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[2022] 99 ITR (Trib) 156 (ITAT[Raipur])

[BEFORE THE INCOME-TAX APPELLATE TRIBUNAL— RAIPUR BENCH]

(virtual court)

JILA SAHAKARI KENDRIYA BANK MARYADIT

(formerly known as Jila Sahakari Krishi Aur Gramin Vikas Bank Maryadit)

v.

INCOME-TAX OFFICER

RAVISH SOOD ((Judicial Member)) and RATHOD KAMLESH JAYANTBHAI ((Accountant

Member))

June 2, 2022.

Section(s): Income-tax Act, 1961, s. 271B

Assessment Year: 2009-10
Favouring: Assessee, person

PENALTY — FAILURE TO GET ACCOUNTS AUDITED — NOTICE — LIMITATION — NOTICE

UNDER SECTION 271B ISSUED TWO AND HALF YEARS AFTER ASSESSMENT ORDER
PASSED — BARRED BY LIMITATION — PENALTY LEVIED CANNOT BE SUSTAINED —
INCOME-TAX ACT, 1961, s. 271B

The assessee derived income from banking activity giving out loans to the farmers. For
the assessment year 2009-10, the assessee’s return declaring loss was accepted by the
Assessing Officer on December 31, 2011. On June 16, 2014 the Assessing Officer issued a
show-cause notice under section 271B of the Income-tax Act, 1961 on the ground that
the assessee had failed in complying with the provisions of section 44AB read with section
271B . Since the turnover for the year under consideration was Rs. 37.66 crores he levied
penalty of Rs. 1,00,000 under section 271B of the Act. The Commissioner (Appeals)
sustained the order of the Assessing Officer. On appeal :

Held, that there was no finding in the assessment order for levy of penalty for the default
under section 271B of the Act and it was not disputed that after passing of the order on
December 31, 2011, the notice was issued only on June 16, 2014 after two and half years
after the assessment was completed, which was very abnormal time to fasten the liability
on account of alleged default. In between there was no notice and even the assessment
order was silent on the levy of the penalty. Therefore, the levy of penalty 30 months after
the completion of the assessment, was barred by limitation and the penalty levied under
section 271B of the Act was to be deleted.

CIT v. E. C. C PROJECT (P.) LTD. [2015] 374 ITR 44 (All), AMIT SABHARWAL v. ITO (I. T.
A. No. 886/Delhi/2018, dated May 14, 2019) and SIBONARAYAN PATRO AND BORS. v.
ITO (I. T. A. Nos. 255 to 257/Cuttack/1994, dated February 16, 1996) relied on.

Cases referred to :

Amit Sabharwal v. ITO (I. T. A. No. 886/Delhi/2018, dated May 14, 2019) (para 11)

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CIT v. E. C. C Project (P.) Ltd. [2015] 374 ITR 44 (All) (para 10)
Sibonarayan Patro and Bors. v. ITO (I. T. A. Nos. 255 to 257/Cuttack/1994, dated
February 16, 1996) (para 12)

I. T. A. No. 281 /Raipur/ 2017 (assessment year 2009-10).

Nikhilesh Begani for the assessee.

G. N Singh for the Department.

ORDER

Page No : 0157

The order of the Bench was pronounced by

1. Rathod Kamlesh Jayantbhai (Accountant Member).—This appeal is filed by the assessee

aggrieved from the order of the Commissioner of Income-tax (Appeals), Bilaspur
(hereinafter referred as, "Ld. CIT(A)") for the assessment year 2009-10 dated August 18,
2017 which in turn arises from the order passed by the Assessing Officer under section
271B of the Income-tax Act, 1961 (in short, "the Act") dated December 31, 2014.

2. The hearing of the appeal was concluded through audio-visual medium on account of
Government guidelines on account of prevalent situation of covid-19 pandemic, both the
parties have placed their written as well as oral arguments during this online hearing
process.

Page No : 0158

3. Before us the assessee has raised the following grounds in this appeal :

Ground No. I

That the penalty order passed by the learned Income-tax Officer ('the AO') is highly
illegal, bad in law, unsustainable and not in accordance with the provisions of law.

Ground No. II

On the facts and in the circumstances of the case as well as in law, the learned
Commissioner of Income-tax (Appeals), Bilaspur (here inafter referred to as, "the Ld.
CIT(A)") has erred in confirming the order of the Assessing Officer imposing a penalty of
Rs. 1,00,000 under section 271B of the Act which is highly illegal, unjustified, harsh,
unwarranted, not proper on facts and not in accordance with the provisions of law. The
learned Commissioner of Income-tax (Appeals) failed to appreciate that the accounts of
the appellant-soci ety were required to be mandatorily audited by the Registrar of
Cooperative Society and only after that the same could be subjected to tax audit under
section 44AB of the Act hence, there existed a reasonable cause for delayed conduct of
tax audit.

Hence, it is prayed that the penalty of Rs. 1,00,000 imposed under the provisions of
section 271B of the Act may please be deleted.

Ground No. III

That the appellant craves leave to add, amend, alter or delete all or any of the grounds
of appeal at the time of hearing of the appeal."

4. Pithily stated, the assessee filed return of income on March 29, 2010 declaring loss of

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Rs. 8,92,526. Subsequently to that the case was selected for scrutiny under CASS. The
assessee derives income from banking activity basically in the type of giving out loans to
the farmers. After examining the various aspect and documents, the return of income
shown by the assessee accepted by the Assessing Officer vide assessment order dated
December 31, 2011. On June 16, 2014 the learned Assessing Officer issued a notice under
section 271B stating that since the assessee have failed in complying with the provisions
of section 44AB read with section 271B the assessee was liable for penalty under section
271B of the Act and therefore, asked to show cause as to why the penalty under section
271B of the Act should not be levied.

5. In response the assessee submitted their reply to the Assessing Officer in response to
the notices issued and the main contentions raised by the assessee is extracted
hereinbelow for the sake of brevity of the facts :

Page No : 0159

"It is submitted that the assessee being a co-operative society that under the bye-laws,
rules and regulations of the society, the accounts of the assessee are required to be
compulsorily audited by persons deputed by the Registrar of Co-operative Societies
although as per Income-tax Act, 1961. Tax audit report required to be obtained from
chartered accountant before due date of fling return of income, i. e., on or before
September 30, 2009 but the Government auditors not under the control of the
assessee, completed the audit and issued certificate on February 9, 2010 well after the
due date, therefore, the assessee could play no role in getting the accounts audited in
time. Thus, the auditor was carrying on audit work within the frame of statutory rule
and for his act and conduct the assessee cannot be punished due to delay on the part of
auditors. Hence, in view of the above narrated facts and circumstances that the
assessee-society is running at huge loss Rs. 5,38,16,379 as on March 31, 2009 and
neither the assessment nor such report reveals any loss of revenue it is most humbly
submitted that the fault in not getting its books audited under section 44AB of the
Income-tax Act within time limit is not attributable to the assessee, also heavy losses
are incurred by the soci ety owing to such reasons, audit require under section 44AB not
filed by the assessee-society within time limit prescribed under the provisions of the
Income-tax Act. Thus, they were prevented by reasonable cause as aforesaid. We
request you to kindly drop the penalty proceedings under section 271B. In addition he
has relied upon certain case law."

6. The learned Assessing Officer vide para 5 of the penalty order observed that :

"5. I have gone through the submission of the assessee but do not find it in order. Even
if Government audit was done only on February 9, 2010, the audit under section 44AB
could have easily been got done after that date. But that was not done and ultimately
after giving this penalty notice and even after taking much more time, audit under
section 44AB was got conducted only on December 24, 2014. Thus, it can be said that
there was no reasonable cause as per the requirement of section 273B of the
Income-tax Act, 1961, which prevented asses see to get its books of account audited.
Accordingly, benefit of section 273B of the Income-tax Act, 1961 could not be available
to the asses see in this case since despite adequate and reasonable opportunities given,
the assessee could not come up with any satisfactory expla nation whatsoever. In other
words the assessee had failed, in reply to

Page No : 0160

penalty show-cause notices, to adduce any submission or evidence that it had taken
any step/action at its end to the appointment of any statutory auditors. Be that as it
may, the assessee could have engaged any auditor under section 288(2), so as to be
able to furnish the statutorily required audit report, without a voidably waiting for

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appointment of statutory auditors, to escape the rigours of section 271B. Also, relied
upon case law are not applicable in this case as there is no reasonable cause/delay but
delay of more than four years 10 months from Government audit, which cannot be said
to be reasonable.

6. In the facts and in the circumstances and after perusing the relevant records, I am of
the considered opinion to hold that the assessee has failed to get his books of account
audited in respect of the assessment year 2009-10 as required under section 44AB of
the Income-tax Act, 1961 and therefore, is liable for penalty under section 271B of the
Income-tax Act, 1961. The penalty leviable in this case is 0.5 per cent. of the turnover
or Rs. 1,00,000, whichever is less. Turn over/receipts for the year under consideration
is Rs. 37.66 crores and so considering the facts and circumstances of the case, impose
a penalty of Rs. 1,00,000 (Rupees one lakh only) under section 271B of the Act. The
assessee is directed to pay the penalty of Rs. 1,00,000 in addition to the tax payable by
him."

7. Aggrieved from the order of the learned Assessing Officer the assessee filed an appeal
before the learned Commissioner of Income-tax (Appeals) who has sustained the levy of
penalty on the following findings :

"Decision :

During appellate proceeding the learned authorised representative reiterated the

arguments on the basis of written submission filed before the Assessing Officer and the
same was considered. It is a fact that the assessee has incurred a loss and the
Assessing Officer has accepted the loss as filed by the assessee. The return was filed on
March 29, 2010, i. e., belated return under section 139(4). The asses see as such is not
liable to file return of income because its income does not exceed maximum
non-chargeable limit. Section 139(3) of the Income-tax Act mandates the filing of
return of income. The perusal of section 44AB of the Income-tax Act speaks about the
liability of the assessee to get the account audited. In this case the turnover exceeds
the limit laid down by section 44AB of the Incometax Act. Since the turnover is
exceeding the threshold limit the asses see was liable to get the accounts audited as
required by the Act

Page No : 0161

which he has not done. The arguments of the learned authorised representative that it
is a co-operative society, and the Department of co-operative societies appoints its own
auditor to audit the accounts, hence in absence of official audit the assessee could not
gets accounts audited till February 9, 2010. For audit the Income-tax had provided that
the auditor should be as per section 288 of the Income-tax Act. Thus I do not find any
role of official auditor to have any play in the audit and the assessee was required to
mandatorily get accounts audited by the chartered accountant. Thus the failure to get
the accounts audited has been found by the Department. Hence I do not find any
infirmity in the levy of penalty by the Assessing Officer. Penalty imposed by the
Assessing Officer is hereby confirmed and the ground of appeal is dismissed."

8. We have heard the learned authorised representatives for both the parties, perused the
orders of the lower authorities and the material available on record, as well as considered
the judicial pronouncements that have been pressed into service by them to drive home
their respective contentions.

9. The only issue which the learned authorised representative has assailed is the levy of
penalty by the Assessing Officer and confirmed by the learned Commissioner of
Income-tax (Appeals). The learned authorised representative stated that there is no
finding of alleged default or no whisper in the assessment order passed on December 31,

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2011. There is no notice issued after the completion of the assessment for the alleged
default but suddenly on June 16, 2014 (APB page 3) the Assessing Officer has issued a
notice asking the assessee to show cause as to why the penalty order should not be
passed under section 271B of the Act. This notice is also vague and specific default is
specified by the learned Assessing Officer. The learned authorised representative also
submitted that since the assessment is completed as per return of income there is no
revenue loss and even the audit report have been submitted before the Assessing Officer
which is of dated December 24, 2014 and has rectified the mistake if any and has placed
on record that report.

10. In addition to the above arguments on facts the learned authorised representative
relying on the decision of the hon'ble High Court of Allahabad in the case of CIT v. E. C. C.
Project (P.) Ltd. in I. T. A. No. 62 of 2000 dated July 25, 2014 [2015] 374 ITR 44 (All)
argued that the notice issued by the Assessing Officer for levy of penalty is invalid. The
relevant relied upon finding in this case is extracted as under (page 48) :

Page No : 0162

"11. In view of above, well-settled legal position, we are of the view that in the instant
case, no penalty is leviable under section 271B of the Act when the Assessing Officer
failed to record its satisfaction in the assessment order pertaining to it. There is no
whisper in the assessment order regarding the levy of the penalty. When it so then we
find no reason to interfere with the impugned order. The same is hereby sustained
along with the reasons mentioned therein."

11. In addition to the above written submission the learned authorised representative of
the assessee heavily relied upon the decision of the Tribunal in the case of Amit
Sabharwal v. ITO in I. T. A. No. 886/Delhi/ 2018, dated May 14, 2019 is extracted as
under :

"10. I have heard the rival arguments made by both the sides and perused the orders of
the authorities below. I have also considered the various decisions cited before me. I
find the Assessing Officer completed the original assessment under section 143(3) on
December 29, 2011 determining the total income of the assessee at Rs. 30,13,680. At
that time, as appears from para 2 onwards, the Assessing Officer has mentioned in the
assessment order that the gross receipt is at Rs.2,29,72,281 whereas as per the
assessee the gross receipts were Rs. 2,08,31,714. However, the Assessing Officer has
not initiated penalty proceedings under section 271B of the Act either during the course
of initial assessment proceedings or thereafter. Only when the matter was set aside by
the Tribunal to the file of the Assessing Officer that the Assessing Officer initiated the
penalty proceedings under section 271B of the Income-tax Act by issue of notice on
August 24, 2016. Thus, the penalty notice was issued after more than 4½ years from
the end of the original assessment. As per the provi sions of section 275(1)(c), no order
imposing a penalty under this Chapter shall be passed in any case, after the expiry of
the financial year in which the proceedings, in the course of which action for the
imposition of penalty has been initiated, are completed or six months from the end of
the month in which action for imposition of penalty is initiated, whichever period expires
later. As per the various deci sions relied on by the learned counsel for the assessee,
penalty is not leviable where the penalty proceedings were not initiated long after the
completion of the assessment and the assessment order was silent about the levy of
penalty under section 271B of the Act. Since the Assessing Officer in the instant case
has initiated the penalty proceedings after a period of more than 4½ years from the
date of original assessment order and there was no such mention of the

Page No : 0163

initiation of penalty proceedings under section 271B of the Act and the fact of higher

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gross receipt was very much available to the Assess ing Officer which has been
mentioned in the body of the original assessment order, therefore, the penalty
proceeding initiated by the Assessing Officer in the instant case in my opinion is barred
by limitation. The decision relied on by the learned Departmental representative will not
help the Revenue since the same relates to initiation of penalty proceedings under
section 271B in the course of assessment proceedings. The decision does not speak of
levy of penalty after inordinate delay. In view of the above discussion, I am of the
considered opinion that the penalty proceedings initiated after a long gap of more than
4½ years from the date of original assessment order is not sustainable in law being
barred by limitation. Therefore, the order of the Commissioner of Income-tax (Appeals)
is set aside and the grounds raised by the assessee are allowed."

12. The learned authorised representative also relied upon the decision of the Tribunal in
the case of Sibonarayan Patro and Bors. v. ITO in I. T. A. Nos. 255 to 257/Cuttack/1994,
dated February 16, 1996 is extracted as under :

"On a reading of the provisions of section 275(1)(c) along with the notes on clauses, we
are of opinion that the amended clause (c) is not different from the unamended clause
(c) of section 275(1) of the Act and the Legislature only intended to reduce the period
of limitation which was thereto two years from the end of the financial year. Thus, to
our mind, the same interpretation which was placed on the una mended clause (1) of
section 275 applies to the provisions of amended with effect from April 1, 1989. We
may further observe that even accepting for a moment that there is no time limit
prescribed under the Act for initiating penalty proceedings under section 271B/ 275 of
the Act, as rightly submitted by the learned counsel for the assessee, by taking the
spirit of the provisions of section 275 fixing the time limit for initiation of penalty
proceedings under section 271(1)(a) and 271(1)(b), etc., in the case of the assessee,
penalty proceedings have to be initiated by the Assessing Officer within a reasonable
period of time and any proceeding initiated after an abnormal delay, is liable to be
created as invalid in law. Admittedly, the assessments were completed in 1989 and
penalty proceedings were initiated after about 43 months after the date of completion of
the assessment and about 50 months from the date of obtaining the audit report. The
subsequent incumbent the Assessing Officer has initiating the penalty proceedings. To
our mind, taking the limitation period prescribed in

Page No : 0164

section 275 for initiation of penalty proceedings under the other sections of this Chapter
and also by respectfully following the judg ment of the jurisdictional High Court in the
case reported in Bata Aliaa Batakrushna Behara's case (supra) maximum of two years
from the end of the assessment year in which the assessment are completed, can be
said to be a reasonable time within which the Assessing Officer could have initiated the
penalty proceedings. As in the present case, the penalty proceedings have been
initiated about 43 months after the completion of the assessment, we are of the opinion
that the penalty proceedings are barred by limitation and consequently penalties levied
under section 271B cannot be sustained."

13. Per contra the learned Departmental representative supported the orders of the lower
tax authority and the conviction of the learned Commissioner of Income-tax (Appeals) and
also stated that it is mere technical error on the part of the Assessing Officer in not
mentioning the default in the assessment order. The finding of the Assessing Officer is not
required for the default for which the penalty is levied in the assessment order and the
same may be seen accordingly and has heavily relied upon the findings of the lower
authorities and stated that there is no time limit to issue such notice.

14. On perusal of the records and arguments of the both the parties it is not disputed by
both the parties that there is no finding in the assessment order for levy of penalty for the

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alleged default under section 271B of the Act and it is also not disputed that after passing
of the order on December 31, 2011, the alleged notice is only issued on June 16, 2014
after two and half year time which is very abnormal time to fasten the liability on account
alleged default after the assessment is completed. In between there is no notice and even
the assessment order is silent on the levy of the alleged penalty. The argument of the
learned authorised representative has thus, forced and is also supported by the judicial
decisions relied upon and as extracted hereinabove. In the light of the above discussion
the levy of penalty by the Assessing Officer after passage 30 months after the completion
of the assessment, we are of the opinion that the penalty proceedings are barred by
limitation and consequently penalties levied under section 271B cannot be sustained and
thus we delete the said penalty levied under section 271B of the Act amounting to Rs.
1,00,000.

15. In the result, the appeal of the assessee is allowed.

16. Order pronounced in open court on June 2, 2022.

_______

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