M/S. METRO AGENCIES vs. THE DEPUTY COMMISSIONER OF INCOME TAX

The brief facts of the case that led to filing of present appeal are as under: The appellant is aggrieved by the order of the assessing authority levying a penalty of 1,00,000/- under Section 271B of ₹ the Income Tax Act (for short, 'the Act') for the assessment year 2005-2006 on the ground of delay of three months in not filing returns as contemplated under Section 271B of the Act. It is not in dispute that appellant is a partnership firm dealing in Welding Electrodes, industrial tools and other equipments. Though the appellant has filed return of income for the assessment year concerned on 30.1.2006 declaring a total income of 9,30,230/- ₹ and after completion of the assessment under Section 143(3) of the Act accepting the return of income filed by the appellant on account of delay of three months in submitting the return, penalty came to be imposed totally rejecting the explanation given by the assessee, is the case of the appellant before us. Against the order of penalty, an appeal came to be filed before the Commissioner of Income Tax, who affirmed opinion of the authority imposing the penalty and again the assessee challenged the same before the Income Tax Appellate Tribunal, Kochi Bench, which also affirmed order of the CIT. Aggrieved by the same, appellant is before us contending that having regard to acceptance of the return for the assessment year in question under section 143(3) of the Act, when reasonable explanation was given for the delay in filing the return, there was no justification for the authorities to reject the reasonable cause shown by the appellant.

The appellant relies upon paragraph 10 of the judgment in M/s.Data Software Research Co.P.Ltd's case (Supra), to contend that the reason explained by the appellant for the delay in finalisation of accounts so as to file return is absence of the accountant during the year 2005. Paragraph 10 of the above judgment reads as under:

It is not in dispute that the appellant was consistent in a stand so far as the sufficient cause for the delay in filing the audit report, i.e., the absence of the accountant of the firm. According to them, only by the end of December, 2005, they could finalise the accounts and return came to be filed in the month of January, 2006 by which time there was delay of three months in submitting audit reports. According to the appellant, the penalty under Section 271B of the Act can be imposed only in case of absolute default in obtaining the audit report and furnishing the same. According to them, absolute default in obtaining the audit report would mean, not at all filing the audit report and not an audit report which was filed beyond the time prescribed under the Act. According to the appellant, the explanation offered by the assessee amounts to reasonable cause. In the judgment relied upon by learned counsel for the appellant from paragraphs 9.1 to 9.4 various judgments of the High Court of Madras and Supreme Court are referred to. From reading paragraphs 9.1 to 9.4, the settled law would be that a reasonable cause can be said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides on his part. It is also well settled from the above decision that so far as reasonable cause, it depends upon the facts and circumstances of each case.

Ultimately, one has to see whether the cause shown by an assessee would constitute a good cause for the non compliance in order to avoid him from paying the penalty imposed. In order to ascertain whether the assessee acted as a man of average intelligence and ordinary prudence, the facts and circumstances alone have to be considered. Apparently, the three authorities, who had the opportunity of looking into the factual situation in the present case, have consistently opined that there was no reasonable cause. Even otherwise the cause shown is only for a part of the assessment year, i.e., before 31.12.2005. There is nothing on record to show during what spells of 2005 the accountant was on leave and for how many days. There is also nothing on record to show whether there is any other assistant to the accountant who said to have been on leave so far as the assessee's partnership firm. Apart from that, the cause for the delay is the absence of accountant on various dates, therefore, they could not finalise the accounts in order to file the audit report in time. There is nothing on record to show that as and when the said accountant who was on leave returned for duty he had failed to enter the accounts. Even otherwise, once proper documents for conducting the partnership business of the assessee are maintained, it would not be difficult for the assessee to engage services of another accountant to finalise the accounts in order to file returns and then submit the audit report. According to him, finalisation of accounts is delayed till December, 2005, therefore, audit report could not be submitted in time. Whether to finalise accounts of the assessee's business with the assistance of any other person or not would be the test to know whether there is sufficient or reasonable cause. In the absence of engaging any other accountant to complete the accounts and then submit the audit report in time, we fail to understand how the judgment relied upon by learned counsel for the appellant would come to his assistance. In the case referred to above, it was a non completion of audit of the accounts of a branch at USA which prevented the head office from submitting the records. It was not possible for the head office in India to complete the accounting and then submit audit report within the time prescribed. But, in this case it was within the reach of the assessee to complete the process of finalisation of accounts and then submit an audit report within the time prescribed which they failed to do. Even other wise on facts, no material is produced by the assessee to substantiate the cause shown by the assessee. In that view of the matter, we find no good ground to interfere with the reasoning of the Tribunal. Accordingly, the Writ Appeal is dismissed. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE vgs26.9