2006 (5) TMI 503 - AT - Income Tax

Summary

Issues:
Levy of penalty under section 271B of the Income Tax Act.

Detailed Analysis:

Issue: Levy of Penalty under Section 271B
The case involved the question of whether the Assessing Officer was justified in levying a penalty under section 271B of the Income Tax Act. The appellant, a private limited company engaged in the business of manufacturing and selling Ayurvedic preparations, had its accounts audited before the due date but failed to file the audit report on time. The Assessing Officer imposed a penalty of Rs. 55,425 for the delay, citing non-furnishing of the audit report before the due date. The appellant contended that the delay was due to a lack of funds to pay the tax under section 140A and was not intentional. The CIT(A) upheld the penalty, stating that the appellant failed to establish a reasonable cause for the delay. The appellant argued that the penalty was unjust as there was no deliberate defiance of the law, citing precedents to support their case.

Analysis:
The Tribunal considered whether there was a reasonable cause for the delay in filing the audit report. It noted that the accounts were audited before the due date, but the report was submitted late along with the return of income. The appellant claimed that financial constraints led to the delay in paying the tax and, consequently, in filing the report. The Tribunal examined the concept of "reasonable cause," emphasizing that it involves preventing a person of average intelligence and ordinary prudence from acting promptly. While acknowledging the mandatory requirement to furnish the audit report by the due date, the Tribunal assessed whether the delay was due to a reasonable cause, such as the lack of funds. It also highlighted the quasi-criminal nature of penalty proceedings, emphasizing that penalties should not be imposed unless there is a deliberate defiance of the law or contumacious conduct.

The Tribunal analyzed the precedents cited by both parties, emphasizing that penalties should be imposed judiciously and considering all relevant circumstances. It noted that neither the Assessing Officer nor the CIT(A) established deliberate defiance of the law by the appellant. The Tribunal found that the CIT(A) had not adequately considered the reasonableness of the appellant's explanation for the delay. Consequently, the Tribunal concluded that the penalty was not sustainable as there was no evidence of intentional non-compliance with the law. Therefore, the penalty levied under section 271B was canceled, and the appellant's appeal was allowed.