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CaseIQ

Commissioner Of Income-Tax v. Jai Durga Construction Co.

Allahabad High Court

Nov 18, 1999

Judgment

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Structured Summary of the Provided Opinion

Factual and Procedural Background

This is an appeal under section 260A of the Income-tax Act, 1961 instituted by the Commissioner of Income-tax, Allahabad, against an order dated 5 November 1998 in ITA No. 2343 (Alld.) of 1993 concerning the assessment year 1991–92.

Relevant events:

The assessee was required under section 44AB to get its accounts audited and obtain the audit report by the specified date of 31 October 1991.
An audit report dated 31 October 1991 was prepared and subsequently filed by the assessee along with a belated return on 20 January 1992.
The Assessing Officer imposed a penalty under section 271B on the ground that the return (and audit report) were not furnished within the time prescribed by section 139(1).
The learned Commissioner of Income-tax (Appeals) cancelled the penalty, following views taken by several Benches of the Income-tax Appellate Tribunal that obtaining the audit report by the specified date (even if filing was belated) precluded imposition of section 271B penalty under the law as it then stood.
The present appeal challenges the Tribunal's order upholding the cancellation of penalty.

Legal Issues Presented

Whether the Tribunal was justified in dismissing the Departmental appeal and holding that the audit report was obtained before the specified date, given that it was prepared on the last date (31 October 1991) and the return (with the report) was filed on 20 January 1992?
Whether the Tribunal was justified in holding that the audit report was obtained before the specified date under section 44AB of the Income-tax Act, 1961, in view of the fact that the audit report bears the date 31 October 1991?
Whether the Tribunal was justified in holding that, prior to amendment from 1 July 1995, there was no requirement of law to file the audit report before the specified date, given that section 44AB used the phrase "obtained before" the specified date?

Arguments of the Parties

Appellant (Commissioner/Assessing Officer)

The Assessing Officer imposed penalty under section 271B on the basis that the assessee failed to furnish the return of income along with the audit report within the time allowed under section 139(1).
The Commissioner contended that if the audit report was not filed before the Assessing Officer by the specified date, the assessee should be liable to penalty under section 271B.
The appeal questions whether an audit report dated 31 October 1991 but filed only on 20 January 1992 satisfies the statutory requirement.

Respondent (Assessee / Revenue bench view followed by CIT(A) and ITAT Benches)

It was not disputed that the audit report had been obtained by 31 October 1991.
The view taken by several ITAT Benches and accepted by the CIT(A) was that, as the law stood at the relevant time, section 44AB required only that the audit report be obtained by the specified date and did not mandate its independent filing with the Assessing Officer by that date; consequently, mere belated filing along with a belated return did not trigger penalty under section 271B.
The argument relies on the textual distinction between the earlier phrase "obtain before" the specified date and the later amendment (effective 1 July 1995) that substituted "furnish by".

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Court reviewed the statutory text and the sequence of events and reached the following conclusions as set out in the opinion:

Statutory requirement at the relevant time: The obligation under section 44AB, as it stood for the relevant assessment year, was to get the accounts audited and to obtain an audit report by the specified date (31 October 1991). There was no statutory obligation then to furnish that audit report to the Assessing Officer by that date.
Factual application: The audit report in the present case bore the date 31 October 1991, and it was common ground that the audit report had been obtained by that date; it was later filed with a belated return on 20 January 1992.
Assessing Officer's position and penalty: The AO imposed penalty under section 271B because the return (and audit report) were not furnished within the time prescribed by section 139(1). The Court analysed whether that imposition was consistent with the statutory language of section 44AB and section 271B as they existed at the relevant time.
Effect of later amendment: The Court noted that the Finance Act, 1995 amended the statutory language effective 1 July 1995 by substituting the words "furnish by" for "obtain before", thereby creating an explicit obligation to furnish the audit report by the specified date. Those amendments were not made retrospective, which the Court treated as confirmatory that prior to the amendment there was no requirement to file the audit report before the specified date.
Legal conclusion: On the basis of the statutory text as it stood at the relevant time and the non-retrospective nature of the subsequent amendment, the Court concluded that the Assessing Officer's contention (that non-filing with the Assessing Officer by the specified date attracts penalty under section 271B) was not sustainable from the language of section 44AB or section 271B as then framed.
Outcome of analysis: The Court agreed with the Tribunal's legal view and found that no substantial question of law arose from the order under challenge.

Holding and Implications

DISMISSED IN LIMINE

Direct effect on the parties:

The appeal by the Commissioner is dismissed in limine, which upholds the order canceling the penalty under section 271B imposed by the Assessing Officer.
The Court accepted the Tribunal's conclusion that obtaining the audit report by the specified date (31 October 1991) satisfied the statutory requirement as it then stood; belated filing with a belated return did not itself attract the penalty under section 271B for that period.

Broader implications: The opinion notes that the law was subsequently amended by the Finance Act, 1995 (effective 1 July 1995) to require furnishing the audit report by the specified date, but the amendment was not retrospective. The opinion does not purport to establish a new legal precedent beyond affirming the Tribunal's application of the law as it existed for the assessment year in question.

Show all summary ...

1. This appeal under section 260A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), has been preferred by the Commissioner of Income-tax, Allahabad, against an order dated November 5, 1998, passed in ITA No. 2343 (Alld.) of 1993 for the assessment year 1991-92. The following substantial questions of law are stated to arise out of the said order:

“(i) Whether the Tribunal was justified in dismissing the Departmental appeal and holding that audit report was obtained before the specified date in view of the fact that it was prepared on the last date of the specified date, i.e, on October 31, 1991, and without confirming/verifying when it was obtained by the assessee in view of the fact that it was filed along with the return of income on January 20, 1992?

(ii) Whether the Tribunal was justified in holding that audit report was obtained before the specified date as provided under section 44AB of the Income-tax Act, 1961, in view of the fact that audit report (as is evident from the date given on it) itself was prepared on October 31, 1991?

(iii) Whether the Tribunal was justified in holding that there was no requirement of law, as it stood at the relevant point of time, before its amendment from July 1, 1995, of filing the audit report before the specified date in view of the fact that section 44AB of the Income-tax Act, 1961, says that audit report be ‘obtained before’ the specified date so that it may be filed along with the return of income by/on the specified date?”

2. We have heard Sri Prakash Krishna, learned counsel for the appellant.

3. The relevant part of the Tribunal's order is as under

“2. In terms of section 44AB of the Income-tax Act, 1961, the assessee was required to get its accounts audited and to obtain the audit report by October 31, 1991. The audit report dated October 31, 1991, was filed by the assessee along with the belated return furnished on January 20, 1992. The Assessing Officer held that on account of its failure to furnish the return of income along with the audit report within the time allowed under section 139(1) of the Income-tax Act, the assessee was liable to penalty under section 271B of the Act. The penalty under consideration was imposed. In appeal, the learned Commissioner of Income-tax (Appeals), following certain decisions of the Income-tax Appellate Tribunal Benches, held that the audit report having been obtained in time, no penalty was exigible under section 271B of the Income-tax Act.

3. Both the parties were heard. There is no dispute about the fact that the audit report was obtained before the specified date. Most of the Benches of the Tribunal, including the Allahabad Benches, have been taking a view that in a case where the audit report, has been obtained by an assessee before the specified date, the mere fact that it has been filed belatedly along with the belated return of income, would not attract imposition of penalty under section 271B of the Act. It has been so held because the provisions of section 44AB, as they stood at the relevant point of time, did not require filing of audit report independently. It was only after realising the lacuna of law that the provisions of section 44AB and section 271B were amended by the Finance Act, 1995, with effect from July 1, 1995, enjoining upon the assessee to furnish the audit report before the specified date. These amendments have not been, made retrospective in operation, which fact also confirms that at the relevant point of time, filing of the audit report before the specified date, was not the requirement of law. In the view of the matter also, the order of the learned Commissioner of Income-tax (Appeals) cancelling the penalty does not call for any interference.”

4. At the relevant time, the obligation created by section 44AB was merely to get the accounts audited before the specified date. There was no obligation to furnish that audit report before the Assessing Officer before the specified date.

5. This obligation has been created by substituting the words “furnish by” for the words “obtain before” by the Finance Act, 1995, with effect from July 1, 1995. Thus, prior to the amendment the obligation of an assessee to whom under section 44AB applied was merely to get the accounts audited and obtain an audit report before the specified date. There is no dispute that in the present case the assessee complied with these requirements. The contention of the Commissioner that if the report has not been filed before the Assessing Officer before the specified date, the assessee becomes liable to penalty under section 271B is not sustainable from the language of section 44AB or section 271B. We are, therefore, of the opinion that the legal position is clear and self-evident and the Tribunal has taken the correct legal view. Therefore, no substantial question of law arises in the appeal. The same is hereby dismissed in limine.