Cane Development Union v. Asstt. CIT

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The Tax Publishers2013 TaxPub(DT) 0901 (Luck-Trib) : (2013) 050 (II) ITCL 0453 INCOME TAX ACT, 1961 --Penalty under section 271B--Failure to get accounts audited Exempted income under section 80P(2)(a) was acceptable as a bona fide belief, whether for not levying penalty-- assessing officer observed that assessee's final accounts for the relevant years were not audited under section 44AB and no report was furnished along with return of income even as assessee's turnover exceeded the threshold limit of Rs. 40 lakhs, therefore, there was contravention of section 44AB and due to same, assessee was liable to penalty under section 271B. Assessee contended that its entire income was exempt under section 80P(2)(a) and as such there was no loss to revenue, therefore, penalty under section 271B was not leviable. Assessing officer rejected assessee's explanation and passed a penalty order under section 271B and also held that for assessment year 2007-08, show-cause notice for levy of penalty was issued prior to filing of return for relevant year, therefore, assessee's contention of bona fide belief was not acceptable. *Held:* Exemption of income from tax had been considered a valid cause for holding a bona fide belief that the assessee was not liable to get its accounts audited under section 44AB, which the assessee, irrespective of the exemption of its income was obliged to and indeed does. Also, it is trite law that there is no maxim in law that everyone knows the law and as such, where circumstances were shown to exist that the Tribunal came to a finding of fact that assessee did indeed held a bona fide belief that its accounts were not required to be audited, i.e., held in good faith, penalty for violation of provision ought not to be levied for the assessment year 2006-07. Moreso, having been served with a legal notice for the levy of penalty under section 271B, it was incumbent on the assessee to cause to comply with the provision, at least for the second year, and in any case, seek legal but the assessee deliberately adopted a legal stand, which was without basis, so that it could not claim to have acted in good faith or under a bona fide belief, therefore, the levy of penalty under section 271B for assessment year 2007-08 was justified. The only issue that arises in the instant case is the validity of the assessee's plea of the non-audit of its accounts under section 44AB as being guided by the fact of its entire income being tax exempt under section 80P and, accordingly, of there being no loss to the Revenue. That is, whether such a plea would constitute 'a reasonable cause' within the meaning of section 273B which would, where so, operate to save penalty, inter alia, under section 271B. 'Reasonable cause' is a matter of fact, and would therefore require a finding of fact by an appellate authority was called upon to adjudicate the matter. The assessee has not stated any basis for entertaining the belief that its income being exempt under section 80P, it is not obliged to get its accounts audited under section 44AB, the terms of the provision, are abundantly clear, admitting of no scope for such a view. A combined reading of the decisions in the case of Iqbalpur Co-operative Cane Development Union Ltd. (supra) and by the Tribunal in the case of U.P. Co-operative Cane Development Union Ltd. (supra) would show that an exemption of income from tax has been considered a valid cause for holding a bona fide belief that the assessee was not liable to get its accounts audited under section 44AB of the Act, i.e., for the purpose of filing its return of income, which the assessee, irrespective of the exemption of its income, is obliged to and indeed does. Though a reasonable cause, which mitigates penalty (section 273B), is to be proved by the assessee, and which it has not in the instant case, i.e., by leading any positive evidence, there was no reason to doubt the assessee when it states that it was under a bona fide belief that it was not required to get its accounts audited under section 44AB in view of its entire income being exempt under section 80P of the Act. Its' statutory audit was completed well in time, so that it was definitely in a position to obtain an additional report under section 44AB from a firm of Chartered Accountants, i.e., were it to be in its knowledge or been so advised. In fact, had its statutory auditors qualified to be Accountants under the Act, they would have themselves guided the assessee properly in this regard. The same, nevertheless, shows the assessee's bona fides in the matter; it getting its accounts audited as well as filing the return of income in time. There was sufficient cause for the assessing officer not to levy penalty under section 271B of the Act for the first year (i.e., assessment year 2006-07) in spite of the default in complying with the provision of section 44AB. The return for the second year (i.e., assessment year 2007-08) was filed on 24-09-2007, even as, as afore-stated, the show-cause notice for the levy of penalty under section 271B for the first year (assessment year 2006-07) stood issued to it on 13-6-2007. As such, ignorance of law, i.e., of it being required to get its accounts audited under section 44AB irrespective of the quantum and nature of its income, including the tax status, tax-exempt or otherwise, thereof, which forms the edifice of the assessee's case, completely breaks down for the second year, i.e., assessment year 2007-08. Having been served with a legal notice for the levy of penalty under section 271B, it was incumbent on the assessee to cause to comply with the provision, at least for the second year and, in any case, seek legal opinion in its respect. Rather, it could have, on its own, requested the assessing officer not levy the penalty for that year (i.e., assessment year 2006-07), explaining that the non-audit of its accounts under section 44AB stood caused only due to its ignorance of law, acting though in good faith, and for allowing it reasonable time to furnish the report there-under before the completion of assessment. Not only does it do nothing of the sort, it goes ahead to file the return of income for the following year, after over three months, again in the same manner, i.e., without getting its accounts audited and obtaining a report under section 44AB of the Act, which it was mandatorily required to furnish. That is, the assessee deliberately adopts a legal stand, which is without basis, so that it cannot claim to have acted in good faith or under a bona fide belief. The plea of 'reasonable cause' would thus not obtain for the second year, and the levy of penalty under section 271B of the Act for the assessment year 2007-08 is accordingly upheld. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0901 (Luck-Trib) : (2013) 050 (II) ITCL 0453

INCOME TAX ACT, 1961

--Penalty under section 271B--Failure to get accounts audited Exempted income under section 80P(2)(a) was acceptable as a bona fide belief, whether for not levying penalty-- assessing officer observed that assessee's final accounts for the relevant years were not audited under section 44AB and no report was furnished along with return of income even as assessee's turnover exceeded the threshold limit of Rs. 40 lakhs, therefore, there was contravention of section 44AB and due to same, assessee was liable to penalty under section 271B. Assessee contended that its entire income was exempt under section 80P(2)(a) and as such there was no loss to revenue, therefore, penalty under section 271B was not leviable. Assessing officer rejected assessee's explanation and passed a penalty order under section 271B and also held that for assessment year 2007-08, show-cause notice for levy of penalty was issued prior to filing of return for relevant year, therefore, assessee's contention of bona fide belief was not acceptable. Held: Exemption of income from tax had been considered a valid cause for holding a bona fide belief that the assessee was not liable to get its accounts audited under section 44AB, which the assessee, irrespective of the exemption of its income was obliged to and indeed does. Also, it is trite law that there is no maxim in law that everyone knows the law and as such, where circumstances were shown to exist that the Tribunal came to a finding of fact that assessee did indeed held a bona fide belief that its accounts were not required to be audited, i.e., held in good faith, penalty for violation of provision ought not to be levied for the assessment year 2006-07. Moreso, having been served with a legal notice for the levy of penalty under section 271B, it was incumbent on the assessee to cause to comply with the provision, at least for the second year, and in any case, seek legal but the assessee deliberately adopted a legal stand, which was without basis, so that it could not claim to have acted in good faith or under a bona fide belief, therefore, the levy of penalty under section 271B for assessment year 2007-08 was justified.

The only issue that arises in the instant case is the validity of the assessee's plea of the non-audit of its accounts under section 44AB as being guided by the fact of its entire income being tax exempt under section 80P and, accordingly, of there being no loss to the Revenue. That is, whether such a plea would constitute 'a reasonable cause' within the meaning of section 273B which would, where so, operate to save penalty, inter alia, under section 271B. 'Reasonable cause' is a matter of fact, and would therefore require a finding of fact by an appellate authority was called upon to adjudicate the matter. The assessee has not stated any basis for entertaining the belief that its income being exempt under section 80P, it is not obliged to get its accounts audited under section 44AB, the terms of the provision, are abundantly clear, admitting of no scope for such a view. A combined reading of the decisions in the case of Iqbalpur Co-operative Cane Development Union Ltd. (supra) and by the Tribunal in the case of U.P. Co-operative Cane Development Union Ltd. (supra) would show that an exemption of income from tax has been considered a valid cause for holding a bona fide belief that the assessee was not liable to get its accounts audited under section 44AB of the Act, i.e., for the purpose of filing its return of income, which the assessee, irrespective of the exemption of its income, is obliged to and indeed does. Though a reasonable cause, which mitigates penalty (section 273B), is to be proved by the assessee, and which it has not in the instant case, i.e., by leading any positive evidence, there was no reason to doubt the assessee when it states that it was under a bona fide belief that it was not required to get its accounts audited under section 44AB in view of its entire income being exempt under section 80P of the Act. Its' statutory audit was completed well in time, so that it was definitely in a position to obtain an additional report under section 44AB from a firm of Chartered Accountants, i.e., were it to be in its knowledge or been so advised. In fact, had its statutory auditors qualified to be Accountants under the Act, they would have themselves guided the assessee properly in this regard. The same, nevertheless, shows the assessee's bona fides in the matter; it getting its accounts audited as well as filing the return of income in time. There was sufficient cause for the assessing officer not to levy penalty under section 271B of the Act for the first year (i.e., assessment year 2006-07) in spite of the default in complying with the provision of section 44AB. The return for the second year (i.e., assessment year 2007-08) was filed on 24-09-2007, even as, as afore-stated, the show-cause notice for the levy of penalty under section 271B for the first year (assessment year 2006-07) stood issued to it on 13-6-2007. As such, ignorance of law, i.e., of it being required to get its accounts audited under section 44AB irrespective of the quantum and nature of its income, including the tax status, tax-exempt or otherwise, thereof, which forms the edifice of the assessee's case, completely breaks down for the second year, i.e., assessment year 2007-08. Having been served with a legal notice for the levy of penalty under section 271B, it was incumbent on the assessee to cause to comply with the provision, at least for the second year and, in any case, seek legal opinion in its respect. Rather, it could have, on its own, requested the assessing officer not levy the penalty for that year (i.e., assessment year 2006-07), explaining that the non-audit of its accounts under section 44AB stood caused only due to its ignorance of law, acting though in good faith, and for allowing it reasonable time to furnish the report there-under before the completion of assessment. Not only does it do nothing of the sort, it goes ahead to file the return of income for the following year, after over three months, again in the same manner, i.e., without getting its accounts audited and obtaining a report under section 44AB of the Act, which it was mandatorily required to furnish. That is, the assessee deliberately adopts a legal stand, which is without basis, so that it cannot claim to have acted in good faith or under a bona fide belief. The plea of 'reasonable cause' would thus not obtain for the second year, and the levy of penalty under section 271B of the Act for the assessment year 2007-08 is accordingly upheld.