2001 (9) TMI 8 - HC - Income Tax

(A) Whether the belated completion of statutory audit and filing of audit report under section 44AB of the Act results in automatic levy of penalty under section 271B? - (B) Whether the assessing authority has the discretion to levy or not to levy penalty under section 271B? - (C) Whether there is a failure to exercise jurisdiction by the appellate authority, the second respondent, on the facts of the case? - (D) Whether the levy of penalty is warranted and justified on the facts of the case when the delay in filing the audit report was beyond the control of the petitioner? - the writ petition is allowed.

Issues Involved:
1. Automatic levy of penalty under section 271B for belated audit report filing.
2. Discretion of the assessing authority to levy or not levy penalty under section 271B.
3. Jurisdictional failure by the appellate authority.
4. Justification of penalty levy when delay was beyond the petitioner's control.

Detailed Analysis:

Issue 1: Automatic Levy of Penalty under Section 271B
The petitioner, a co-operative society, was penalized for the delayed filing of the audit report under section 44AB of the Income-tax Act. The society filed its income tax return on July 14, 1995, but the audit report was submitted on December 11, 1995. The assessing authority issued a show-cause notice on November 24, 1995, and subsequently levied a penalty of Rs. 30,947 on March 29, 1996, for not filing the audit report by the stipulated date of October 31, 1995. The court noted that the penalty for the delayed filing of the audit report is not automatic and requires the assessing authority to consider if there was a reasonable cause for the delay.

Issue 2: Discretion of the Assessing Authority
Section 271B of the Income-tax Act allows the assessing officer to levy a penalty if the audit report is not filed within the specified time. However, the court emphasized that this power is discretionary and must be exercised judiciously. The assessing officer must consider all relevant circumstances, including whether the delay was beyond the control of the assessee and if there was any deliberate attempt to evade tax. In this case, the court found that the assessing officer failed to consider the reasons for the delay, which were beyond the control of the petitioner since the audit was conducted under the Tamil Nadu Co-operative Societies Act, and the petitioner had no control over the appointment of auditors.

Issue 3: Jurisdictional Failure by the Appellate Authority
The appellate authority (second respondent) upheld the penalty without adequately considering the petitioner's explanations and the circumstances leading to the delay. The court held that the appellate authority failed to exercise its jurisdiction properly by not taking into account the statutory framework governing the petitioner and the uncontrollable factors that led to the delay in filing the audit report.

Issue 4: Justification of Penalty Levy
The court found that the delay in filing the audit report was due to the late appointment of auditors by the Registrar (Audit) under the Tamil Nadu Co-operative Societies Act, which was beyond the petitioner's control. The court noted that the petitioner had filed the income tax return on time and that the delay did not result in any tax evasion. The court concluded that the penalty was not justified as the delay was unintentional and not deliberate. The court also highlighted that the petitioner had not gained any advantage from the delay and that there was no suppression or concealment of income.

Conclusion:
The court allowed the writ petition, quashing the impugned proceedings of the third respondent as affirmed by the second respondent. The court directed that any penalty paid should be refunded to the petitioner within eight weeks. The court emphasized that the assessing authority should exercise discretion judiciously and consider reasonable causes for delays in compliance with statutory requirements.

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