THE COMMISSIONER OF INCOME TAX, KOTTAYAM vs. M/S. NEELETTU CONSTRUCTIONS, KOTTAYAM

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 29TH DAY OF JANUARY 2019 / 9TH MAGHA, 1940 ITA.No. 75 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 534/COCH/2009 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 30-12-2011 APPELLANT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX RESPONDENT/APPELLANT/ASSESSEE: M/S. NEELETTU CONSTRUCTIONS, PUKADIYIL BUILDINGS, SHASTRI ROAD, KOTTAYAM-686 001. BY ADV. SRI.S.ARUN RAJ THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 75/12 -2- ITA No.75 of 2012 J U D G M E N T Ashok Menon, J

The assessee firm, engaged in the business of civil construction, and having a turnover exceeding Rs.40 lakhs was under obligation to file tax audit report under Section 44AB of Income Tax Act, 1961 ('Act' for short) before 31.10.2004. The assessee filed the report along with the return of income only on 30.12.2004. Because of this delay, notice was issued by the Revenue on 12.06.2008 to show cause why penalty under Section 271B of the Act should not be imposed on the assessee. After hearing the assessee, a detailed order was passed imposing penalty on the assessee, which was upheld in appeal by the Commissioner of Income Tax (Appeals). 2. The challenge, by the assessee, before the Income Tax Appellate Tribunal, Cochin Bench as ITA No.534/COCH/2009 was allowed, accepting the

ITA 75/12 -3- explanation submitted by the assessee for the delay that was caused in complying with the provisions of Section 44AB of the Act. It was also observed that the time limit for filing the audit report is discretionary and that the audit report is only meant to assist the Assessing Officer to compute the correct income of the assessee and that, no prejudice is caused to the Revenue because of the delay. Hence, the ITAT held that this is not a case fit for levying penalty under Section 271B of the Act. 3. Aggrieved by this finding of the ITAT, the Revenue is before us raising the following questions of law as re-framed by us: (1) Whether the ITAT was justified in deleting the penalty by accepting the assessee's explanation? (2) Whether the ITAT was justified in holding that filing of the audit report in time is only discretionary? 4. We heard the learned Senior Counsel,

ITA 75/12 -4- Government of India (Taxes) for the Revenue and the learned Counsel for the assessee. 5. The assessee did not file the audit report together with the returns within the stipulated time, i.e. 31.10.2004, as required under Section 44AB of the Act. Is it mandatory to do so, is the question. There is no dispute regarding the statutory provision compelling the assessee to do so on time. Can this delay be condoned. 6. The argument of the learned Senior Counsel for the Revenue is that the ITAT had gone wrong in accepting the explanation provided by the assessee regarding the reasons that occasioned the delay.

ITA 75/12 -5- the returns. The argument of the learned Senior Counsel for the Revenue is that the assessee could have either initiated legal action against the said employee for the hardship that was caused or sought the services of an expert to open the computer. 8. The penalty of Rs.1,00,000/- is imposed on the assessee under Section 271B of the Act. If any person fails, without reasonable cause to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under Section 44AB of the Act, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half percent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less. The provision of Section 271B of the Act makes it clear that the imposition of penalty for non-compliance with the provision of

ITA 75/12 -6- Section 44AB is not mandatory, though the filing of such report may be mandatory, as the word used in Section 44AB is 'shall'. But the the word 'may' used in section 271B gives discretion to the Assessing Officer to impose penalty or not to impose penalty. Further, the provision of Section 273B of the Act contains a non obstante clause and provides that notwithstanding the provision of Section 271B, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for the said failure. The assessee has given an explanation regarding the delay in filing the audit report. There is no unreasonable delay in filing the report. It is not mandatory that in every case of default penalty has to be imposed. In the instant case, there was only a delay of two months in filing the audit report along with the returns which delay was caused due to a valid explanation as submitted by the assessee. On

ITA 75/12 -7- an overall conspectus of the matter, we are firmly of the opinion that the assessee has proved the existence of reasonable cause under Section 271B of the Act. We are, therefore, in agreement with the findings of the ITAT that the delay was not deliberate and therefore, the assessee is entitled to be exempted from the penalty. There is no reason to interfere with the findings of the ITAT. The questions of law are hence answered in favour of the assessee and against the Revenue. The Income Tax Appeal is, hence, rejected. No order as to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE

ITA 75/12 -8- APPENDIX APPELLANT'S EXHIBITS ANNEXURE-A COPY OF PENALTY ORDER UNDER SECTION 271B OF THE IT ACT, 1961 DATED 25.8.2008. ANNEXURE-B COPY OF CIT(A)'S ORDER IN APPEAL NO.ITA NO.12/CIT(A)/VKTM/08-09 DATED 25.8.2009. ANNEXURE-C COPY OF ITAT'S ORDER IN APPEAL NO.ITA NO.534/COCH/2009 DATED 30.12.2011. [True Copy] jg