M/S BAJRANG OIL MILLS vs. I T O BALOTRA

ITA/89/2001HC RajasthanRJHC01025728200102 August 2006Author: RAJESH BALIA,MANAK LALL MOHTA39 pages
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What did the High Court hold?

The High Court allowed the appeal, setting aside the penalty. Regarding Issue 1, the Court held that the assessee's interpretation of Section 44AB, where 'total sales', 'turnover', and 'gross receipts' were considered independent criteria, was plausible. The Court noted that the provision was intended to ensure credibility of accounts and that different terminology and limits were fixed for classifying persons. It reasoned that the assessee, involved in both sales of commodities and job work, had a genuine doubt about whether these different types of receipts could be clubbed. The Court found that the sale proceeds from goods and remuneration from job work could not have been clubbed together for the purpose of attracting Section 44AB, as the assessee was involved in the business of sales of commodities and doing job work which did not relate to the sale of commodities. Therefore, the assessee was not liable for compulsory audit. Regarding Issue 2, the Court held that given the plausible interpretation of Section 44AB and the assessee's genuine doubt, the belief that he was not liable for compulsory audit was bonafide. This constituted a reasonable cause for non-compliance. The Court relied on the Supreme Court's decision in Hindustan Steels Ltd. vs. State of Orissa, stating that penalty cannot be levied for every venial or technical breach, especially when it flows from a bonafide belief that the offender is not liable. The Court found that the assessee's conduct was not contumacious or willful, and the breach was technical. Regarding Issue 3, while the Court did not explicitly address the invocation of Section 139(9), its finding on the bonafide belief and reasonable cause rendered the penalty unsustainable. The Court quashed the penalty under Section 271B.

What were the facts?

The assessee, M/s Bajrang Oil Mills, is in appeal before the High Court against the Income Tax Appellate Tribunal's order dated April 27, 2001. The Tribunal had upheld a penalty imposed under Section 271B for failure to get accounts audited as required by Section 44AB for the Assessment Year 1994-95. The assessee's total receipts from sales were Rs. 35,38,266.58 and from job work were Rs. 5,57,879.40. The Assessing Officer held that since the aggregate of these exceeded Rs. 40 lakhs, the assessee was obligated to obtain a tax audit. The assessee contended that 'total sales', 'turnover', and 'gross receipts' were independent criteria, and none individually exceeded Rs. 40 lakhs. The penalty imposed was Rs. 20,530/-. The orders of the Assessing Officer and CIT(Appeals) were affirmed by the Tribunal.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether, for the purpose of attracting Section 44AB, receipts from sales/trading business and receipts from job work can be clubbed to determine if the Rs. 40 lakhs limit is met? (Question of law) 2. If the answer to question (I) is affirmative, can a contrary belief by the assessee be considered bonafide, constituting reasonable cause under Section 273B read with Section 271B? (Question of mixed law and fact) 3. Whether penalty under Section 271B could be validly imposed without invoking Section 139(9)? (Question of law) Assessee's Contentions: - The expressions 'total sales', 'turnover', and 'gross receipts' in Section 44AB are independent criteria. Since none of these individually exceeded Rs. 40 lakhs, the assessee was not liable for compulsory audit. - Even if the Assessing Officer's interpretation was correct, the assessee held a bonafide belief that he was not liable due to the language of the legislation. This constituted a reasonable cause under Section 273B, and penalty should not be levied for a technical breach without contumacious or willful conduct. - The assessee also argued that penalty under Section 271B could not be imposed without invoking Section 139(9). Revenue's Contentions: - The Assessing Officer opined that 'gross receipts' include receipts from all sources, and their aggregate exceeding Rs. 40 lakhs made the assessee liable for compulsory audit. - The revenue's contentions are not explicitly detailed beyond the Assessing Officer's reasoning, but it supported the imposition of penalty.

Which sections of the Income-tax Act were involved?

Section 44AB,Section 271B,Section 273B,Section 139(9)

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Cause title — parties, addresses and appearances
1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR JUDGMENT M/s Bajrang Oil Mills VS. The Income Tax Officer, Balotra. D.B. INCOME TAX APPEAL NO.89/2001 against the order of the Income Tax Appellate Tribunal dt.27.4.95 passed in ITA No.2343/JP/96 for the Assessment Year 1994-95. Date of judgment : 2nd August, 2006 PRESENT HON'BLE MR. JUSTICE RAJESH BALIA HON'BLE MR. JUSTICE MANAK MOHTA Mr. Anjay Kothari for the appellant. Mr. Sangeet Lodha for the respondent. ------- Reportable By the Court: (PER HON'BLE RAJESH BALIA, J.)

This appeal is arising out of the order of the Tribunal dated 27th April, 2001 sustaining the penalty levied against the assessee-appellant under Section 271B for failure on the part of the assessee to get its accounts audited and obtain the report of such audit before the date prescribed under Section 44AB. For the assessment year 1994-95, the 2 assessee has filed his return on 28th Sept., 1994 declaring the total receipts from sales at Rs.35,38,266.58 declaring total sales amounting to Rs.35,38,266.58 and receipts for job work done by him at Rs.5,57,879. 40. Since the gross receipt of the assessee from the sales and the job work done by

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