GNANADURAI,CHENNAI vs. ITO, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The appeals filed by the assessee are directed against

common orders of Commissioner of Income Tax (Appeals)-14,

Chennai dated 19.10.2015 for the above assessment years passed

u/s.271B and 250 of the Income Tax Act, 1961 (herein after referred

ITA Nos.31, 32 &33/2016. :- 2 -:

to as ‘’the Act’’). Since the issue in these appeals are common in

nature, these appeals are clubbed, heard together, and disposed of by

this common order for the sake of convenience.

Commissioner of Income Tax (Appeals) erred in confirming the penalty

without considering the facts and genuine hardship of the assessee

and distinguished the case laws in the appellate proceedings.

2012 for adjudication. The assessee is a Senior Citizen and in the

business of stitching seat covers for the assessment year 2011-2012,

the Accounts of assessee are covered by provisions of tax audit

u/s.44AB of the Act and the assessee filed return of income alongwith

Tax Audit report on 31.03.2013 with total income of �11,82,657/-. The

assessee is a proprietor and in the business of stitching job works in

the trade name M/s. Duro Seats and derive income from business and

interest on fixed deposits. The assessee as in earlier years undertaken

stitching of automobile seat covers for M/s. Varroc Engineering (P) Ltd

a group concern of M/s. Bajaj India Ltd from units at Aurangabad and

Rudrapur in Uttaranchal. Further supplying seat cover to Seats India

Technics (P) Ltd (OEM Supplier for M/s. Hyundai India Ltd) from

Chennai unit. The case was selected under scrutiny norms for

ITA Nos.31, 32 &33/2016. :- 3 -:

disclosure of sundry creditors of �1.75 crores in Balance Sheet as on

31.03.2011 against turnover of �2.19 crores. The Assessing Officer to

verify the genuiness of sundry creditors issued notice u/s.143(2) of the

Act. In compliance to notice, the ld. Authorised Representative of

assessee appeared from time to time and filed copy of return of

income, computation of income, Tax audit report, Audited statements

of accounts, copies of bank accounts and copy of fixed deposits

receipts. On perusal of Balance sheet and ledger accounts, the ld.

Assessing Officer found sundry creditors included sale tax liability

payable to the Government �1,38,18,816/-. The ld. Counsel explained

the assessee has Health issues and due to which the business

suffered heavily and fell in financial debts. The Sales tax department

has issued instructions to the Sundry Debtor M/s. Varroc Engineering

(P) Ltd to withhold the payment of assessee and directed to pay to

sales tax department. The ld. Assessing Officer disallowed sales tax

payment u/sec. 43B, contribution to ESI & PF after due date u/sec.

36(1)(v)(a) and 25% of repairs and maintenance of vehicle as personal

expenditure and added interest on bank accounts to the returned

income and assessee income of �21,70,705/-.

u/s.271B of the Act as the Books of accounts are not Audit within the

ITA Nos.31, 32 &33/2016. :- 4 -:

stipulated time under provisions of 44AB of the Act and defaulted in

not filing of Audited report within due date of Sec.139(1) of the Act. In

compliance to penalty notice dated 21.03.2014 and the case was

posted for hearing on 28.03.2014, but due to change of Auditor, the

assessee filed submissions in the penalty proceedings on 21.05.2014

explaining the facts and circumstances that assessee is suffering from

health problems from the year 2005 onwards and has undergone

coronary angioplasty in June, 2008. Due to prolonged illness the

assessee could not concentrate on business affairs which resulted in

financial defaults including sales tax liability followed by labour

problems at Nasik unit and delay in payment of contribution of ESI/PF

payments. As the crisis increased from year to year being a proprietor

he could not concentrate and manage the business. The assessee has

delayed in getting the books of accounts audited under provisions of

Sec. 44AB of the Act. The ld. Assessing Officer perused the

documentary evidence of health problems and observed that inspite

of prolonged illness and health conditions, the assessee is having a

good turnover of �2.19 crores for the year ending 31.03.2011 and

overlooked the decline of turnover gradually. The assessee could not

concentrate on business due to health issues and protracted litigation

with commercial tax department on Sales tax liability and labour

ITA Nos.31, 32 &33/2016. :- 5 -:

problems at Nasik unit cannot be considered reasonable cause for non

complying of provisions of Tax Audit u/Sec. 44B of Books of accounts

and observed at para 7 of order as under:-

“Thus, in view of the above reasoning, it is quite clear that although the assessee had faced certain problems in his personal/professional fronts, he had not bothered to comply with the statutory provision despite being aware of the penal consequences. As such, there was no justification to prove that there were reasonable causes & circumstances were beyond the control of the assessee to comply with the said requirement. Hence, I consider that there is willful default in complying with the provision of Section 44AB. It is a fit case for levy of penalty. Accordingly, penalty u/s.271B is leviable.

and Assessing Officer levied penalty of �1,09,790/- u/sec 271B of the

Act. Aggrieved by the order, the assessee has filed an appeal before

the Commissioner of Income Tax (Appeals).

Representative reiterated submissions made before the Assessing

Officer and controvert the order of ld. Assessing Officer levying

penalty as Bad in law also explained the critical circumstances of the

assessee on health issues due to which the assessee could not file

return of income and get accounts audited u/sec. 44AB within due

date and referred at page no.2 of CIT order:-

ITA Nos.31, 32 &33/2016. :- 6 -:

Case Law: K. Ravikumar And Co. vs ITO (Appellate Tribunal, Madras) on 7 February, 1989 - One of the partners Sri K. Srinivasan was seriously ill during 1985 and he was actuallv admitted in hospital. for a surgery on 21-9-1985. The illness of the managing partner had clearly affected the day-to-day business of the firm and, therefore, the normal functioning of the business was clearly affected. Having due regard to all the attendant circumstances, the period of delay, the conduct. of the assessee in keeping the Department informed of the reasons for delay etc., it was held by the Appellate Tribunal that "in view of the reasonable cause having been established for the delay in the audit of accounts, no penalty is eligible on· the facts of the present case".

ITA Nos.31, 32 &33/2016. :- 7 -:

The ld. Authorised Representative emphasized on the working system

of the business units situated in Aurangabad, Chennai and

Uttaranchal. The assessee being an individual has to make constant

Travel and shuttle to these places and also the Auditor who conduct

Audit of Books of Accounts and represented in assessment and

penalty proceedings was passing through mental tension and

matrimonial family problems was granted divorced by the Court. The

Books could not be audited due to non availability of Chartered

Accountant involved in family court litigation. The ld. Authorised

Representative further relied on the decision of Patna Tribunal in the case of ITO vs. Gayatri Coal Supply Co. dated 12th June, 1997 where

the Tribunal has held that the penalty u/s. 271B is not automatic but

would depend upon the assessee’s failure to furnish any reasonable

cause for not obtaining the audit report within the specified date under

Sec. 44AB. On this proposition, the Tribunal found that Audit of

accounts of earlier years have to be completed before the accounts

for the subsequent year could be taken up and found the delay in

completing the accounts for the particular year was a reasonable

cause and cancelled the penalty. The assessee explained the

bonafide credential in filing the return for earlier assessment year

ITA Nos.31, 32 &33/2016. :- 8 -:

2000-2001 to 2008-09 within due date u/s.139(1) of the Act observed

at CIT(A) order at page no. 4 as under:-

‘’SUMMARY - Mr. Gnqnadurai, has been doing business and has Tax Audit reports filing from the Assessment year 2001-02 onwards. He has been filing returns for all the year up to 2008-09 without any delay as shown below in the Chart

Asst. Due Date Date of Delay of Year of Return filing return 31st Oct 01 31st Oct 01 1 2000-01 No delay 31st Oct 01 31st Oct 01 2 2001-02 No delay 31st Oct 02 31st Oct 02 3 2002-03 No delay 1st Dec. 03 1st Dec. 03 4 2003-04 No delay 5 2004-05 Ist Nov. 04 Ist Nov. 04 No delay 31st Oct 05 31st Oct 05 6 2005-06 No delay 31st Oct 06 31st Oct 06 7 2006-07 No delay 15th Nov 07 31st Oct 07 8 2007-08 No delay 30th Sep 08 29th Sep. 08 9 2008-09 No delay

Unfortunately, after the second heart attack Mr. Gnanadurai had in 2008, his health conditioned worsened. This impacted in his business and he incurred huge business loss as well as had serious problems in settling his business dues. (Copies of the hospital records enclosed) In addition, personal family issues of the Chartered Accountant, who has done the audit of Mr. Gnanadurai, since 2001-02, has also got affected during this

period (2009 - 20i3) which also caused in filing the returns late after the due date. (Copies of the Court Orders enclosed). Hence we request your good self to kindly waive the penalty imposed by the Assessing Officer and give relief for the Assesse Mr. Gnanadurai.

Thanking You, Yours faithfully,

V.V.T. Niraiyagham Proprietor

ITA Nos.31, 32 &33/2016. :- 9 -:

Encl: 1. Copies of hospital records. 2. Copies of Court orders w.r.t. family issue of Auditor. 3. Copies of returns filed (A.Y. 2001-02 to 2008-09)’’

The Commissioner of Income Tax (Appeals) gave a elaborate findings

and concurred with the findings of the Assessing Officer and accepts

that only from assessment year 2009-2010, the tax audit report was

not finalized within stipulated time were assessee was undergoing

prolonged illness and facing litigations with Government. The ld.

Commissioner of Income Tax (Appeals) also distinguished the

Hyderabad Tribunal Special Bench decision ACIT vs. Gayatri Traders

(1996) 222 ITR 1 with facts of the assessee, as assessee could not

explain Reasonable cause u/s.273B of the Act and confirmed the

penalty levied by the Assessing Officer. Aggrieved by the order of the

Commissioner of Income Tax (Appeals), the assessee assailed an

appeal before the Tribunal.

reiterated the submissions made in the assessment proceedings,

penalty proceedings and appellate proceedings and argued vehemently

justifying grounds and circumstances of events which assessee passed

through during financial years and emphasized that the assessee is a

Senior Citizen of India and in the business for more than a decade

ITA Nos.31, 32 &33/2016. :- 10 -:

and filing return of income regularly upto assessment year 2008-09

and paid taxes to Government. The assesssee’s bonafides for

compliances of provisions of law be proved for the assessment years

2000-2001 to 2008-09 and the return of income was filed alongwith

Tax audit report u/sec. 44AB of the Act before due date u/s.139(1) of

the Act. But only during the financial year 2008-09, 2009-10 and

2010-11, the assessee passed through tremendous pressure and

suffered Heart attack in 2008 as Health condition deteriorated

followed by vexatious litigation with the Government on payment of

sales tax and statutory payment of EPF & ESI indirectly caused loss to

the business. The Auditor of the assessee for conducting Tax audit

and Consultant of Income Tax and management issues was passing

through family problems which influenced Chartered Accountant to

approach the Court for obtaining divorce. All these factors of health

issues and inability of the Auditor due to serious family issues and

also assessee being proprietor and Senior Citizen has to shuttle

between Chennai, Arugangabad and Uttaranchal and solve labour

problems be considered as reasonable cause. The ld. Counsel also filed

paper book with show cause notice of Government and medical

papers and family court papers. The ld. Counsel further drew

attention to hospitalization and treatment papers of assessee at page

ITA Nos.31, 32 &33/2016. :- 11 -:

15 to 43 were the assessee has passed through medical alignment

during said period and supported his arguments with the order of

family Court in case of divorce of the Chartered Accountant dt

31.05.2013, which crippled the assessee to get his accounts audited

and relied on Tribunal decision of Gayatri Traders (supra) and prayed

for deletion of penalty.

orders of the lower authorities and opposed to the grounds of the

assessee.

record and judicial decisions cited. The ld. Authorised Representative

emphasized that the assessee is a proprietor and Senior Citizen has

shown the bonafides of filing return of income for earlier assessment

years 2000-2001 to 2008-09 referred in Commissioner of Income Tax

(Appeals) order within due date and tax audit report u/s.44AB was also

filed. The main problem arised in financial year 2008-09 were the

assessee substantiates his genuine hardship and also suffered Heart

attack in 2008 with severe health problems had a cascading effect on

the management of affairs of business which resulted in the losses

ITA Nos.31, 32 &33/2016. :- 12 -:

and labiality of Sales Tax and statutory payments followed by labour

problem in unit. The Commissioner of Income Tax (Appeals) though

accepted the findings of the assessee on health problems and other

issues and assessee’s could have got the accounts Audit u/s.44AB as

business is being managed. We find the observations of the

Commissioner of Income Tax (Appeals) are routine and overlooked the

genuine hardship of the assessee on the basis of evidence filed in

appellate proceedings. No doubt it is a statutory duty cast on the

assessee to get his accounts audited u/Sec. 44AB but circumstances

has gone beyond the control. The assessee has complied with Audit

u/sec. 44AB and filed Tax audit report belatedly alongwith return of

income u/sec. 139(4) of the act. The Commissioner of Income Tax

(Appeals) and the Assessing Officer are suspicious and action of

comparing business turnover with the assessee’s health condition is

illogical and not accepted. So, considering the apparent facts

satisfying the reasonable cause and judicial decisions relied by the

assessee, we set aside the order of the Commissioner of Income Tax

(Appeals) and direct the Assessing Officer to delete the penalty. The

appeal of the assessee is allowed.

ITA Nos.31, 32 &33/2016. :- 13 -:

Order pronounced on Thursday, the 17th day of March, 2016 at Chennai.

Sd/- Sd/- (ए. मोहन अलंकामणी) (जी. पवन कुमार) (A. MOHAN ALANKAMONY) (G. PAVAN KUMAR) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:17th March, 2016. KV

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF