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No penalty for non audit if Assessee is prevented by reasonable cause for not getting its accounts audited u/s 44AB within prescribed time
A.P. DAIRY DEVELOPMENT COOPERATIVE FEDERATION LTD. & ANR. vs. DEPUTY COMMISSIONE OF INCOME TAX & ANR.
ITAT, HYDERABAD TRIBUNAL (B)
P. MADHAVI DEVI, JM & S. RIFAUR RAHMAN, AM.
ITA No. 741 to 744/Hyd/2015, 1296 to 1298/Hyd/2015
2nd June, 2017
(2017) 50 CCH 0120 HydTrib
Legislation Referred to
Section 44AB, 271D, 143(3)
Case pertains to
Asst. Year 2004-05 to 2005-06, 2009-10 & 2011-12
Decision in favour of:
P. MADHAVI DEVI, JM. :
- These are cross appeals filed both by the assessee and the Revenue for the A.Ys 2004-05, 2005-06, 2009-10, 2010-11 and 2011-12 respectively.
ITA Nos.741, 742 and 744/Hyd/2015
- These are assessee’s appeals for the respective A.Ys against the order of the CIT (A)-VII dated 24.03.2015 holding the return of income filed by the assessee as non-est.
- Brief facts of the case are that the assessee is a company which is engaged in the business of processing and sale of milk and milk products. It filed its return of income for the A.Y 2004-05 on 20.10.2004 declaring a loss of Rs.63,43,910. During the course of the assessment proceedings u/s 143(3) of the Act, the AO called for certain information. The assessee’s representative appeared and filed the required information. The AO observed that the assessee company is mainly engaged in the activities of procurement of milk from farmers in Andhra Pradesh, process the same into whole milk, standardized milk, toned milk and milk products and sells them. For this purpose, the assessee maintains milk sheds and milk product factories all over the State of Andhra Pradesh. The AO observed that the assessee has filed its return of income on the basis of provisional accounts for the financial year 2004-05 and enclosed the annual report in form No.3CA. He observed that as per the provisions of A.P. Cooperative Societies Act, 1964, auditors for the APDDCF Ltd i.e. the assessee herein, have to be appointed by the Addl. Registrar/Chief Auditor, Office of the Registrar of Coop. Societies, Hyderabad and the appointed auditors have to conduct audit for the A.Y 2003-04. Since the assessee has not filed the audited report along with the return of income, the AO informed the assessee’s Authorized Representative that the loss claimed by the assessee shall not be allowed in the absence of completion of such audit and furnishing of the report.
- The AO held that in the absence of audited books of accounts, it is not possible to verify the veracity and authenticity of the quantum of expenditure claimed. In view of the same, the AO completed the assessment disallowing the claim of loss and treating the income at Rs.’Nil’. Further, the AO also noticed that the assessee has claimed depreciation at 50% on plastic cans. Holding that the plastic cans are not in the nature of refills, the AO restricted the depreciation to 25%.
- Aggrieved by both the above disallowances, the assessee preferred an appeal before the CIT (A) stating that the delay in statutory audit is due to the backlog of audit of earlier years and unless the earlier year’s audit is completed, the statutory audit for the next year could not be completed and that the statutory audits for the earlier years is also delayed considerably due to change in the system of accounting. The AO, thus explained the reason for the deficiency. The CIT (A) however, was not convinced with the assessee’s contention and held that the assessee is required to file the return of income along with the audited report and the assessee being a State owned company, running with public fund should have been careful in running its business as well as in complying with the statutory provisions of various acts. Therefore, he was of the opinion that the return of income filed without the audit report is non-est. Accordingly, he dismissed the assessee’s case. Aggrieved, the assessee is in appeal before us.
- The learned Counsel for the assessee reiterated the submissions made before the authorities below and the submitted that AO at no point of time has held the returns to be defective and not issued any defective notices for any of the A.Ys and therefore, according to him, the CIT (A) was in error in holding the return of income as non-est. Thus, according to him, the CIT (A) ought to have decided the appeals on merits.
- Having regard to the rival contentions and the material on record, we find that the assessee has filed the return of income on the basis of provisional accounts and the AO has rejected the books as not reliable and disallowed the loss claimed by the assessee. AO has therefore, relied upon the return of income, but has not allowed the loss claimed. In such circumstances, it is not open to the CIT (A) to hold the returns of income as non-est particularly when the assessee, though a Govt. Agency, had no power to appoint the auditors by itself. The assessee has explained the reasons for delay in audit of accounts which is clearly beyond the control of the assessee. Therefore, the delay cannot be attributable to the assessee. In view of the same, we set aside the order of the CIT (A) and remit the issue to the file of the AO with a direction to recompute the income of the assessee on the basis of the audited accounts of the assessee, if they are available now.
- In the result, assessee’s appeals for the A.Ys 2004-05, 2005-06 and 2011-12 are treated as allowed for statistical purposes.
- This appeal is against the order of the CIT (A)-VII dated 21.4.2015 confirming the penalty levied by the AO u/s 271B of the Act.
- Brief facts of the case are that the assessee filed the return of income on the basis of the provisional accounts audited by a Chartered Accountant but did not file the audited accounts. The AO, therefore, issued a notice u/s 271D for levy of penalty for non filing of the audit report. The assessee explained that the audit report could not be filed within the time as the delay took place because the appointment of the Auditors was to be made by the Registrar of the Societies and thus beyond the control of the assessee and that the assessee should not be penalized for non compliance of section 44AB of the Act under such circumstances. However, the AO was not convinced with the assessee’s explanation and levied the penalty. Aggrieved, the assessee preferred an appeal before the CIT (A), who confirmed the order of the AO and the assessee is in second appeal before us.
- Having regard to the rival contentions and the material on record, we find that the assessee being a Govt. organization and a Registered Society, has to abide by the rules framed under the Societies Act. As per the said Act, the Auditors have to be appointed by the Registrar of Societies and therefore, is beyond the control of the assessee. We are satisfied that the assessee was prevented by reasonable cause for not getting its accounts audited u/s 44AB of the Act within the prescribed time. Therefore, we set aside the penalty levied by the AO and confirmed by the CIT (A).
- In the result, assessee’s appeal for the A.Y 2011-12 is allowed.
ITA Nos.1296 to 1298/Hyd/2015 (Revenue’s Appeals)
- All the above appeals are filed by the Revenue for the A.Y 2009-10, 2010-11 and 2012-13 against the orders of the CIT (A)-VII dated 28.8.2015 giving relief to the assessee.
- Brief facts are that during the assessment proceedings u/s 143(3) of the Act for all the respective A.Ys, the AO observed that the assessee has debited interest as payable to government loans, but that these were not paid to the govt. account. To verify this aspect, the assessment was reopened by issuance of a notice u/s 148 of the Act. The assessee filed the details called for. The AO observed that the assessee has debited the interest as paid to the govt. on loans taken and in the earlier years, the AO had disallowed the same u/s 43B of the Act. He accordingly disallowed the same in these A.Ys as well. Aggrieved, the assessee preferred appeals before the CIT (A), who granted relief to the assessee against which the Revenue is in appeal before us.
- The learned DR relied upon the order of the AO, while the learned Counsel for the assessee supported the order of the CIT (A) and reiterated the submissions made before the authorities below.
- Having regard to the rival contentions and the material on record, we find that the interest is payable on the govt. loan and section 43B (d) & (e) provides for disallowance of interest payable to public financial institutions or a State Financial Corporation or a State Industrial Investment Corporation or to any scheduled banks but not paid during the relevant previous year. The CIT (A) observed that the interest payable to govt. is not covered under these clauses. He therefore, deleted the disallowance and the Revenue is in appeal before us.
- The learned Counsel for the assessee had also submitted that the interest claimed by the assessee was u/s 36(1)(iii) and u/s 37(1) of the Act and therefore, no disallowance u/s 43B is called for. We find that in the case before us, the Govt. has sanctioned the loan to the assessee for payment to the employees who have opted to retire under the VRS. It is therefore, not covered under any of the clauses of section 43B of the Act, nor is the interest payable to the Institutions mentioned in the clauses. It is not fee or tax paid by the assessee. In view of the same, we see no reason to interfere with the order of the CIT (A). The Revenue’s appeals for all the three years on the same very same issue are dismissed.
- In the Result, assessee’s appeals are allowed and Revenue’s appeals are dismissed.