GNANADURAI,CHENNAI vs. ITO, CHENNAI

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

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/-.

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 , 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).

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".

, 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 , 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 , 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.

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 , 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.

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. , 32 &33/2016. :- 13 -:

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