THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.265 of 1996 01.12.2011 Between: Commissioner of Income-tax, Guntur … Petitioner AND Sandeep Wines, Nellore … Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.265 of 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) In obedience to the order of this Court dated 28.12.1995 in ITC No.43 of 1991 – on an application filed by the Revenue under Section 256(2) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal, Hyderabad referred the following question for the opinion of this Court. “Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal erred in law in finding that there was a reasonable cause for not filing the Audit Certificate under Section 44AB within time and directing remand of the matter to the Tribunal to grant relief if the Audit report was obtained prior to the date of Assessment?” The following brief reference to the fact of the matter is necessary for considering the question referred for this Court which is as follows. The respondent assessee is a firm carrying on the business in Indian Made Foreign Liquor. For the assessment year 1985-86 they filed return of income admitting turnover at Rs.1,68,71,953/-. During the survey conducted under Section 153A of the Act, the assessee could not produce the books of accounts on the ground that they were with accountant, a notice under Section 271B of the Act was issued on 08.9.1987 proposing to levy penalty. In their explanation, the assessee pleaded that the accounts could not be audited as their accountant was sick. Overruling the objection, the assessing officer levied the penalty. In appeal the assessee was unsuccessful. The Appellate Tribunal, however, remanded the matter to the assessing officer with a direction to examine the date when the audit report is said to have been obtained. The assessing officer further directed to cancel the penalty levied under Section 271B of the Act if the audit report is prior to the date of assessment. Aggrieved, the Commissioner sought reference under Section 256(1) of the Act. The same was declined whereupon the Commissioner filed ITC No.43 of 1991. This Court by order dated 28.12.1995 advised the Appellate Tribunal to refer the question to this Court. This Court heard the Junior Standing Counsel for the Income-tax department and the Counsel for the assessee. At the relevant time Section 271B of the Act reads as under. 271B. Failure to get accounts audited. If any person fails, without reasonable cause, to get his accounts audited in respect of any previous year or years relevant to an assessment year or obtain a report of such audit as required under section 44AB, the Income-tax Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less. If there is a non-compliance with Section 44AB of the Act by not filing the audited accounts along with return of income if gross receipts exceeds Rs.40,00,000/- in any previous year relevant to the assessment year, penalty equal to one-half per cent to the total sales, turnover or gross receipts is attracted. But if the assessee has a reasonable cause for not complying with the requirement of Section 44AB of the Act, penalty cannot be levied. The burden to show that there was a reasonable cause for not submitting audited accounts along with the return of income is always on the assessee. After receiving the show cause notice the assessee pleaded reasonable cause and stated that their accountant who was in-charge of writing accounts was not attending the job due to sickness; the books of accounts could not be finalized owing to non-completion of books relating to assessment year 1985-86 and 1986-87; the assessee had to submit the books of accounts for audit by the Excise department; and that the firm was in difficulties. They also pleaded that there is no willful intention on their part in not furnishing audited accounts as required under Section 44AB of the Act. Dealing with this aspect, the Appellate Tribunal observed as under. In support of the delay the reason submitted by the assessee is sickness of the Accountant. The assessee has got huge turnover and the services of a competent accountant is but necessary for completing the accounts so as to be fit for audit. It is in this context that the sickness of the accountant assumes importance. The Income-tax Officer has himself granted extension of the time for submission of the return on the plea of the sickness of the accountant and therefore a reasonable cause existed. It was also stated that the audit report was obtained prior to the completion of assessment but the same could not be furnished due to some natural calamities-cyclone. The factum of the assessing officer himself granting extension of time for submission of return is not denied. The fact that such extension was granted on the ground of sickness of the accountant is not denied. Therefore, the Appellate Tribunal, in our considered opinion, is correct in assuming that there was reasonable cause for the assessee in not submitting the audited accounts along with the return. As the assessee pleaded that audited accounts were submitted even before the completion of assessment the matter was remanded for assessing officer to verify the same. Therefore, we are convinced that the Appellate Tribunal was not in error of law in finding that there was reasonable cause for not filing audit certificate under Section 44AB of the Act within time. Accordingly we answer the reference in the negative in favour of the assessee and against the Revenue. The Referred Case shall stand disposed of accordingly. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) December 01, 2011. YS