be adopted in auditing the accounts of different types of co-operative societies should be in the manner specified in the audit manual approved by Director of Co-operative Audit or guidelines, directions as may be issued, from time to time, by the Registrar, the National Bank for Agricultural and Rural Development or Reserve Bank of India, as the case may be, from time to time. (5A) It shall be the duty of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failing which, the members of the managing committee shall cease to hold their office. In such cases to avoid administrative stalemate, the Registrar may suo motu or on application from the Director of Co-operative Audit or from any person authorized in this behalf, appoint an Administrator or an administrative committee consisting of not more than three persons, who shall be from among the members of the society, one among them as convener, to manage the affairs of the society, for a period not exceeding six months as may be specified in the order: Provided that administrator or administrative committee shall arrange for the constitution of a new committee or for entering upon office of the new committee, as the case may be. (12A) No auditor or auditing firms or team of auditors shall be entrusted with the audit of a co-operative society for more than two consecutive audits. (13) The Government may issue notification, either prospectively or retrospectively, by publishing the same in the Gazette, to carry out the purposes of this section. 64. Scope of audit, powers of the Director of Co-operative Audit and procedure for audit.- (1) The audit shall include an examination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the chief executive of the society within one month from the date of close of the financial year and submit it before managing committee and the fact shall be reported to the Director of Co-operative Audit or to the persons authorized by him in this behalf. (4A) It shall be the duty of the managing committee of every society to ensure the accuracy of financial and other statutory statements. It is the responsibility of the committee to submit the above statements for audit within fifteen days from the date of receipt of the above statements before the auditor. Lapse on the part of managing committee in this regard will be considered as a disqualification to hold office and they shall cease to be a member of the committee as may be prescribed. In such cases to avoid administrative stalemate, the Registrar may suo motu or on application from the Director of Co-operative Audit or by any person authorized in this behalf, appoint an administrator or an administrative committee consisting of not more than three persons, who shall be from among the members of the society, one among them as convener, to manage the affairs of the society, for a period not exceeding six months as may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative Audit and to the Registrar within fifteen days from the date of the general body meeting. (9A) If the Director of Co-operative Audit or the person authorized by him to carry out the audit of a society is of the opinion that any person had attempted to destroy or to tamper with the records or document so as to evade legal action on the mischief committed in the society, he shall report the matter to his controlling officer for filing a complaint to the Police or the Vigilance Officer in consultation with the Registrar or the person authorized by him, as the case may be. (10) If the result of the audit held under S.63 discloses any serious defect in the working of the society, the Director of Co-operative Audit or the person authorized by him shall communicate the same forthwith to the Registrar for immediate further action. (11) The Director of Co-operative Audit may, by order in writing, direct the society or its officers to take such action, as may be specified in the order, within the time mentioned therein to rectify the defects disclosed in the audit, under intimation to the Registrar. (12) Notwithstanding anything contained in this Act it shall be the duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of the year or any other subsequent date to which the accounts are made up and examined by him; and (ii) in the case of the profit and loss account of the profit or loss for the year or the period covered by the audit, as the case may be. (2) The audit memorandum shall state: (a) whether the Auditor had obtained all the information and explanation which to the best of his knowledge and belief were necessary for the purpose of his audit; (b) whether in his opinion, proper books of accounts, as required by the Act, these rules and the bye-laws of the society have been kept and regularly maintained by the society so far as it appear from the examination of these books and (c) whether the balance sheet and the final accounts examined by him are in agreement with the books of accounts and returns of the society. (3) Where any of the matters referred to in sub-rule (2) are answered in the negative or with a qualification, the person who does the audit shall specify the reasons for the answers in the audit memorandum. (4) The audit memorandum shall also contain schedules with full particulars of, - (i) all transactions which appear to be contrary to the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 11. The Appellate Tribunal has chosen to confirm the penalty against the assessees before us by relying on the decision of a Division Bench of this Court in Peroorkkada Service Co-operative Bank Limited v. Income Tax Officer - [2020 114 Taxman.com. 18 (Kerala)], where a Division Bench of this Court sustained a penalty in almost similar circumstances by finding, as a matter of fact, that no reasonable cause had been shown by the assessee in that case for the delay occasioned in submitting the audit report. In our view, the factual situation that obtained in Peroorkkada (supra) was different and dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the audit reports can be attributed to the assessee Societies. Fourthly, we find from a perusal of the CBDT Circular No.3/2009 dated 21.05.2009 issued in exercise of the powers under Section 139C of the I.T. Act that under certain circumstances, the Board has permitted a belated production of the audit reports by assessees such as the appellants before us, as and when called for by the Income Tax authorities. The said Circular would align with the Scheme of penalty under the Income Tax Act especially in the context of Sections 271B and 273B of the I.T. Act that deal with penalty for non-compliance with the provisions of Section 44AB of the I.T. Act. The Circular, in our view, suggests that a penalty need not be imposed on assessees if no prejudice is caused to the Department on account of any belated furnishing of an audit report. The Circular, being of a binding nature, insofar as the Department is concerned, the Assessing Authority, First Appellate Authority and the Appellate Tribunal ought to have taken due note of it while deciding on whether or not a penalty was called for in relation to the assessees before us. 12. The net result of our findings above would be that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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