SHRI MANISH PUNJABHAI ODEDARA,PORBANDAR vs. THE ITO, WARD-2 (4), PORBANDAR

This assessee’s appeal for A.Y. 2015-16, arises from order of the Principal CIT(A), Jamnagar dated 24-06-2019, in proceedings under section 271B of the Income Tax Act, 1961; in short “the Act”.

The assessee has raised following ground of appeal:-

The only issue raised by the assessee is that the learned CIT(A) erred in confirming the penalty levied by the AO under section 271B of the Act on account of not getting the accounts audited and not furnishing the audit report as specified under section 44AB of the Act.

The assessee in the present case is an individual and engaged in the activity of water supply contractor, commission agent etc. The AO during the assessment proceedings found that the assessee has carried out the business of sale of option in securities (derivatives) where the transactions were completed without delivery of the shares and securities. The assessee has carried out the transaction in such business for a value of Rs. 17,03,16,845/- only but the assessee failed to get its account audited as well as furnished the tax auditor report under section 44AB of the Act. Accordingly, the AO found that the assessee has contravened the provisions of section 44AB of the Act, which attracts the penalty under section 271B of the Act. Accordingly the AO sought clarification from the assessee.

The assessee during the assessment proceedings submitted that he has incurred a loss of Rs. 60,68,230/- out of such business of dealing in options(derivatives). However he did not include such loss in the income tax return as he filed belated return of income. The assessee also claimed that he was under the bona fides believe that the net income of sale and purchase of derivatives shall only be treated as turnover for the applicability of the provisions of section 44AB of the Act which was less than Rs. 1 crores. Accordingly the assessee failed to get the accounts audited and furnish the tax audit report. However, the AO disregarded the contention of the assessee by holding that the assessee has defaulted in complying of the provisions of section 44AB of the Act.

Aggrieved assessee preferred an appeal to the learned CIT (A).

The assessee before the learned CIT (A) reiterated the contention as made before the AO during the penalty proceedings. But the learned CIT (A) disregarded the contention of the assessee by observing that the assessee failed to establish whether the net result of sale of option (derivatives) was not known and whether the net amount represents the turnover more than or less than of Rs. 1 crores. As per the learned CIT (A), the assessee has not furnished the figure of the net result of sale of option (derivatives) except the loss at Rs. 60,68,230/-. Thus the learned CIT (A) confirmed the order of the AO.

The learned AR before us submitted that the net result of sale of option (derivatives) does not exceed Rs. 1 crores. As per the learned AR the net result should be seen whether it exceeds Rs. 1 crores or not in order to find out the applicability of the provisions of section 44 AB of the Act. Accordingly the learned AR claimed that there cannot be any penalty under section 271B of the Act, on account of not getting the accounts audited and furnishing the same as per the provisions of section 44 AB of the Act.

Before we part with the issue/appeal as discussed above, it is pertinent to note that the clause (c) of rule 34 of the Appellate Tribunal Rules 1963 requires the bench to make endeavour to pronounce the order within 60 days from the conclusion of the hearing. However the period of 60 days can be extended under exceptional circumstances but the same should not ordinarily be further extended beyond another 30 days. In simple words the total time available to the Bench is of 90 days upon the conclusion of the hearing.

In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.

To sum up, the appeal of the assessee is allowed, and appeal of the Assessing Officer is dismissed. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.

In the result, the appeal filed by the assessee is allowed.