MISC. APPEAL No. 506 OF 1999 (Against the Judgment dated 11/5/1999 passed by Sri Jordan Kachchap,Judicial Member and Sri Sikandar Khan, Accountant Member of Income-tax Appellate Tribunal, Patna Bench, Patna in I.T.A. No. 94/PAT/96). ------- M/S BIHAR STATE LEATHER INDUSTRIES DEVELOPMENT CORPORATION ------------- Appellant Versus COMMISSIONER OF INCOME TAX & ANR.- -----------------Respondents For the petitioner Mr. Ajay Rastogi, Adv. For the respondents : Mr. Harshwardhan Pd., Sr. Standing Counsel Mrs. Archana Sinha, Jr. Standing Counsel P R E S E N T THE HON’BLE MR. JUSTICE CHANDRAMAULI KR. PRASAD THE HON’BLE DR. JUSTICE RAVI RANJAN. Prasad & Ranjan, JJ. Bereft of unnecessary details, facts necessary for the decision of the present appeal are that the appellant-assessee is a Government Company and it filed return on 9th of December 1992 for the assessment year 1992-93. However, it did not file the audited account as provided under Section 44AB of the Income-Tax Act. The Assessing Officer by order dated 27/2/1995 determined the total income of the assessee. Later on, a show cause notice dated 2nd of June, 1995 was issued asking the assessee to show cause as to why levy of penalty as contemplated under Section 271B of the Income-tax Act be not levied. The assessee filed photocopies of the internal auditor’s report on 19th - 2 - February and it was contended that the Comptroller and Auditor General has not appointed the statutory auditors, hence audited account as provided under Section 44AB of the Income-Tax Act (hereinafter referred to as the ‘Act’) was not filed. The plea put forth by the assessee did not find favour with the Assessing Officer and it found that there was delay on the part of the assessee to complete the books of accounts. On these facts, the Assessing Officer came to the conclusion that the delay in filing the statutory auditor’s report is not on account of any delay by the Comptroller and Auditor General. Accordingly, it levied penalty of Rs. 1,00,000/- on the Assessee. The assessee carried the matter in appeal and the Commissioner of Income Tax, dismissed the appeal and while doing so, it observed that securing appointment of the Auditor through the Comptroller and Auditor General, is the responsibility of the Assessee and there being no reasonable cause for the failure to comply the provisions of Section 44AB of the Act, the imposition of penalty is legal and valid. The assessee thereafter preferred appeal before the Patna Bench of the Income-Tax Appellant Tribunal, which on its finding that there was no reasonable cause for not completing the books of account and obtaining the auditor’s report within the specified date as required under Section 44AB of the Act, dismissed the appeal. Aggrieved by the same, the assessee has preferred this appeal under Section 260A of the Act. By order dated 21.11.2000, the appeal has been admitted on the following substantial questions of law: (a) Whether on the facts and in the circumstances of the appellant’s case, the Income-Tax Appellate Tribunal is justified in confirming penalty of - 3 - Rs. 1,00,000/- imposed under Section 271B of the Income Tax Act”? (b). Whether on the facts and in the circumstances of the appellant’s case, the finding of the Income-Tax Appellate Tribunal that assessee has failed to complete its books of accounts for the year under consideration is vitiated in law as it is contrary to material on record ? (c) Whether on the facts and in the circumstances of the appellant’s case, the Incomne-Tax Appellate Tribunal is correct in holding that there was no reasonable cause for not obtaining the report of the auditor within specified date ? Before we proceed to consider the submission of Mr. Rastogi appearing on behalf of the assessee, we deem it expedient to give a look to the scheme of the Act in regard to the issue in question. Section 44AB of the Act inter alia provides that if the total sales, turn over or gross receipts, as the case may be, in business exceeds forty lacs rupees in any previous year, it is to be audited by an Accountant before the specified date. Section 619 (2) of the Companies Act, inter alia, provides that the auditor of a Government Company, shall be appointed or re- appointed by the Comptroller and Auditor General of India. Section 271B of the Act provides that if an assessee fails to furnish report of such audit as required under Section 44AB of the Act, the Assessing Officer may direct such assessee to pay by way of penalty a specified percentage of total sales, turn over or the gross receipts, or a sum of 1,00,000/- rupees, whichever is less. Section 273B of the Act, however, contemplates that notwithstanding the provision of Section 271B of the Act, no penalty shall be imposed if the assessee proves that there was reasonable - 4 - cause for the said failure. There is no dispute in the present appeal that the turn over of the assessee obliged audit of account by an Auditor under Section 44AB of the Act within the specified time. It is further not in dispute that without the said report, the assessment order determining total income of the assessee has been passed. In the face of the aforesaid facts what is required to be considered is as to whether assessee had exposed itself for the levy of the penalty under Section 271B of the Act or as to whether the reasonable cause has been shown by the assessee to get out of the net of Section 271B of the Act. Mr. Ajay Rastogi, appearing on behalf of the assessee submits that the very purpose of the statutory auditor’s report is to facilitate assessment proceeding and in the case in hand without the statutory report, the assessment order determining total income has been passed and in that view of the matter, the penalty was not fit to be levied. He points out that the breach is technical and venial in nature and the conduct of the assessee being not contumacious, the levy of penalty is illegal and invalid. His further submission is that it was obligation of the Comptroller and Auditor General to appoint Auditor under Section 619 (2) of the Companies Act and when he did not appoint the Auditor, fault does not lie with the assessee. Accordingly, his submission is that the assessee cannot be penalized for an Act over which it has no control. In support of the submission, reliance has been placed on a decision of the Punjab & Haryana High Court in the case of Commissioner of Income-Tax Vs. Mathana Model Co-operative - 5 - Credit and Service Society Ltd. 299 ITR 70, the decision of the Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Orissa 83 ITR 26, the decision of the Delhi High Court in the case of Azadi Bachao Andolan Vs. Union of India 252 ITR 471 and the decision of the Madhya Pradesh High Court in the case of Biaora Constructions Pvt. Ltd. Vs. Commissioner of Income-Tax and another 287 ITR 112. Mr. Harshwardhan Prasad, appearing on behalf of the Revenue, however, contends that the law enjoins the assessee to file Auditor’s report under Section 44AB of the Act and Section 271B provides for imposition of penalty for its failure. According to him, the assessee can get out of the net of penalty only when it is established that there was reasonable cause for it to have not complied with the requirement of Section 44AB of the Act. Having appreciated the rival submission, we do not have the slightest hesitation in accepting the broad submission of Mr. Rastogi that in case the assessee furnishes cause which is reasonable for non- compliance of the provisions of Section 44AB of the Act, it shall not be required to pay penalty. Whether a particular cause shown by the assessee is reasonable cause or not, is primarily a question of fact. However, in a case in which the conclusion arrived at is perverse and based on no material, same gives rise to a substantial question of law and shall be subject to appeal before this Court. In view of aforesaid, we do not deem it expedient to refer to the individual cases relied on by Mr. Rastogi. However, Mr. Rastogi’s submission does not deserve - 6 - acceptance on merit. Section 44AB of the Act requires the assessee to get its account audited by an Accountant before the specified date. Legislature has provided penalty for non-compliance of the aforesaid provision under Section 271B of the Act. The legislature under Section 273B of the Act has also provided the condition under which the penalty shall not be leviable. In the face of legislative provision referred to above, the assessee cannot absolve itself from payment of penalty only on the ground that the Assessing Officer had passed the assessment order determining its total income without the statutory auditot’s report. In our opinion, the assessee can be absolved from the payment of the penalty only when it brings its case within the four corners of Section 273B of the Act. Accordingly, we reject this submission of Mr. Rastogi. Only cause which according to the assessee is reasonable cause, is the failure of the Comptroller and Auditor General to appoint the statutory Auditor. There is nothing on the record to show that the assessee had informed the Comptroller and Auditor General that it had completed the books of accounts, and request was made to appoint an Auditor. Securing appointment of the Auditor through the Comptroller and Auditor General, is the responsibility of the assessee which it had failed and condoning the assessee default in such circumstance, in our opinion, would amount to subverting the law. We are of the considered view that the cause shown by the assessee is not a reasonable cause and it having not complied the requirement of Section 44AB of the Act had exposed itself to penalty - 7 - under Section 271B of the Act. The concurrent finding recorded by the Assessing Officer, the Commissioner of Income-Tax Appellate and the Income-Tax Tribunal is on consideration of relevant material. Accordingly, we conclude that the Income Tax Tribunal is justified in affirming penalty under Section 271B of the Act. Further the finding recorded by the Tribunal that assessee had failed to complete its books of account within stipulated period is based on material on record and not vitiated on any count. The finding by the Tribunal that no reasonable cause existed for not obtaining the audit report is also correct. In the result, we do not find any merit in the appeal and it is dismissed accordingly but without any order as to costs. Patna High Court Dated, 2ndSept.2008 AFR/S.Ali (Chandramauli Kr. Prasad, J.) (Dr. Ravi Ranjan, J.)