2010 (11) TMI 698 - HC - Income Tax

Penalty u/s 271B - Provisions of Section 44AB - The appellant-assessee firm had sent the account books to its auditors in May 1988 for audit but the audit was not completed till the notice u/s 131 was issued to the assessee - The books of account on production before the ADI after getting them from the auditors were impounded on 20.10.1989 - Photo copies of the books were obtained from the ADI in December 1989 and supplied to new auditors who completed the audit on 26.4.1990 and the return of income was filed along with the audit report on the same date - Therefore that reasonable cause existed and the delay was neither deliberate nor was there any fault on the part of the assessee - Held that the Tribunal was not right in upholding the penalty - Thus the appeal is allowed and the substantial question of law is answered in favour of the assessee.

Summary

Issues:
Imposition of penalty under Section 271B of the Income-tax Act, 1961.

Analysis:
The High Court heard an appeal under Section 260A of the Income-tax Act, 1961, against the order of the Income Tax Appellate Tribunal relating to the assessment year 1988-89. The substantial question of law raised was whether imposing a penalty under Section 271B of the Act was justified. The Tribunal had confirmed a penalty imposed on the appellant-assessee for violating the provisions of Section 44AB of the Act without initiating specific proceedings under that provision. The appellant challenged this penalty, arguing that it was unjustified.

The appellant contended that the penalty under Section 271B was improper due to delay and laches in initiating penalty proceedings. Additionally, the appellant cited Section 273B of the Act, which exempts penalties if reasonable cause for the failure exists. The appellant firm had sent account books for audit in May 1988, but the audit was delayed due to various reasons. It was argued that reasonable cause existed for the delay, and the penalty was unwarranted, especially considering its relatively low amount of Rs. 27,523.

Moreover, the appellant highlighted that an application for an extension of time for filing the return of income was submitted to the assessing officer, which was not rejected. The appellant's counsel emphasized that decisions on reasonable cause should be based on evidence rather than presumption or conjecture. On the other hand, the Revenue supported the Tribunal's decision.

After reviewing the facts and circumstances, the High Court found that the delay in getting the accounts audited was not deliberate, considering the explanations provided by the assessee. The Court concluded that the penalty under Section 271B was not justified in this case. Therefore, the appeal was allowed, and the substantial question of law was answered in favor of the assessee, setting aside the penalty imposed by the Tribunal.