1989-VIL-86-ITAT-

Equivalent Citation: ITD 029, 537, TTJ 033, 509,

Income Tax Appellate Tribunal MADRAS

Date: 07.02.1989

K. RAVIKUMAR AND COMPANY.

Vs

INCOME-TAX OFFICER.

BENCH

Member(s)  : GEORGE CHERIYAN., T. N. C. RANGARAJAN.

JUDGMENT

Per Shri George Cheriyan, Vice-President --- This is an appeal preferred by the assessee, a registered firm, for the assessment year 1985-86. The previous year of the firm ended on 31-3-1985. The firm had four partners with shares as under :

Name of Partner Share

1. K. Srinivasan ... 40/94

2. K. Ravikumar ... 24/94

3. G. Kanniah Naidu ... 15/94

4. G. K. Raju ... 15/94

2. The assessee-firm filed the return of income on 31-3-1986 showing a total income of Rs. 90,830. This was accepted and the assessment completed under section 143(1)(a). In completing the assessment on 28-11-1986, the Income-tax Officer initiated action for issue of show-cause notice under section 271B for what was stated to be default under section 44AB of the Income-tax Act, 1961.

3. In the course of the order under sec. 271B passed on 10-9-1987, the Income-tax Officer had stated that for the assessment year under consideration, the accounts should have been audited by 31-7-1985 but the accounts were audited only on 27-3-1986, i.e., 8 months after the expiry of the date fixed by the statute and the return was submitted only on 31-3-1986. According to the order, when these facts were pointed out to the assessee by letter dated 14-8-1987 requiring the assessee to show cause why action should not be initiated under sec. 271B for failure to get the accounts audited in time, the assessee replied by letter dated 26-8-1987 that the audit could not be done within the prescribed time for the following reasons, to quote from the order imposing penalty :

"(1) One of the partners Sri K. Srinivasan was seriously ill during 1985 and he was actually admitted in hospital for a surgery on 21-9-1985 ;

(2) Being the first year of audit, they were not prepared for it because of inexperienced and irregular accountant ;

(3) They have already asked for time in Form No. 6 for late filing of return."

The Income-tax Officer did not consider the reply to be satisfactory. Therefore, he gave an opportunity for being personally heard. The representatives of the assessee were heard on 9-9-1987. The Income-tax Officer observed that the audit was to have taken place before July 1985 and during that period Shri Srinivasan who was supposed to be in charge of overall affairs was very much active and attending to the affairs of the business. This, the Income-tax Officer went on to observe was proved by the extent of the purchases and sales in the months of April to July, 1985. The sales were in excess of Rs. 3 lakhs in each of the months. Even a scrutiny of the bank account showed that there were numerous transactions. Though it was a fact that Shri Srinivasan was admitted into the hospital in September, 1985, according to the ITO it was clear from the facts mentioned that the normal business of the assessee was not affected during the period April to July, 1985 when books could have been made available for audit and, therefore, there was no valid reason to delay the audit.

4. Adverting to the explanation that this was the first year of audit and due to the inexperienced and irregular accountant being in service, finalisation of accounts, tracing of trial balance differences and gathering particulars took more time, the Income-tax Officer stated that the assessee had a part-time experienced accountant who had been working in this line for quite some time and the question that this is the first year of tax audit was applicable to the entire business fraternity that came under its purview. He stated that there was ample debate and advertisement relating to the provisions before they were introduced and implemented. Coming to the argument that the assessee had sought for time in Form No. 6 for late filing of the return, the ITO stated that whereas the statute allows late submission of return, it did not permit late filing or late conduct of tax audit. Finally the Income-tax Officer concluded that the assessee had no reasonable cause for failure to get the books of account audited before the prescribed date and the provisions of sec. 271B were attracted. The turnover of the assessee being Rs. 99,64,200, penalty at 1/2 per cent of the turnover, i.e., Rs. 49,821 was levied.

5. The assessee appealed and pleaded before the CIT(A) that the delay in completion of the audit was due to the serious illness of the principal partner Shri K. Srinivasan. It was also submitted that Shri Srinivasan had undergone surgery on 21-9-1985 and even after the surgery there was complication. Stress was placed on the fact that this was the first year when the provisions came into effect and extension of time had been sought for filing the return by submitting an application in Form No. 6. The CIT(A), however, observed that he saw no merit in the contentions and merely because the provisions of section 271(1)(a) had not been invoked, he was of the view that it did not follow that the assessee's case went outside the purview of sec. 271B. The specified date for the purpose of completing the audit for the assessment year 1985-86, he stated, was the 30th September, 1985 since there was an extension up to such date granted by the CBDT. In the assessee's case the audit report was dated 27th March, 1986 and the same had been filed along with the return on 31-3-1986. The CIT(A) also came to the conclusion that there was failure to obtain the accounts audited and obtain the report of such audit within the specified date, i.e., 30-9-1985. The CIT(A), therefore, upheld the penalty as imposed.

6. Before us, the learned counsel submitted that under the provisions of sec. 271B, penalty could be imposed only when there was failure without reasonable cause on the part of a person to get the accounts audited as required under sec. 44AB by the specified date. In this connection, the learned counsel submitted that though from the provisions of sec. 271B itself the words "without reasonable cause" was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 10-9-1986, such terminology has still to be read into the section by virtue of the provisions of section 273B which were inserted in the Act from the same date, i.e., 10-9-1986. This section stated that Penalty was not to be imposed in certain cases and one of the Provisions referred to was sec. 271B and it was provided that notwithstanding anything contained in the aforesaid provision, no penalty shall be imposable on the person or the assessee, as the case may be, if it was proved that there was a reasonable cause for the said failure. In the present case, according to the learned counsel, the assessee had filed a reply dated 26-8-1987 wherein it was stressed that Shri K. Srinivasan who was the partner in charge was ill for a considerable period of time in 1985 and had undergone surgery on 21-9-1985 and even thereafter, there were complications. Moreover, the assessee had to ensure that the accounts were correct and free from trial balance differences and particulars had to be gathered and being the first year of tax audit, the finalisation of accounts and tracing trial balance differences took more time than expected. The learned counsel went on to observe that in particular the assessee had mentioned that they had written a letter dated 30-9-1985 wherein they had requested for time by enclosing Form No. 6 and explained the circumstances for seeking extension in detail. Further, again on 9-9-1987, the assessee had reiterated the contentions and the assessee had also brought out the fact that from September 1985 onwards up to March 1986, the quantum of purchases had dwindled as also the quantum of sales in comparison to the period April to July, 1985 and this clearly showed that the business itself was affected by the ill-health of Shri Srinivasan. Medical certificates also, it was stated, were filed. The learned counsel finally referred to the judgment of the Gujarat High Court in the case of Rajkot Engg. Association v. Union of India [1986] 162 ITR 28 and stated that the Gujarat High Court had realised the difficulties this being the first year of the application of the provisions of sec. 44AB and the Court had even observed that in order to mitigate the inconvenience and hardship to assessees, particularly in relation to the assessment year 1985-86, the Board of Direct Taxes may consider issuing a direction on the lines contained in Circular No. 205, dated July 27, 1976.

7. Since sufficient cause had been established, the learned counsel submitted the penalty required to be cancelled.

8. The learned Departmental Representative submitted that the previous year of the assessee having ended on 31-3-1985, the audit should have been completed by July 1985. Extension of time had been allowed by the Board by a general circular up to 30th September, 1985 and there was ample time, therefore, for the assessee to have the tax audit completed by that date. The mere fact that Shri Srinivasan fell ill in September, 1985 would not show that there was sufficient cause for not having completed the audit by that date. The learned Departmental Representative went on to emphasise that the question of granting any extension in relation to the specified date for completion of audit did not arise and merely because the assessee had sought for extension of time for filing the return of income it would not absolve the assessee from the saddling with penalty under section 271B because both defaults were independent. The penalty levied was on a fixed percentage basis and in view of the elaborate reasons given in the orders of the authorities below to which we have adverted, the learned Departmental Representative submitted that sufficient cause had not been shown and the penalty as imposed should be upheld.

9. We have considered the rival submissions. In deciding the present case, we have considerable guidance in the observations of the Gujarat High Court in the case of Rajkot Engg. Association. In that case, the validity of the provisions itself had been challenged and the Court eventually upheld the validity of the provisions. However, in doing so, various contentions put forth were considered elaborately. At pages 66 to 68, the Court had observed as under :

"It does not, require much of knowledge of accountancy (sic) that the books of account of non-corporate assessees are not maintained in manner in which the accounts are maintained by corporate assessees and required by auditors for purposes of commercial audit much less for tax audit. The fact that the impugned section 44AB was placed on the statute book by the Finance Act, 1984, and was not made effective till April 1, 1985 coupled with the Rules being published for the first time on January 31, 1985, as rightly contended by the learned Advocate-General, would cause great inconvenience to the assessees within the purview of the section. We have not been able to appreciate as to how the non-corporate assessees liable to tax audit can switch over their manner and method of accounting so as to satisfy the tax auditors. It is difficult for the assessees whose previous year ended on October 24, 1984, or December 31, 1984, and whose specified date being June 30, 1985, and for that matter those assessees whose previous year ended on March 31, 1985, and whose specified date being July 31, 1985, to satisfy these provisions by getting their accounts audited and obtain the auditors' report, particularly when their turnover was so high as to exceed the prescribed limits. The learned Advocate-General for the petitioners was therefore, more justified particularly in respect of the assessment year 1985-86. In spite of our agreement on this aspect of inconvenience to the assessee, we are not able to agree with the learned Advocate-General for the petitioners that this will by itself ipso facto expose the defaulting assessees to the consequences of penalty and/or of their return being treated as defective. The reason is that section 271B justifies imposition of penalty where an assessee fails to get his accounts audited and obtain the report by the specified date without reasonable cause. It will be for the Department to prima facie show that there was want of reasonable cause on the part of the assessee for committing the default as held by the Full Bench of this Court in I.M. Patel & Co.'s case [1977] 107 ITR 214 (FB). We do not think that the return can also be treated as incomplete merely because the assessee has committed default in annexing the auditors' report with the return. The Income-tax Officer has to give him time to remove the defect and if within the stipulated time of a fortnight or the extended time, the assessee is able to comply with the requirement. we do not think that his return can be treated as defective or incomplete. We are sure that the income-tax authorities will bear in mind this peculiar situation as it prevails particularly in relation to the assessment year 1985-86 and will not be unmindful of the hardships of the assessee in not complying with this provision for some time to come particularly with reference to the assessment year 1985-86. In that view of the matter, therefore, the second limb of the contention, though no doubt it has some force in it in so far as it causes hardship to the assessee, particularly for the assessment year 1985-86, it cannot be said that the provision is unreasonable because it does not expose him ipso facto to the penalty nor to the consequences flowing from the return being treated as incomplete for reasons beyond control. The power to levy penalty is only when the Income-tax Officer is satisfied that there was no reasonable cause for the default and the return can be treated as defective only if the defect is not removed within the stipulated time which cannot, therefore, be said to be the inevitable consequence of the default and, in any case, would not make the provision unreasonable. In order to mitigate the inconvenience and hardship to the assessee, particularly in relation to the assessment year 1985-86, the Board of Direct Taxes may consider as to the advisability of issuing directions on the lines contained in Circular No. 205 dated July 27, 1976, in respect of the requirement of maintenance of account books as enjoined under section 44AA of the Act." [Emphasis supplied]

In the aforesaid observations, the Court had considered even the case of those assessees whose previous year ended on 31st March, 1985 as in the present instance. The Court in particular observed :

"We are sure that the income-tax authorities will bear in mind this peculiar situation as it prevails particularly in relation to the assessment year 1985-86 and will not be on mindful of the hardships of the assessee is not complying with this provision for some time to come particularly with reference to the assessment year 1985-86." [Emphasis supplied]

The judgment was pronounced on March 31, 1986 and the aforesaid observations of their Lordships are to the effect that even for some more time to come after the date of pronouncement of the judgment, i.e., 31st March, 1986, with reference to the assessment year 1985-86, the tax authorities should not be unmindful of the hardships of the assessees in complying with the provisions. It may be reiterated at this stage that in the present case, the audit was completed on 27-3-1986 and the return itself was filed on 31-3-1986. Therefore, the observations of their Lordships referred to are apposite for rendering a decision in the present case.

10. Another contention put forth before the Gujarat High Court was that the provisions of sec. 271B do not leave any discretion to the Income-tax Officer in the matter of levy of penalty or does not link the quantum of penalty, with the period of default. An argument was also advanced that an appeal was not competent in respect of the quantum of penalty by the very nature of the provision contained in sec. 271B and, therefore, the provisions have become arbitrary and unreasonable and required to be struck down. Dealing with this contention, the observations of the Court are as under :

"On the face of it, the contention appears to be very attractive. We have, therefore, to closely scrutinise it in order to find out whether the same is well-founded. It is no doubt true that the penalty which has been prescribed in section 271B is a flat penalty in the sense that a defaulting assessee is liable to pay penalty of one-half per cent of the total sales, turnover or gross receipts, as the case may be, or Rs. 1,00,000 whichever is less. It should be noted that section 246(2)(gg) has provided an appeal against the order of penalty made under section 271B. No doubt, the Commissioner of Appeals has a power under section 246 of the Act, in an appeal against an order imposing penalty inter alia, to vary it so as to enhance or reduce the penalty. The contention is that the Commissioner can exercise this power of variation or reduction in penalty only if the substantive provision contained in the Act in respect of a specified default leaves any discretion in the authority. If the specified provision does not leave any discretion in the authority, or it does not relate to the period of default, the Commissioner of Appeals can also not reduce the penalty. We do see force in this contention. It is axiomatic to say that the constitutionality of a provision is to be assumed and the effort of the Court must be to save the provision from the challenge even by reading it down. We are of the opinion that on a close reading of the substantive provision contained in section 271B, the Income-tax Officer has to determine the penalty only if he is satisfied that the specified default is without reasonable cause.

In Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, the Supreme Court was concerned with certain provisions of the Orissa Sales Tax Act providing for penalty under certain circumstances. The Supreme Court, speaking through Shah, Acting CJ. (as he then was), ruled as under (at p. 29) :

"Under the Act penalty may be imposed for failure to register as a dealer : section 9(1), read with section 25(1)(a), of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." (Emphasis supplied).

It should be noted that section 12(5) of the Orissa Sales Tax Act provided penalty for failure to apply for registration without sufficient cause and the Commissioner was empowered to levy by way of penalty a sum not exceeding one and a half times that amount.

In Addl. CIT v. I.M. Patel & Co. [1977] 107 ITR 214 (FB), the Full Bench of this court in the context of the failure to furnish return without reasonable cause ruled that under section 271(1)(a) of the Act, failure "without reasonable cause" to furnish the return is an ingredient of the offence, and section 271(1)(a) would be attracted where the assessee has acted deliberately in defiance of the law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of his obligation. The expression "reasonable cause" must receive a liberal interpretation so as to advance substantial justice [see Saurashtra Cement & Chemical Industries Ltd. v. CIT [1978] 115 ITR 27 (Guj.)]. Therefore, the absence of reasonable cause being a sine qua non of the penalty provision, mere failure to get the accounts audited or to obtain the report of such audit as required under the impugned section would not be enough [see CIT v. Gujarat Travancore Agency [1976] 103 ITR 149 (Ker.) (FB)]. When an assessee having exceeded a turnover or the receipts prescribed under the impugned section gets his accounts audited or produces a certificate of such audit after an inordinate delay in spite of notice, it can be said that there was absence of reasonable cause in complying with the statutory obligation and, therefore, his inaction may be considered deliberate. In our opinion, therefore, the expression "reasonable cause" if interpreted in a liberal manner so as to advance the cause of justice, the Income-tax Officer is necessarily required to consider all the attendant circumstances including the period of default, the conduct or the intention of the assessee, etc. We have, therefore, no hesitation in saying that the Income-tax Officer is under an obligation to consider all the relevant circumstances, inter alia, as indicated above, for purposes of determining whether there was want of reasonable cause on the part of the assessee for non-compliance of the statutory obligation. If that is the necessary implication of the section, which we are of the opinion it is, the Commissioner of Appeals is also required to consider all these aspects and determine about the quantum of penalty."

The Court has stressed that a close reading of the provisions of sec. 271B shows that the Income-tax Officer has to determine the penalty only if he is satisfied that the specified default is without reasonable cause. The Court has also emphasised the ratio of the judgment of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act. Yet another aspect that the Court has highlighted is that the expression "reasonable cause" must receive a liberal interpretation so as to advance substantial justice. The court has clarified that if interpreted in a liberal manner, the expression would require consideration of all attendant circumstances including the period of default, the conduct or the intention of the assessee, etc.

11. We would now proceed to consider the facts particularly with reference to the aforesaid guidelines. The assessee had filed before us photostat copy of the application for extension of time dt. 30-9-1985 which was received in the Income-tax Office, City Circle III on the same date. It was mentioned therein that the trial balance difference was being traced and particulars were being gathered for tax audit purpose and a reference was made to the letter dated 30-9-1985 and extension of time was sought till 31-12-1985. Accompanying this application was a letter of the same date. The photo copy of the application bore the seal of receipt in the Income-tax Office, City Circle III, on 30-9-1985. Since the application itself was not readily traceable on the record. We requested the learned Departmental Representative to verify whether the application had been received in the office and with reference to the registers of the office which were produced for our inspection, it is seen that the receipt of Form No. 6 finds mention in the entries on 30-9-1985. The learned Departmental Representative submitted that there is no mention in the entry in the said register that the letter of 30-9-1985 was also received. However, since in the application itself it was stated "see our letter dt. 30-9-1985". The letter was an enclosure to the application and since the receipt of the application in the Income-tax Office stands established, the inference follows that the letter of 30-9-1985 was also duly received. Apart from this, in the reply to the penalty notice dated 14-8-1987, the assessee had replied that they had written a letter on 30-9-1985 while requesting for extension of time in Form No. 6 explaining the circumstances in detail. The penalty order does not dispute this statement of fact. We set out below in full the letter of 30-9-1985 :---

"We understand that our accounts have to be audited and report should be filed within 30th September 85 along with the return as per Section 44AB of the IT Act as our turnover exceeds Rs. 40 lakhs.

One of our partners who is in charge is suffering from ill-health for quite some time and had to take medical treatment by admitting himself in an hospital.

There is a difference in a trial balance which had to be traced. Besides special particulars required for tax audit purposes had to be gathered. Due to unavoidable circumstances and the said reasons the accounts could not be audited before 30th September 1985. As it is likely to take some more time we request your goodself to grant at least three months time to file the audit report and return of income.

Under the circumstances we also request you to take a sympathetic view and not to initiate penal proceedings.

Thanking you."

It is clear that the assessee was conscious of the statutory duty. It was mentioned that one of the partners who was in charge was suffering from ill-health for quite some time and had to take medical treatment by admitting himself in a hospital and due to unavoidable reasons it would take at least three months time to file the audit report and return of income. It was also clearly stated that there was a difference in the trial balance which had to be traced. Therefore, there is contemporaneous evidence that the assessee was on the job of getting the audit done.

12. We enquired at the hearing of the date when the books of account were originally given to the Chartered Accountant. A letter was filed from M/s. Chengayya & Co., Chartered Accountants, dated 23-1-1989 signed by partner Shri N. Prasad wherein it is stated that the assessee, a firm of coconut merchants, had submitted their books of account on 3rd June, 1985 to them and since it was found that the accounts had to be audited and initial checking showed a difference in trial balance, particulars necessary for compulsory tax audit were called for. The firm wanted time on the ground that the accountant was not available and as the auditors themselves were busy the books were returned to the firm to trace the trial balance difference and furnish the particulars required. In September, 1985, it was stated that the firm reported that the partner in charge Shri K. Srinivasan was ill and had to undergo surgery and consequently to work could not be done.

13. The learned Departmental Representative submitted that there was no evidence that the books had been given to the Chartered Accountant on the 3rd June, 1985. We required evidence in this regard to be produced. The Chartered Accountant produced a note book maintained by the firm of Chartered Accountants showing receipt of books of account from various parties starting with the assessment year 1983-84 going right through the assessment year 1985-86. Some of the entries and dates are in pencil but it is clear that this is a book which is regularly, maintained showing receipt of books of account from various clients and on 3rd June, 1985 there is the clear entry showing receipt of books of account from the assessee. There is the remark that these books were sent. Shri Nagraja Prasad, who was present, clarified that this showed that the books were returned. It, therefore, stands established that the assessee-firm had rendered their books of account for audit to the Chartered Accountants on 3rd June, 1985 well before the specified date. There were differences in the trial balance and the books had to be returned for reconciling the same and for furnishing further particulars. In September, 1985, partner Shri K. Srinivasan took ill. This is evidenced by medical certificate dated 21-10-1985 which reads as under :

"This is to certify that Sri K. Srinivasan, who was under my treatment for his FISTULA IN ANO & FISSURE, from 15-9-1985. He had very severe signs and symptoms. He had undergone surgery on 21-9-1985 for his condition. Fistulectomy and maximum Anal Dilatation done to him on 21-9-1985. He was advised to have complete rest up to 21-10-1985.

Sd/- Dr. V. Arunagirinathan,

B.Sc., MBBS, MS

Reg. No. 23485

Hony. Asstt. Surgeon,

Govt. General Hospital."

The learned Departmental Representative submitted that the personal attention of the partner was not necessary to reconcile trial balance differences. We are not able to subscribe to such a contention in the abstract. When a particular trial balance difference is pointed out, reconciliation of the same can often extend to examination of a number of entries. Even according to the Income-tax Officer's order, the assessee had only a part-time accountant though the Income-tax Officer had stated that he was an experienced person. Therefore, certainly the partner's supervision would have been called for. The Income-tax Officer has relied on the figures of purchases and sales from April to July, 1985 in his order to show that the firm was doing business on a large scale. We would only state that the figures of purchases which had been as high as Rs. 5 lakhs in May, 1985 had started dwindling. From September to December, 1985, it was less than Rs. 2 lakhs and from January to March, 1986 it was less than Rs. 1 lakh per month. So also sales from September to December, 1985 were less than Rs. 2 lakhs per month and in January and February, 1986 it was less than Rs. 1 lakh per month and in March, 1986 barely Rs. 1 lakh. This would show that the illness of the managing partner had clearly affected the day-to-day business of the firm and, therefore, the normal functioning of the assessee's business was clearly affected. The Income-tax Officer has emphasised on the aspect that Shri Srinivasan took ill only after July, 1985 by which date the audit should have been completed. We have already found as a fact that the accounts had been given to the Chartered Accountant for audit on the 3rd of June, 1985 and so when Shri Srinivasan was well he has taken due care to see that accounts were given for audit. Certain differences etc. were found by the auditors in the trial balance and by the time the books were returned, Shri Srinivasan fell ill and it took time to reconcile the same. Yet matters appear to have been done with due expedition considering the nature of the ailment of the managing partner as evidenced by the medical certificate, "Fissure in ano" meaning according to Dorland's Pocket Medical Dictionary, Twenty Third Edition, "painful lineal ulcer at the margin of the anus" and "Fistula" meaning "an abnormal passage" which necessitated surgery and a period of recuperation thereafter and which ailment was one which often prevents a person from sitting up continuously for long hours or restricts free movements till the wounds are completely healed, because by 27th March, 1986 the audit was completed and by 31st March, 1986, the return together with audited accounts were filed. The learned Departmental Representative had made a Point that in the original application in Form No. 6, which was filed on 30-9-1985 which is on record, there was no mention of any differences in trial balance, but it was only stated that some more time was required for getting particulars. This does not affect our finding in any way since we have discussed at length the factual aspects of the contemporaneous statements made in the application filed on 30-9-1985 together with a covering letter of the same date.

14. On the basis of the aforesaid discussion, in our view, it is amply established that there was sufficient cause due to which the assessee had failed to get the accounts audited before the 30th September, 1985. As long as the sufficient cause stands established, the provisions of sec. 271B will not be attracted whether it be according to the terminology of the said section as it stood prior to 10-9-1986 or according to the provisions of section 273B enacted with effect from 10-9-1986. Having due regard to all the attendant circumstances, the period of delay, the conduct of the assessee in keeping the Department informed of the reasons for delay etc., we have to hold, in view of the reasonable cause having been established for the delay in the audit of accounts, no penalty is exigible on the facts of the present case. The penalty as imposed is accordingly cancelled and the appeal is allowed.

 

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