Sanjay Arora, Member (A) -
(1.) THIS is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax (Appeals) -19, Mumbai ('CIT(A)' for short) dated 20.09.2010, confirming the levy of penalty u/s. 271B of the Income Tax Act, 1961 ('the Act' hereinafter) on the assessee for the assessment year (A.Y.) 2005 -06 by the Assessing Officer (A.O.) vide order dated 20.06.2008.
(2.) AT the very outset, it was observed by the Bench that the instant appeal is delayed by a period of 63 days. However, on the basis of the condonation petition filed along with, as well as the affidavit dated 02.07.2014 by Shri Harresh Mehta, Director and Shri Atul B. Gandhi, employee, we are satisfied that this is a case of a honest and bona fide delay and, therefore, needs to be condoned to advance the cause of substantial justice. The delay was, accordingly, condoned and the hearing proceeded with, admitting the assessee's appeal. The brief facts of the case are that the assessee -company is in the business as builders and developers, following the project completion method for recognizing and returning income. In the course of assessment proceedings, it was observed by the Assessing Officer (A.O.) that while it had filed audit report under the Companies Act, no separate report in Form 3CA, as required u/s. 44AB of the Act, had been filed. This, in his view, was required as there was an increase in work -in -progress (WIP) for the year in excess of Rs. 40 lacs, the qualifying limit of turnover, so that a breach thereof would attract section 44AB. Reliance was placed by him on the decision in the case of Asst. CIT vs. B.K. Jhala & Associates :  69 ITD 141 (Pune) as well as Circular No. 387 dated 06.07.1984 issued in the form of an explanatory note on inter alia the provision of section 44AB on its introduction by Finance Act, 1984. As clarified thereby, the same is not only to verify the sales but also purchases, which in the instant case were to the tune of Rs. 280 lacs. There was, as such, no reason for not complying with the provision of section 44AB, leading to the levy of penalty u/s. 271B of the Act.
The assessee carried the matter in appeal, whereat, the ld. CIT(A) observed the gross receipts to be admittedly in excess of Rs. 40 lacs. As such, even if the same did not qualify to be considered as 'sales' or 'turnover', the same is definitely 'gross receipt'; the provision of section 44AB mentioning each of the three distinctively, so that the application of even one would be sufficient for the purpose of attracting the provision. Reference was made by her to the decision in the case of Dy. CIT vs. Gopal Krishan Builders :  91 ITD 124 (Luck), wherein, the tribunal, considering the matter at length, and in all its facets, including Circular No. 387 by the Board as well as the corresponding Rules, had clarified that the receipt from customers in case of a Builder following the project completion method would stand to form part of the qualifying criteria. The argument that the same was in a nature of an advance in such a case, i.e., where the project completion method is followed, was found by the tribunal to be to no avail. The provision of section 44AB stood thus attracted in the facts and circumstances of the case and, accordingly, penalty u/s. 271B stood, in view of the admitted default, rightly imposed. Aggrieved, the assessee is in second appeal.
(3.) WE have heard the parties, and perused the material on record, giving our careful consideration to the matter.
4.1. We find considerable merit in the Revenue's case. This is for the reason that the Legislature has provided three parameters, viz. 'sales', 'turnover' or 'gross receipts', as the case may be, in defining the criteria for determining the legal obligation for tax audit u/s. 44AB of the Act. The word 'gross receipts' would include the amounts received by the assessee -builder toward construction from its customers. The same are only in pursuance to a contract of sale, and of revenue character. Further, the same stands excluded in reckoning the assessee's income for the year only for the reason that it adopts a particular method, i.e., the project completion method, for recognizing income, and which by itself, even as found by the tribunal in Gopal Krishan Builders (supra), would be of no consequence; there being no reference to 'income' or any income criteria in the relevant provision. In fact, but for the same, as where the assessee were to follow percentage completion method, the receipt would give rise to profit (or loss). It is the nature of the receipt, and not the profit element therein, that is relevant. As such, the assessee's contention with regard to its exclusion, i.e., as not bearing a profit element, is without merit both on facts and in law.
4.2. So, however, we are nevertheless unable to agree with the Revenue that the assessee is liable to penalty u/s. 271B of the Act. Our reasons for the same are as follows.
The word 'gross receipt' is liable to be construed in more than one way; the matter in fact having travelled to the tribunal in the case of B.K. Jhala & Associates (supra) and Gopal Krishan Builders (supra), both at the instance of the Revenue, so that the assessee had succeeded at the first appellate stage. The matter, accordingly, cannot be considered to be without an element of contentiousness associated therewith, so that it is liable to be considered as giving rise to a debatable question, constituting a reasonable cause within the meaning of section 273B of the Act, saving penalty. We say so as the words 'sales', 'turnover' as well as 'gross receipts' give rise to connotation of receipts of revenue nature, forming part of the income statement for the relevant year.
The assessee, it may be noted, is a company. It is, therefore, in compliance of s. 44AB of the Act, required to get its accounts audited and, further, obtain and furnish an audit report both under the Companies Act, 1956 as well as under the Act, i.e., in terms of the said provision. The audit report u/s. 224 of the Companies Act, which stands duly furnished, is thus itself toward and in compliance of section 44AB, albeit partly. Non obtaining another audit report from its Auditors, i.e., in Form 3CA, under the circumstances, is, therefore, only on account of a bona fide belief that its turnover not exceeding the qualifying monetary limit, stands to be excluded. Further, the purpose of verification of accounts, including purchases, cited by the A.O. as the underlying reason for the legal obligation of audit while explaining the rationale of the provision, stands thus satisfied in the facts and circumstances of the case.
The explanation that receipts from customers were only in the nature of advance/s is not technically incorrect in -as -much as it is only when the same shall stand adjusted against sale price on the completion or near completion of the project, that the same is liable to be considered as 'sales'. The notice of penalty and the basis for the A.O. in levying the penalty was that the assessee's work -in -process (WIP) had witnessed an increase during the year for an amount beyond the prescribed limit. Though, therefore, we do not regard the ld. CIT(A) to have, in confirming the penalty, based it on a different cause; the default being the same, it does amount to a different view being adopted on the same set of facts, confirming the view, if one was required, that the matter is liable to be considered in more ways than one.
The inclusion of 'purchases', as stated by the A.O. with reference to the decision by the apex court in the case of George Oks Pvt. Ltd. under the Sales Tax Act, for the purpose of invoking s. 44AB, is without merit. This is for the simple reason that the word 'turnover' stands clearly and separately defined under the sales -tax legislation to include purchases as well. Even following the legal principles on the basis of the legal maxims ejusdem generis and noscitus A Sociis would operate to exclude 'purchases' from forming part of the qualifying criterion. Rather, a provision, for the purpose of levy of penalty, is to be even otherwise strictly construed. It is perhaps for the reason of the same not finding approval of the ld. CIT(A) that she chose not to advert thereto in the impugned order.
As explained by the apex court in Hindustan Steel Ltd. vs. State of Orissa :  83 ITR 26 (SC), a penalty, even where the provision stands attracted, may lawfully be not levied where the default is not found to be a result of a conscious disregard by the tax payer of his legal obligations or a conduct contumacious, which is clearly not the case in the instant case.;