M/s.Chandana Leaphin Finance Ltd vs. The Commissioner of Income Tax

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No.132/2004. Brij Kishore Mittal, P/o M/s Shanti Trading Co., aged about 40 years, Alwar ----Appellant Versus Commissioner of Income Tax, Alwar. ----Respondent __________________________________________________ Counsel For Appellant : Mr. Sanjay Jhanwar Counsel For Respondent(s) : Ms. Parinitoo Jain __________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DINESH MEHTA Judgment Per Hon’ble Jhaveri, J. 21/12/2016 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has reversed the finding of the CIT (Appeals) and the penalty imposed by the Assessing Officer was reversed. 2. This court while admitting the appeal on 07.10.2004 framed the following substantial question of law: “When the return of the assessee was filed in compliance to the notice u/s 148 whether the provisions of section 271B of the Act are attracted which specifically refers to the return filed u/s 139(1) or 142(1) of the Act?

(2 of 6) [ITA-132/2004] 3. Counsel for the appellant Mr. Jhanwar has taken us to the provisions of Section 271B of the Income Tax Act which reads as under: “Section 271B of the I.T. Act stipulates that in the following four circumstances, penalty under that section is leviable: (i) If any persons fails to get his accounts audited; or (ii) Fails to obtain a report of the auditor; or (iii) Fails to furnish the said report alongwith the return of his income filed u/s 139(1); or (iv) Fails to furnish the said report alongwith the return of income furnished in response to a notice u/s 142(1)(i) of the I.T. Act. Here again, the appellant has squarely failed on all the four counts and as would be seen that he has nothing to say in this regard. This is therefore a fit case where penalty could be levied u/s 271B of the Act.” 4. He further contended that after amendment, the reasons and objects which were cited are as under: “29.1 Section 44AB of the Income-tax Act, 1961, requires every person carrying on business or profession with gross receipts exceeding prescribed limits to get his accounts audited by an accountant before 31st October, or 30th November, as the case may be. Section 139(6A) states that the return forms for sub-sections (1) and (3) of section 139 and clause (i) of sub- section (1) of section 142 shall, in the case of an assessee engaged in business or profession, require him to furnish, inter alia, the report of audit obtained under section 44AB. Section 271B prescribes levy of penalty for any of the following failures: (1) Failure to get the accounts audited as required under section 44AB (2) Failure to obtain a report of such audit (3) Failure to furnish the said report along with the return of income filed either under section 139(1) or under section 142(1)(i). 29.2 The existing provisions under sections 139(6A) and 271B allow interpretations contrary

(3 of 6) [ITA-132/2004] to the legislative intent of getting the accounts audited by the specified date. With a view to set the controversies at rest, the provisions of sections 44AB, 139 and 271B have been recast so as to make them effective. The provisions of section 44AB have been amended to ensure that tax audit is completed by the specified date and the audit report is furnished by that date irrespective of the fact that the return of income has been furnished or not by that date. However, the return whenever furnished shall be accompanied by a copy of the audit report and proof of filing the same by the specified date.” 5. He has also contended that the CIT (Appeals) while considering the case of the appellant in para 4(2) reads as under: “It was also argued that the appellant has filed his return of income not under sec.139(1) and also not in response to notice under sec.143(1) but in response to notice under sec.148, where upon the provisions of section 271B has no applicability. Further the learned counsel of the appellant has also draw my attention towards the CBDT’s circular No.387 dated 6.7.1984 which explains the object of introducing the section 44AB, wherein there was no mentioning of obtaining of audit report within time issue and stress is upon the audit report should have been before the assessing officer and to facilitate the assessing officer in completion of assessment work, which the appellant has complied with, as such the penalty so imposed, merits to be quashed.” 6. The Tribunal while reversing the case of the appellant has accepted the cancellation of levy of penalty for the assessment years 1991-92, 1992-93. However, for assessment years 1992-93, the Tribunal has observed as under: “ Now, the appeal is left for assessment year 1993-94. In this appeal, the AO has levied he penalty of Rs. 53,963/- which was cancelled by the CIT(A) whlo specifically mentioned that even if the accounts were not audited after the specified date and were produced during the assessment proceedings, causing no hindrance in the

(4 of 6) [ITA-132/2004] assessment proceedings, it should be treated that there was sufficient compliance of section 44AB. The CIT (A) also relied on a number of case laws as mentioned in his order. 4. After considering the rival submissions, we are of the view that in the instant case the assessee knew very well that his turnover attracts the audit. Income might be below taxable limit as that was believed. It was only after notice under section 148 that he declared the income for the purpose of tax. It may be mentioned that Hon’ble Calcutta High Court in the case of CIT Vs. Capital Electronics, 261 ITR page 4 observed that if any person fails without reasonable cause, to get his accounts audited within the time stipulate, then the concerned authority may levy the penalty. In the instant case, it was well known to the assessee being a regular assessee that his turnover attracts the audit. No reasonable cause was given, mere believe is not sufficient. Therefore, we set aside the order of the CIT(A) and restore the levy of penalty imposed by the AO. Thus this appeal is allowed in favour of the department.” 7. Counsel for the respondent Ms. Parinitoo Jain has taken us to the proceedings and contended that the assessee did not file his return under section 139 of the Income Tax Act and one of the condition mentioned in Section 271B has been flouted inasmuch as the asseessee has not submitted audited accounts which were required under Section 44AB of the Act. She has referred to the case of Shis Ram Raja Ram & Party and others Vs. Chief Commissioner of Income Tax and others- (2015) 281 CTR (Raj.) 214. She, thus, contended that the view taken by the Division Bench is required to be applied in this case and the appeal requires to be dismissed.

(5 of 6) [ITA-132/2004] 8. We have heard Mr. Jhanwar learned counsel for the appellant and Ms. Parinitoo Jain for the respondent. 9. On first count, in view of the fact that the Tribunal while considering the case of the department has failed to appreciate that the CIT (Appeals) has accepted the substantial compliance in view of the CBDT circular No.387 dated 6.7.1984 and found that it is not a default. We are of the opinion that the penal provisions rlating to levy of penalty for failure to get the account audited are to be construed strictly and if there are two views or opinions, the view which is in favour of the assessee is required to be taken. 10. The second limb of argument of Mr. Jhanwar is that audit report was not required as contemplated under section 44AB. It was only after the declaration in search proceedings that the turn over of the assessee crossed the audit limit. In our view after amendment/clarification which has been relied upon by Mr. Jhanwar, that on the date on which he was required to file return of his income was not exceeding Rs.40 lacs and the turn over of the appellant had exceeded Rs.40 lacs, only on account of the disclosure in survey. The appellant has submitted audit report submitted before the Assessing Officer in compliance to the notice under Section 148. He contended that the provisions of Section 148 of the Income Tax Act are not mentioned in any of the clauses of Section 271B of the Act, hence, penalty cannot be levied. 11. On both the counts, we reverse the view taken by the Tribunal and confirm the view taken by the CIT (Appeals). Therefore, the issue is answered in favour of the assessee and

(6 of 6) [ITA-132/2004] against the department. 12. The appeal stands allowed. (DINESH MEHTA)J. (K.S. JHAVERI)J. bblm