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Issues involved: Interpretation of penalty proceedings under section 271B of the Income-tax Act, 1961.
Summary: The appellant, an authority under section 10(29) of the Income-tax Act, 1961, filed its return of income for the assessment year 1988-89 but failed to submit the audit report as required under section 44AB. A penalty was imposed under section 271B for this non-compliance. The Deputy Commissioner of Taxes set aside the penalty, stating it was void ab initio. The Revenue appealed, arguing that penalty proceedings can be initiated even after completion of assessment. The Tribunal agreed with the Revenue, directing the Commissioner of Income-tax (Appeals) to reconsider the issue. The main question was whether penalty proceedings under section 271B could be initiated after a lapse of 18 months from the assessment. Section 271B empowers the Assessing Officer to direct penalty for non-compliance with section 44AB, without specifying that it must be simultaneous with assessment proceedings. The Supreme Court precedent in D.M. Manasvi v. CIT clarified that the satisfaction for imposing penalty should be drawn during any proceeding under the Act, allowing for initiation at a later date. The Delhi High Court in CIT v. Rajinder Kumar Somani also emphasized that penalty initiation should be during assessment proceedings. Section 275 sets a two-year limitation for imposing penalties, which was not an issue in this case as proceedings were initiated within the prescribed time. The Tribunal's decision was upheld, with the matter remanded to the Commissioner of Income-tax (Appeals) for further consideration. The appeal was ultimately dismissed, with the judgment favoring the Revenue.
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