2001 (8) TMI 66 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the cancellation of penalties under section 271B of the Income-tax Act for the assessment years 1985-86, 1986-87, and 1987-88. The main issues are whether the penalties were justified under section 271B and whether the delay in filing the audit report was a reasonable cause for cancelling the penalties.

Cancellation of Penalties under Section 271B:
The assessee's turnover exceeded the amount stipulated under section 44AB of the Income-tax Act for the assessment years in question. The Assessing Officer imposed penalties under section 271B for failure to submit the audit report within the specified time. The Commissioner of Income-tax (Appeals) cancelled the penalties citing the illness and subsequent death of the assessee's accountant as a valid reason. The Tribunal upheld this decision, emphasizing the impossibility of filing the audit report as required under section 44AB due to the specified dates coinciding with the due dates for filing returns under section 139(1) of the Act.

Arguments and Decision:
The Revenue contended that no evidence was presented to prove the illness of the accountant and challenged the Tribunal's reasoning for cancelling the penalties. The assessee's counsel argued that the accountant had been ill since 1982 and passed away in 1985, and highlighted the amendment in section 44AB effective from July 1, 1995. The court acknowledged that while the Tribunal's reasoning regarding compliance with section 44AB was flawed, the acceptance of the accountant's illness by the Commissioner of Income-tax (Appeals) was crucial. The court noted the marginal delays in filing the audited accounts and returns, ultimately agreeing with the view that penalties under section 44AB are not automatic and should not be imposed if a reasonable cause, such as illness, is demonstrated.

Judgment:
The court answered the first question in favor of the assessee, ruling that the penalties under section 271B were unjustified considering the circumstances. However, the second question was answered in favor of the Revenue, indicating that the Tribunal's reasoning on the impossibility of filing the audit report did not hold. The reference was disposed of accordingly, with parties instructed to act on a signed copy of the order.