TRIVANDRUM DISTRICT ELECTRICITY BOARD EMPLOYEES CO-OP SOCIETY,TRIVANDRUM vs. THE ITO, WD-2(1), TRIVANDRUM

Aggrieved with the order of the A.O., the assessee filed an appeal before the ld.CIT(A) and contended that the filing of audit report is directory. However, the ld.CIT(A) relying on the judgment of the Hon’ble Supreme Court in the case of Pr.CIT v.

Aggrieved with the order of the ld.CIT(A), the assessee has come up in appeal before us. The learned Counsel for the assessee relied upon two orders of the co-ordinate bench in in the case of Chalakudy Multipurpose Co-operative Society Ltd. (order dated 11.10.1023) and in the case of The Aymanam VSCB Limited (order dated 18.01.2024) and contended that the lower authorities have erred in levying the penalty u/s.271B of the Act.

The learned Departmental Representative appearing on behalf of the Revenue relied upon the judgment of the Hon’ble jurisdictional High Court in the case of Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT reported in 459 ITR 730 and contended that when the assessee is not entitled for deduction of sec.80P itself on the ground that the assessee has filed belated return, then the A.O. has levied the penalty correctly.

We have heard the rival submissions and perused the material available on record. Similar issue has come up in appeal in the case of Perkoda before the Hon’ble High Court in of 2019. The Hon’ble High Court vide its order dated 07.01.2020 has confirmed the levy of penalty observing as under:- It is to be noted that, the further report required by an Accountant need to be furnished in Form 3CD. Evidently the appellant had not furnished the report of the audit under Co- -409/Coch/2023. Trivndrum District Electricity Board Employees Co-op Society. operative Societies Act in the form prescribed, which is Form 3CA. On the other hand, his contention is that the accounts were audited by the Co-operative Department and the Joint Director had issued a Certificate to that effect. Probable contention raised by the appellant is that since the appellant is a person required by the Co-operative Societies Act to get its accounts audited under that Act, the audit report need not be filed in Form 3CA. Even assuming (without admitting) that the furnishing of a report of the audit conducted by the competent Auditor stipulated under the Cooperative Societies Act would suffice compliance of the first limb of the second proviso, it is evident that the further report by an Accountant, as mandated to be furnished in Form 3CD, was not furnished by the appellant. Moreover, the factual finding arrived by the Tribunal is to the effect that the appellant had furnished only the Annual Report depicting the audited financial statement along with copy of the receipts and distribution statements. It is also evident that the appellant had furnished a Certificate issued by the Joint Director (Audit) of the Co-operative Department. When the second proviso carves out an exemption from the general provisions of section 44AB, the stipulations therein need to be strictly adhered and the mere fact that the audit of the assessee was conducted under the provisions of the Co-operative Societies Act, would not be sufficient for such compliance. Furnishing of the report of audit in the prescribed form accompanied with a further report by an Accountant in the prescribed form, is a mandatory requirement for proper compliance. Since the appellant had failed to show any 'reasonable cause', coming within the purview of section 273B, the imposition of penalty under section 271B cannot be interfered with.

Lastly, learned counsel for the appellant had drawn our attention to a Circular issued by the Central Board of Direct Taxes, Circular No.03/2009, dated 21.5.2009. Based on which it is contended that, the audited report need not be attached along with the returns or furnished separately at any time before or after the due date; but it need only to be retained by the assessee and produced if it is called for by the Income-tax Authority during any proceedings under the Act. The Circular says that no penalty under section 271B shall be initiated or levied for not furnishing the tax audit report before the due date. Therefore, the imposition of penalty under section 271B cannot be sustained, is the contention. We are not persuaded to accept the above contention in view of the mandatory provisions contained in section 44AB which insists on furnishing of the audit report in the prescribed form before the due date stipulated, along with a further report of an Accountant. When the specific provision contained in the statute is unambiguous in this respect, we cannot hold otherwise based on any circular of the Department. Hence the above contention cannot be accepted. Further, learned Standing Counsel appearing for the respondents contended that, the penalty proceedings in this case was initiated on the allegation that the appellant had failed to obtain a proper audit report within the date stipulated in the relevant provision.

For the reasons mentioned as above, we are of the opinion that, no substantial question of law arises for consideration in challenge against the impugned order of the Tribunal. Accordingly, the above appeal fails and the same is hereby dismissed 8.The above decision of Hon’ble Jurisdictional High Court has been recently considered in the case of Chavakkad Service Co-op Bank ltd reported in 169 Taxman.45(Ker) wherein the “11 The Appellate Tribunal has chosen to confirm the penalty against the assessees before us by relying on the decision of a Division Bench of this Court in Peroorkkada Service Co- operative Bank Ltd. v. ITO [2020] 114taxmann.com 18/270 Taxman 55/424 ITR 422 (Kerala), where a Division Bench of this Court sustained a penalty in almost similar circumstances by finding, as a matter of fact, that no reasonable cause had been shown by the assessee in that case for the delay occasioned in submitting the audit report. In our view, the factual situation that obtained in Peroorkkada Service Co-operative Bank Ltd. (supra) was different and distinguishable from the facts in the appeals before us. In the present appeals, the Assessing Authority, at first instance, did not even look into the aspect of "reasonable cause" and proceeded to confirm the penalty on the assessees on the assumption that the penalty under Section 271B of the I.T. Act was automatic whenever there was a delay in submission of the audit report beyond the prescribed due date. The First Appellate Authority and the Appellate Tribunal sustained the penalty order on assumptions made that had no basis from facts that were available before them in the records. In our view, the assessees had demonstrated reasonable cause for the delay occasioned in filing the audit report before the Assessing Authority for more reasons than one. At the outset, we find that notwithstanding the peremptory phraseology used in Section 44AB of the I.T. Act with regard to furnishing of audit reports within the prescribed time limit, the assessees in these appeals had furnished the audit reports before the completion of assessment and the assessment was completed by the Assessing Authority by placing reliance on the said audit reports. There was therefore no prejudice caused to the Department while completing the assessment against the appellants/assessees. Secondly, there is no material on record to suggest that it was on account of any fault with the assessees Societies that a delay was occasioned in the preparation of the final audit report. The statutory provisions under the Kerala Co-operative Societies Act and Rules noticed above would reveal that the auditors had time that extended to six months after expiry of the financial year in question to submit their audit report, and if they took more time than was allowed under the Statute, then the assessees Societies had no option but to await the audit report, for, they had no manner of control over the preparation of those reports. Thirdly, the statutory provisions under the Kerala Co-operative Societies Act and Rules clearly provide for penal action against those Societies who do not maintain proper accounts and failed to get their accounts audited by the statutory auditors. There is no material on record that would suggest that any of the assessee Societies had been subjected to such penal proceedings, and hence, the Appellate Tribunal was not justified in assuming that some part of the delay in submitting the audit reports can be attributed to the assessee Societies. Fourthly, we find from a perusal of the CBDT Circular No.3/2009 dated 21.05.2009 issued in exercise of the powers under Section 139C of the I.T. Act that under certain circumstances, the Board has permitted a belated production of the audit reports by assessees such as the appellants before us, as and when called for by the Income Tax authorities. The said Circular would align with the Scheme of penalty under the Income Tax Act especially in the context of Sections 271B and 273B of the I.T. Act that deal with penalty for non- compliance with the provisions of Section 44AB of the I.T. Act. The Circular, in our view, suggests that a penalty need not be imposed on assessees if no prejudice is caused to the Department on account of any belated furnishing of an audit report. The Circular, being of a binding nature, insofar as the Department is concerned, the Assessing Authority, First Appellate Authority and the Appellate Tribunal ought to have taken due note of it while deciding on whether or not a penalty was called for in relation to the assessees before us.

No contrary decisions has been brought to the notice of the bench. Therefore, respectfully following the latest decision of Hon’ble Jurisdictional High Court we delete the penalty levied by the AO and confirmed by the CIT(A).

In result the appeals of the assessee are allowed.