C I T vs. RAJOUND COOP. CREDIT AND SERVICE SOCIETY LTD.

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.584 of 2007 The Commissioner of Income Tax, Karnal .....APPELLANT Versus The Rajound Co-op.Credit & Service Society Ltd. V&PO Rajound,Distt.Kaithal ....RESPONDENT ITA No.585 of 2007 The Commissioner of Income Tax, Karnal .....APPELLANT Versus The Rohera Co-op.Credit & Service Society Ltd. V&PO Kaulapur (Kurukshetra) ....RESPONDENT DATE OF DECISION: FEBRUARY 05, 2008 CORAM: HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE RAKESH KUMAR GARG --- Present: Mr.Yogesh Putney, Advocate, for the appellants. .. SATISH KUMAR MITTAL,J. This order shall dispose of two Income Tax Appeals bearing Nos.584 and 585 of 2007 filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as `the Act'), which are arising from the common order dated 9.3.2007 passed by the Income Tax Appellate Tribunal, Delhi Bench `H' Delhi (hereinafter referred to as `the ITAT') for the Assessment Year 2004-05, whereby two appeals filed by the different

ITA Nos.584 & 585 of 2007 -2- assessees, in which the common question of law was involved, were disposed of. The common issue involved in these appeals is relating to the penalty imposed under Section 271B of the Act for violation of the provisions of Section 44AB. For the disposal of these appeals, we are taking the facts from ITA No.584 of 2007. In the present case, the respondent is a Co-operative Credit & Service Society (hereinafter referred to as `the Society') registered under the Haryana Co-operative Societies Act, 1984 (hereinafter referred to as `the Societies Act') and it is being governed by the provisions of the Societies Act. The Society derives income from supply of fertilizer/pesticides, seeds etc. to its members and also derives income from interest etc. For the year 2004-05, the Society filed return under the Act declaring loss of Rs..2,15,845/- after claiming exemption under Section 80P of the Act. The said return was accompanied by trading account, profit and loss account and balance sheet which were not audited. As the total sale/gross receipts of the Society were more than Rs.40.00 lacs, the Society was required to get its accounts audited by the Chartered Accountant and furnish the same in the prescribed form duly signed and verified as per the provisions of Section 44AB of the Act before the stipulated date i.e. 31.10.2004. Since the Society failed to get its accounts audited by a Chartered Accountant and furnish the report thereof by the stipulated date, i.e. 31.10.2004, as per the provisions of Section 44AB of the Act, a show cause notice under Section 271B of the Act was issued for imposition of penalty.

ITA Nos.584 & 585 of 2007 -3- In response to the said show cause notice, the assessee filed its reply dated 22.08.2005 by taking a plea that it being a Co-operative Society, was required to get its accounts audited by the auditor appointed by the Registrar, Co-operative Societies under the provisions of the Societies Act, and since the auditor was not appointed by the Registrar within the stipulated time, therefore, the audit report could not be submitted in time. Before the Assessing Officer, the Society raised a contention that annual audit fee is being paid by the Society regularly, but since the accounts of the Society are not being carried out in time due to non- availability of sufficient number of auditors in Co-operative Department, which is not a fault of the Society, the Society can not be penalized for the fault of others. It was further contended that the Society has no control over the appointment of auditor by the Registrar, Co-operative Societies, therefore, the requirement of submitting the audit report within the stipulated period could not be complied with. The Assessing Officer did not accept the explanation given by the Society and thus imposed a penalty of Rs.21,400/- on the Society under Section 271B of the Act @ half per cent of the gross turnover for failure to get its accounts audited by the Chartered Accountant and furnish the same along with the audit report by the specified date as per the provisions of Section 44AB of the Act. On appeal by the Society, the aforesaid order passed by the Assessing Officer was upheld by the Commissioner of Income Tax (Appeals), Karnal. Aggrieved against the said order, the Society filed an appeal before the ITAT. Vide impugned order, the ITAT deleted the ITA Nos.584 & 585 of 2007 -4- penalty imposed on the assessee while observing as under:- “The case of the assessee that it did not earn any income in the year and a loss return was filed in response to notice issued by the revenue. This is a matter of fact borne out by the record. It was also the case of the assessee that the turnover of goods was only about Rs.21.76 lakh, far below Rs.40 lakh and, therefore, it was under the belief that it was not required to get the accounts audited. This turnover is also a matter of record borne out by the profit & loss account. It was also its submission that its income was exempt u/s 80P. Being a cooperative society, the provisions of section 80P are applicable to the case of the assessee. In the case of Narender Kumar, it was held that if the income was below taxable limit, that constituted reasonable cause for not getting accounts audited. In this case, the assessee suffered loss and, therefore, ration of this decision applied to the facts of the case. In the case of Patel Ambalal Somnath Sarkar, it was held that if the turnover of the assessee was below Rs. 40 lakh, but the gross turnover and receipts exceeded Rs.40 lakh and the assessee entertained a bona fide belief that because of the turnover being less than Rs.40 lakh, he was not required to get the accounts audited, such belief constituted reasonable cause u/s 273B of the Act. The facts of this case are that the turnover of the goods was lower than the prescribed limit and, therefore, it constituted sufficient reason for the assessee to believe that it was not required to get its accounts audited. In view of the above circumstances, we are of the view that the instant case was not a fit case for levy of penalty. Therefore, the penalty is deleted.” After hearing the learned counsel for the appellants, we do not find any merit in this appeal. In our opinion, the ITAT has rightly deleted the penalty while recording a pure finding of fact to the effect that the assessee was under the bona fide belief that it was not required to get

ITA Nos.584 & 585 of 2007 -5- its accounts audited and such belief constituted reasonable cause under Section 273B of the Act. Therefore, we do not find any ground to interfere in the said finding of fact. No substantial question of law is involved in these appeals. Hence, both the appeals are dismissed. (SATISH KUMAR MITTAL) JUDGE

February 05, 2008 (RAKESH KUMAR GARG) vkg JUDGE