The Income Tax Officer vs Sachinam Trust

D.A. Mehta, J.—On 31.07.2000, when the appeal was admitted, following substantial question of law was formulated:

Is the Appellate Tribunal right in law and on facts in cancelling the penalty levied u/s 271B amounting to Rs. 72,451/- on the ground that it is not the gross amount of advances made during the year which constituted turnover but the gross interest received which constitute the basis for liability u/s 44AB.

The Assessment Year in question is 1992-93. The Assessee, an association of persons, is carrying on business of financing. The Gross Interest Receipts for the year under consideration were Rs. 1,85,510/- on the total amount of advances which were to the tune of Rs. 1,44,90,381/-. The Assessing Officer was of the view that in terms of provisions of Section 44AB of the Income Tax Act, 1961 (the Act), the Assessee was under an obligation to get its accounts audited because the total amount of advances during the year under consideration constitute the turnover of the assessee which exceeded the stipulated limit of Rs. 40 lacs. As the audit report had not been filed by the assessee, a show cause notice was issued on 05.11.1992. The assessee filed reply on 12.11.1992 contending that provisions of Section 44AB of the Act are not applicable in its case because the Gross Receipts did not exceed the sum of Rs. 40 lacs. The said contention was not accepted by the Assessing Officer and penalty of Rs. 72,451/- was levied under the provisions of Section 271B of the Act.

The assessee challenged the said order and in support of the Appeal, placed reliance on Tax Audit Manual Published by the Bombay Chartered Accountants'' Society, which contained opinion of eminent counsel that in case of a person carrying on banking business, the appropriate expression to be considered for deciding the applicability of the provisions of Section 44AB of the Act would be the term ''Gross Receipts''. Before Commissioner (Appeals) the Assessee also placed reliance on an order made by the Commissioner (Appeals) in case of Sardar Vallabhbhai Sahakari Bank Ltd, Ahmedabad for Assessment Year 1990-91, wherein, the Gross Receipts of interest were considered for applicability of provisions of Section 44AB of the Act and not the total advances of the Bank. Commissioner (Appeals) held that in light of the aforesaid evidence, in case of a money lender the term ''Turnover'' could not be considered and the term ''Gross Receipts'' had to be considered for determining the applicability or otherwise of provisions of Section 44AB of the Act. The appeal was accordingly allowed and the penalty was cancelled.

The Tribunal has confirmed the order made by Commissioner (Appeals) and dismissed the Departmental Appeal. It is this order of Tribunal, which is under challenge in the present Appeal.

Heard learned Senior Standing Counsel appearing for the appellant '' revenue and learned advocate appearing for the respondent assessee. Both the sides have reiterated the respective stands recorded by the authorities below.

Having heard the learned Counsel for the respective parties, the Court feels that the correct and appropriate substantial question of law in the facts of the present case would be:

Whether the assessee had a reasonable cause so as not to be visited with penalty under the provisions of Section 271B of the Act?

This question shall be accordingly considered.

In the circumstances, without entering into the analysis of provisions of Section 44AB of the Act, for the purpose of determining whether in the case of money lender, ''Turnover'' would constitute the basis for invoking the said provision or ''Gross Receipts'' would constitute the basis for applying the said provision, the appeal is decided on the ground as to whether the assessee had a bonafide belief which constituted reasonable cause in the facts and circumstances of the case. Under the provisions of Section 273B of the Act, legislature has provided that notwithstanding anything contained in the provisions of Section 271B of the Act, no penalty shall be imposable on a person or an assessee for any failure referred to in the said provisions if it is proved that there was reasonable cause for the said failure.

Therefore, without entering into the larger issue as to whether there was, or was not, any failure, it is apparent that the assessee can be said to have been prevented by reasonable cause on the basis of a legal opinion published, which was produced before the first appellate authority. In fact, on a reading of provisions of Section 44AB of the Act, it is a moot question as to which of the three phrases can be said to be applicable in a given case, and the same would depend on facts of each case and no straight jacket formula can be evolved in this context. Accordingly, the assessee was entitled to contend that when the terms ''Turnover'' and ''Gross Receipts'' are separated by the use of word ''or'', the assessee would be entitled to bonafidely believe that Gross Receipts would constitute the basis for ascertaining the limit of Rs. 40 lacs so as to attract Section 44AB of the Act.

The concurrent orders made by the Commissioner (Appeals) and Tribunal are therefore confirmed in light of what is stated hereinbefore. In the result, the reformulated question is accordingly answered in favour of the assessee and against the revenue. The appeal is dismissed accordingly with no order as to costs.